ABSTRACT

This chapter explains that many forms of capital are necessary for poverty reduction, but the lesson of the last several decades and recent World Bank findings confirm that the productivity of physical, financial, human, and natural forms of capital is heavily influenced by social capital. The effect of ignoring social capital in development models can be compared to ignoring the gravitational pull of a planet and then attempting to predict the path of other planets. The chapter describes that development policies and theories of poverty reduction have often been less successful than expected because they have ignored the influence of a previously unobserved capital namely, social capital. To understand the role of social capital in poverty reduction, it is necessary to understand the traditional model for development. The traditional model emphasizes that development depends on our opportunities to specialize and trade. Corruption takes a toll on economic performance, undermines employment opportunities, and clouds prospects for poverty reduction.