Underpinning Knowledge: Good to Great (Extract)

Why some companies make the leap… and others don’t by Jim Collins

There are going to be times when we can’t wait for somebody. Now, you’re either on the bus or off the bus.

When we began the research project, we expected to find that the first step in taking a company from good to great would be to set a new direction, a new vision and strategy for the company, and then to get people committed and aligned behind that new direction. We found something quite the opposite.

The executive who ignited the transformations from good to great did not first figure out where to drive the bus and get people to take it there.  No, they first got the right people on the bus (and the wrong people off the bus) and then figured out where to drive it. They said, in essence, “Look, I don’t really know where we should take this bus. But I know this much: If we get the right people on the bus, the right people in the right seats, and the wrong people off the bus, then we’ll figure out how to take it someplace
great.”

The good-to-great leaders understood three simple truths.  First, if you begin with “who,” rather than “what,” you can more easily adapt to a changing world.  If people join the bus primarily because of where it is going, what happens if you get ten miles down the road and you need to change direction?  You’ve got a problem.  But if people are on the
bus because of whom else is on the bus, then it’s much easier to change direction: “Hey, I got on this bus because of who else is on it; if we need to change direction to be more successful, fine with me.”  Second, if you have the right people on the bus, the problem of how to motivate and mange people largely goes away.  The right people don’t need to be tightly managed or fired up; they will be self-motivated by the inner drive to produce the best results and to be part of creating something great.  Third, if you have the wrong people, it doesn’t matter whether you discover the right direction; you still won’t have a great company.  Great vision without great people is irrelevant.

Now, you might be thinking, “That’s just good management – the idea of getting the right people around you.  What’s new about that?”  On one level, we have to agree; it is just plain old-fashioned good management.  But what stand outs with such distinction in the good-to-great companies are two key points that made them quite different.

To be clear, the main point of this chapter is not just about assembling the right team – which is nothing new.  The main point is to first get the right people on the bus (and the wrong people off the bus) before you figure out where to drive it.  The second key point is the degree of sheer rigour needed in people decisions in order to take a company from good to great. 

“First who” is a very simply idea to grasp, and a very difficult idea to do – and most don’t do it well.

NOT A “GENIUS WITH A THOUSAND HELPERS”

In contrast to the good-to-great companies, which built deep and strong executive teams, many of the comparison companies followed a “genius with a thousand helpers” model.  In this model, the company is a platform for the talents of an extraordinary individual. In these cases, the towering genius, the primary driving force in the company’s success, is a great asset – as long as the genius sticks around. The geniuses seldom build great management teams, for the simple reason that they don’t need one, and often don’t want one.  If you’re a genius, you don’t need a Wells Fargo-caliber management team of people who could run their own shows elsewhere.  No, you just need an army of good soldiers who can help implement your great ideas.  However, when the genius leaves, the helpers are often lost.  Or, worse, they try to mimic their predecessor with bold, visionary moves (trying to act like a genius, without being a genius) that prove unsuccessful.

IT’S WHO YOU PAY, NOT HOW YOU PAY THEM

We expected to find that changes in incentive systems, especially executive incentives, would be highly correlated with making the leap from good to great. With all the attention paid to executive compensation – the shift to stock options and the huge packages that have become commonplace – surely, we thought, the amount and structure of compensation must play a key role in going from good to great.  How else do you get people to do the right things that create great results?

We were dead wrong in our expectations.

We found no systematic pattern linking executive compensation to the process of going from good to great. The evidence simply does not support the idea that the specific structure of executive compensation acts as a key lever in taking a company from good to great.

We spent weeks inputting compensation data from proxy statements and performed 112 separate analyses looking for patterns and correlation.  We examined everything we could quantify for the top five officers – cash versus stock, long-term versus short-term incentives, salary versus bonus, and so forth.  Some companies used stock  extensively; others didn’t.  Some had high salaries; others didn’t.  Some made significant use of bonus incentives; others didn’t.  Most importantly, when we analyzed executive compensation patterns relative to comparison companies, we found no systematic differences on the use of stock (or not), high salaries (or not), bonus incentives (or not), or long-term compensation (or not).  The only significant difference we found was that the good-to-great executives received slightly less total cash compensation ten years after the transition than their counterparts at the still-mediocre comparison companies.

Not that executive compensation is irrelevant.  You have to be basically rational and reasonable and the good-to-great companies did spend time thinking about the issue.  But once you’ve structured something that makes basic sense, executive compensation falls away as a distinguishing variable in moving an organization from good to great.

Why might that be?  It is simply a manifestation of the “first who” principle: It’s not how you compensate your executives, it’s which executives you have to compensate in the first place.  If you have the right executives on the bus, they will do everything within their power to build a great company, not because of what they will “get” for it, but because they simply cannot imagine settling for anything less.  Their moral code requires building excellence for its own sake, and you’re no more likely to affect whether they breathe.  The good-to-great companies understood a simple truth: The right people will do the right things and deliver the best results they’re capable of, regardless of the incentive system.

Yes, compensation and incentives are important, but for very different reasons in good-to-great companies.  The purpose of a compensation system should not be to get the right behaviors from the wrong people, but to get the right people on the bus in the first place, and to keep them there.

We were not able to look as rigorously at non-executive compensation; such data is not available in as systematic a format as proxy statements for top officers. Nonetheless, evidence from source documents and articles suggest that the same idea apply at all levels of an organization.

In a good-to-great transformation the old adage that people are your most important asset does not hold; people are not your most important asset. The right people are.

In determining “the right people,” the good-to-great companies placed greater weight on character attributes than on specific educational background, practical skills, specialized knowledge, or work experience.  Not that specific knowledge or skills are unimportant, but they viewed these traits as more teachable (or at least learnable), whereas they believed dimensions like character, work ethic, basic intelligence, dedication to fulfilling commitments, and values are more ingrained.

RIGOROUS, NOT RUTHLESS

The good-to-great companies probably sound like tough places to work – and they are. If you don’t have what it takes, you probably won’t last long.  But they’re not ruthless cultures; they’re rigorous cultures. And the distinction is crucial.

To be ruthless means hacking and cutting, especially in difficult times, or wantonly firing people without any thoughtful consideration. To be rigorous means consistently applying exacting standards at all times and at all levels, especially in upper management. To be rigorous, not ruthless, means that the best people need not worry about their positions and can concentrate fully on the work.

To let people languish in uncertainly for months or years, stealing precious time in their lives that they could use to move on to something else, when in the end they aren’t going to make it anyway – that would be ruthless.  To deal with it right up front and let people get on with their lives – that is rigorous. Rigour in a good-to-great company applies first at the top, focused on those who hold the largest burden of responsibility.

To be rigorous in people decisions means first becoming rigorous about top management people decisions.  Indeed, I fear that people might use “first who rigor” as an excuse for mindlessly chopping out people to improve performance.  “It’s hard to do, but we’ve got to be rigorous,” I can hear them say.  And I cringe.  For not only will a lot of hardworking, good people get hurt in the process, but the evidence suggests that such tactics are contrary to producing sustained great results. The good-to-great companies rarely used head-count lopping as a tactic and almost never used it as a primary strategy.

It would be a mistake – a tragic mistake, indeed – to think that the way you ignite a transition from good to great is by wantonly swinging the axe on vast numbers of hardworking people.  Endless restructuring and mindless hacking were never part of the good-to-great model.

HOW TO BE RIGOROUS

We’ve extracted three practical disciplines from the research for being rigorous rather than ruthless.

Practical Discipline # 1: When in doubt, don’t hire – keep looking.

One of the immutable laws of management physics is “Packard’s Law.”  It goes like this: No company can grow revenues consistently faster than its ability to get enough of the right people to implement that growth and still become a great company.  If your growth rate in revenues consistently outpaces your growth rate in people, you simply will not – indeed cannot – build a great company.

Those who build great companies understand that the ultimate throttle on growth for any great company is not markets, or technology, or competition, or products.  It is one thing above all others: the ability to get and keep enough of the right people.

Practical Discipline # 2: When you know you need to make a people change, act.

The moment you feel the need to tightly manage someone, you’ve made a hiring mistake. The best people don’t need to be managed.  Guided, taught, and led – yes.  But not tightly managed.  We’ve all experienced or observed the following scenario.

We have a wrong person on the bus and we know it.  Yet we wait, we delay, we try alternatives, we give a third and fourth chance, we hope that the situation will improve, we invest time in trying to properly manage the person, we build little systems to compensate for his shortcomings, and so forth. But the situation doesn’t improve. When we go home, we find our energy diverted by thinking (or talking to our spouses) about that person.  Worse, all the time and energy we spend on that one person siphons energy away from developing and working with all the right people.  We continue to stumble along until the person leaves on his own (to our great sense of relief) or we finally act (also to our great sense of relief).  Meanwhile, our best people wonder, “What took you so long?”

Letting the wrong person hang around is unfair to all the right people, as they inevitably find themselves compensating for the inadequacies of the wrong people. Worse, it can drive away the best people.  Strong performers are intrinsically motivated by performance, and when they see their efforts impeded by carrying extra weight, they eventually become frustrated.

Waiting too long before acting is equally unfair to the people who need to get off the bus.  For every minute you allow a person to continue holding a seat when you know that person will not make it in the end, you’re stealing a portion of his life, time that he could spend finding a better place where he could flourish. Indeed, if we’re honest with ourselves, the reason we wait too long often has less to do with concern for that person and more to do with our own convenience.  He’s doing an okay job and it would be a huge hassle to replace him, so we avoid the issue.  Or we find the whole process of dealing with the issue to be stressful and distasteful.  So, to save ourselves stress and discomfort, we wait.  And wait.  And wait.  Meanwhile, all the best people are still wondering.  “When are they going to do something about this? How long is this going to go on?”

The good-to-great companies showed the following bipolar pattern at the top management level: People either stayed on the bus for a long time or got off the bus in a hurry.  In other words, the good-to-great companies did not churn more they churned better.

The good-to-great leaders did not pursue an expedient “try a lot of people and keep who works” model of management.  Instead, they adopted the following approach: Let’s take the time to make rigorous A+ selections right up front.  If we get it right, we’ll do everything we can to try to keep them on board for a long time.  If we make a mistake, then we’ll confront that fact so that we can get on with our work and they can get on with their lives.”

The good-to-great leaders, however, would not rush to judgement.  Often, they invest substantial effort in determining whether they had someone in the wrong seat before concluding that they had the wrong person on the bus entirely.  Nonetheless, when the good-to-great leaders knew they had to make a people change, they would act.

But how do you know when you know?  Two key questions can help.  First, if it were a hiring decision (rather than a “should this person get off the bus?” decision), would you hire the person again?  Second, if the person came to tell you that he or she is leaving to pursue an exciting new opportunity, would you feel terribly disappointed or secretly relieved?

Practical Discipline # 3: Put your best people on your biggest opportunities, not your biggest problems.

The good-to-great companies made a habit of putting their best people on their best opportunities, not their best problems.  The comparison companies had a penchant for doing just the opposite, failing to grasp the fact that managing your problems can only make you good, whereas building your opportunities is the only way to become great.

There is an important corollary to this discipline: When you decide to sell off your problems, don’t sell off your best people. This is one of those little secrets of change.  If you create a place where the best people always have a seat on the bus, they’re more likely to support changes in direction.

We noticed a Level 5 atmosphere at the top executive level of every good-to-great company, especially during the key transition years.  Not that every executive on the team became a fully evolved Level 5 leader, but each core member of the team transformed personal ambition into ambition for the company.  This suggests that the team members had Level 5 potential – or at least they were capable of operating in a manner consistent with the Level 5 leadership style.

You might be wondering, “What’s the difference between a Level 5 executive team member and just being a good soldier?”  A Level 5 executive team member does not blindly acquiesce to authority and is a strong leader in her own right, so driven and talented that she builds her arena into one of the very best in the world.  Yet each team
member must also have the ability to meld that strength into doing whatever it takes to make the company great.

Indeed, one of the crucial elements in taking a company from good to great is  somewhat paradoxical.  You need executives, on the one hand, who argue and debate – sometimes violently – in pursuit of the best answers, yet, on the other hand, who unify fully behind a decision, regardless of parochial interests.

FIRST WHO, GREAT COMPANIES, AND A GREAT LIFE

Whenever I teach the good-to-great findings, someone almost always raises the issue of the personal cost in making a transition from good to great.  In other words, is it possible to build a great company and also build a great life? Yes.

The secret to doing so lies right in this chapter.

Members of the good-to-great teams tended to become and remain friends for life. In many cases, they are still in close contact with each other years or decades after working together.  It was striking to hear them talk about the transition era, for no matter how dark the days or how big the tasks, these people had fun!  They enjoyed each other’s company and actually looked forward to the meetings. A number of the executives characterized their years on the good-to-great teams as the high point of their lives.  Their experiences went beyond just mutual respect (which they certainly had), to lasting comradeship.

Adherence to the idea of “first who” might be the closest link between a great company and a great life.  For no matter what we achieve, if we don’t spend the vast majority of our time with people we love and respect, we cannot possibly have a great life.  But if we spend the vast majority of our time with people we love and respect – people we really enjoy being on the bus with and who will never disappoint us – then we will almost certainly have a great life, no matter where the bus goes.  The people we interviewed from the good-to-great companies clearly loved what they did, largely because they loved whom they did it with.

FIRST WHO … THEN WHAT: KEY POINTS

• The good-to-great leaders began the transformation by first getting the right people on the bus (and the wrong people off the bus) and then figured out where to drive it.
• The key point of this chapter is not just the idea of getting the right people on the team.  The key point is that “who” questions come before “what” decisions – before vision, before strategy, before organization structure, before tactics.  First who, then what – as a rigorous discipline, consistently applied.
• The comparison companies frequently followed the “genius with a thousand helpers” model – a genius leader who sets a vision and then enlists a crew of highly capable “helpers” to make the vision happen.  This model fails when the genius departs.
• The good-to-great leaders were rigorous, not ruthless, in people decisions.  They did not rely on layoffs and restructuring as a primary strategy for improving performance. The comparison companies used layoffs to a much greater extent.
• We uncovered three practical disciplines for being rigorous in people decisions:

1. When in doubt, don’t hire – keep looking (Corollary: A company should limit its growth based on its ability to attract enough of the right people.
2. When you know you need to make a people change, act. (Corollary: First be sure you don’t simply have someone in the wrong seat.)
3. Put your best people on your biggest opportunities, not your biggest problems. (Corollary: If you sell off your problems, don’t sell off your best people.)

• Good-to-great management teams consist of people who debate vigorously in search of the best answers, yet who unify behind decisions, regardless of parochial interests.

Unexpected Findings

• We found no systematic pattern linking executive compensation to the shift from good to great.  The purpose of compensation is not to “motivate” the right behaviors from the wrong people, but to get and keep the right people in the first place.
• The old adage “People are your most important asset” is wrong.  People are not your most important asset. The right people are.
• Whether someone is the “right person” has more to do with character traits and innate capabilities that with specific knowledge, background, or skills.

Underpinning Knowledge: The Tipping Point

This summary of Malcolm Gladwell’s The Tipping Point: How Little Things Can Make a Big Difference has been edited down to establish the book’s core ideas and should take less than five minutes to read.  While a true appreciation and understanding of Gladwell’s concepts would require a full reading of his book, the following should satisfy the need for a basic introduction to the material.

The Tipping Point describes the social process by which innovative diffusion can begin. Gladwell identifies three classes of innovators - Connectors, Mavens, and Salesmen – can drive a new idea, new product, or new process to the tipping point of mass acceptance.

The Idea of the Tipping Point

The Tipping Point is that dramatic moment when little causes drive the unexpected to become expected and propel the idea of radical change to certain acceptance (p12). It is a social epidemic of sorts, requiring: contagious agents to spread the message, sticky ideas/messages/productions and an environment allowing the epidemic to spread.

The Tipping point (an epidemic) is a function of (p18 & p29):

• The Law of the Few: A tiny percentage of people do the majority of the work to build momentum (p19-21).
• The Stickiness Factor: Stickiness means that a message makes an impact – it’s memorable (p25).
• The Power of Context: Human beings are a lot more sensitive to their environment than they seem (p29).

The Law of the Few

Word of mouth appeals have become the only kind of persuasion that most of us respond to anymore (p32). The success of any social epdiemic is heavily dependent on the involvement of people with a particular and rare set of social gifts (p33) Connectors, Mavens and Salesmen.

• Connectors: people with a special gift for bringing the world together. We don’t seek out friends. Proximity overpowers similarity; we associate with those who occupy the same spaces we do (p35). A very small number of people are linked to everyone else in a few steps, and the rest of us are linked to the world by those special few. They manage to occupy many different worlds and sub-cultures (p47). The acquaintance/’weak tie’ – a friendly but casual social connection. The strength of the weak ties represent a source of social power (p54).
• Mavens: Information specialists of ‘Market Mavens’ (p59) often pay close attention to price/quality differences in products. Mavens want to help – which turns out to be an awfully effective way of getting someone’s attention (p67). Mavens are databanks – they provide the message.
• Salesmen: Those with the skills to persuade us when we are unconvinced of what we are hearing (p69). Salesmen often employ non-verbal persuasion, but this is not necessarily intentional (p79). On some level salesmen cannot be resisted. To make sense, salesmen must be present or very near to the arrival of new information, or else they would be too late to be effective.

The Stickiness Factor

How retainable is the idea or desired behaviour? Is it memorable (p92)? Is it practical and personal – how does the idea fit in with your life (p98)? Is it novel? Is there a simple way to package information that, under the right circumstances, can make it irresistable (p132)?

the power of context

Behaviour is a product of social context. In an unkempt environment, people are more apt to misbehave that in formal settings – broken windows theory (p150). Some situations (not necessarily environments) become so powerful they can overwhelm our inherent predispositions. The case in point was the Stanford prison experiment (p154). Traits (such as honesty) become significantly influenced by situation (p157).

Character redefined: character is a bundle of habits, tendencies and interests, loosely bound and dependent on circumstances and contexts (p163). The convictions of your heart and thoughts are less important in guiding your actions than the immediate context of  your behaviour – Example: seminary students would only help a needy individual when they had extra time/weren’t running late (p165). It is possible to be a better person on a clean street than one littered with trash and graffiti (p168).

the power of context in groups

Groups play a critical role in social epidemics. In a group we’re all more susceptible to peer pressure and social norms (p171). The skillful use of group power can spread a new idea. Groups are an environment where new beliefs can be practiced, expressed and nourished (p173). Small, close-knit groups are the most powerful in this regard (p174).

• The Rule of 150: Groups grow too large and lose cohesion at 150 (p179). The advantage of adnering to the rule of 150 is that you can exploit the bonds of memory and peer pressure to their maximum (p191). To coordinate one contagious movement you often have to create many small movements first (p192).

Conclusions

1. Building a word-of-mouth epidemic requires focusing resources on your core innovators – connectors, mavens and salesmen (p256).
2. The world doesn’t accord with our intuitions. Those who successfully create social epidemics test their intuitions, rather than doing what they think is right. Most people cannot make these leaps and often become distractors who insist on interpreting the world solely on their intuition (p258).
3. Change and radical transformation is possible. Given the right impetus, the world will cease to be the immovable, implacable place it seems to be.

Underpinning Knowledge: The Esperance Experience

From Ripples from the Zambezi (chapter 6) by Dr. Ernesto Sirolli

Esperance is a very isolated rural community in Western Australia.

In 1985 Esperance was going through a difficult time. It was the height of a rural recession, and Esperance with its sandy, salty soil had one of the highest rural debts in Australia. The fishing industry was also in recession. After years of free-for-all, catch-as-much-as-you-can, the tuna population had started to decline and the federal government had introduced a quota system, which played havoc with the local industry. The fishing fleet had gone from 45 to 7 boats, and those fishermen left were the ones with the lowest quota available and the highest debt. At the time, Esperance had a population of 8,500 people, with another 1,500 living on the surrounding farms. 500 people were registered as unemployed, with youth unemployment nearing the 20% mark.

I arrived in Esperance with a lot of faith, but not much else. My faith was in people, and in their universal characteristics of wanting to become something, of enjoying good work, of achieving respect and self-respect, by performing beautifully. I had faith that in Esperance, like anywhere else in the world, there would be individuals that at that very moment were dreaming, discussing, even sketching at their kitchen table their ideas for that special something they wanted to do. I knew, not only with my head, but with my heart as well, that the only thing I had to do was to become available to those people and to “facilitate” the transformation of their dreams into good work.

But where would I find those people if I didn’t know anybody there? I was left in town by the ministerial advisors who flew back to Perth on the same day after giving me a list of names of locals who might help me, a car to drive, and keys to the minister’s empty house.

The following three days I spent meeting some of the local people who were either professionally or voluntarily involved with local development. My question to them was always the same: “Do you know anyone in town who is currently thinking of becoming involved in setting up a business?” Their answer was always the same: “No!” Some would elaborate by saying that that was precisely the reason for Esperance’s unemployment. The farmers and the fishermen were in strife and nobody would risk investing locally. Of the local unemployed people, some would say they were too lazy and too well looked after by the government to be willing to work.

Not convinced, I asked the manager of the local Youth Support Scheme to organize a meeting with the unemployed who used the centre. At that meeting two young people came out. One had just arrived in town and the other one was about to leave; neither had any idea for self-employment.

The manager of the Commonwealth Employment Services organized a similar meeting. Out of 500 registered unemployed, two long-term unemployed people came to that meeting. One didn’t know what to do, the other one had been struggling for months trying to set up a fish-smoking business. He had built a $250 smoking kiln in his garage and started selling some fish, but he had only succeeded in having his smoked fish confiscated and his embryonic business strangled by bureaucratic red tape.

He was angry and terribly frustrated but I couldn’t stop smiling. After five days and four long nights I had found my first client: somebody in Esperance who wanted to do something! Having been retrenched from a local fish-processing plant, Mauri Green, a skilled fish processor, formerly from “fish wise” New Zealand, had attempted to overcome his predicament by doing what came naturally to him: processing fish for sale. He had built a smoke oven in his garage, smoked fish, and started to sell it … and collided head-on with the local health inspector. A former friend, the health inspector tasted the fish, liked it very much, but proceeded to confiscate it on the grounds that Mauri’s garage did not comply with health regulations.

Not having any money to move his smoke oven to an approved building, Mauri had tried to gain the support of local and metropolitan industrial development bureaucrats. His request for assistance had failed to dent the elephantine skin of those supposedly in charge of small business development. His enterprise was considered insignificant compared to “real” economic development and Mauri had been given the treatment that all aging unemployed who tinker in their garages would get — a terse dismissal.

After dozens of questions, I asked him if he really wanted to make a living by smoking fish. I emphasized the “really” and he looked at me puzzled, then he asked me why I wanted to know. I told him that if I put all my energy behind his idea, he could end up to his neck in smelly fish, and if he didn’t love that life, I would rather not help him do something he might later regret. He looked at me in disbelief — fish was his life, his love, and he was passionate about it. That sealed our working relationship.

My first week in Esperance was nearly over, and I had no written report (again) of what could or should happen; instead I had a person’s dream in my hands to show those who had commissioned my research. The Minister for Regional Development arrived back in Esperance for the weekend. Away from his office and telephone, he had time to talk to me. I told him of my belief in people and their ability to create wonderful products
if they were only given the chance to do so. I described to him my unease with “top-down” solutions or “big” economic development plans, which tended to discard or overlook the small but exciting possibilities found locally.

There are people right here,” I told them, “people who have the passion to create products, goods, new markets, and quality services, and who, if believed and encouraged, could become a vibrant contribution to the economy, providing diversity of employment and renewed hope for the rural sector!” We had by this time adjourned to the local Chinese restaurant where, after two hours of passionate discussion and fiery food, I was given a one-month contract to become available to anyone in Esperance “who wanted to do something”!

Never take no for an answer

My first project was to get Mauri’s smoked fish business off the ground. He needed to get a loan, and I contacted on his behalf the government agency that had rejected his application. The person at the other end of the telephone “only worked there” and, no, he couldn’t tell me the reason for the first rejection. I was told that a committee made the decisions and that its proceedings were confidential. My reply was that Mauri was a long-term unemployed person, that his activity and status fitted precisely the agency’s
guidelines, and that I wanted to resubmit personally the application to the next committee meeting. He told me that that was out of the question, and I replied that unless some cooperation was shown by his department, I could find out, through the Freedom of Information Act, the reason for the rejection and I would not hesitate to go to the press if I found any discrepancies between his department’s guidelines and the committee’s allocation of public funds to the long-term unemployed. At that point, his tone of voice became more conciliatory and he told me that, even though it was confidential, he would tell me the reason for the loan refusal.

The committee, he said, thought that Mauri’s activity would compete with the local fishermen. I must have screamed into the phone because the guy at the other end went very quiet. “He is not competing with the fishermen, he is buying from them, and adding value to the fish and selling it again. Can you please explain to your city people’s committee the difference between fishing, which is done with hook and line, and smoking, which is done with heat and flames!” The application was resubmitted and after a month a very nicely written letter and a check for $4000 arrived.

A shed in the industrial area was rented and, after consultation with the health inspector, a minimum amount of partitioning and special fittings were installed. Mauri then took the home-built kiln out of his garage and, with the help of a couple of friends, set it up in the newly partitioned shed. Esperance Fish Processors was born legitimate!

An official opening was organized at which much beer-smoked fish and emotion were displayed. The Minister and Local Member was centre stage and were obviously enjoying the first fruits of my work. Nearly three months had gone by since my first visit to Esperance. While working with Mauri, I had asked a number of local people to help me by forming a support committee. I wanted local people to be fully informed of my activities and to assist me in finding local resources for my clients. I also wanted them to spread the word around about my availability to work, in total confidentiality, with any local person who wished to set up a new business or to expand an existing one.

In those first few months maybe a dozen people approached me. Among them were two tuna fishermen who, having witnessed my work with Mauri, decided to see what I could do to help them. And help they needed since the federal government, concerned about the decline in fish stock, had imposed a drastic cut in their quota. The tuna industry was in the doldrums.

Unfortunately, the two fishermen came independently of each other and I had to come to terms with the fact that the local fishing community was not only in economic trouble, but also distrustful and divided, with its members still hurting from a cooperative venture that had failed miserably only a year before. Good mates at the pub, the local tuna fishermen didn’t want to work together any more and faced their industry’s decline in bitter isolation. After speaking separately with those first two fishermen, realized that their problem was exacerbated by the low price their tuna was fetching. They only had one buyer, a tuna cannery, which had a monopolistic control of their industry and offered them sixty cents per kilogram for any quality tuna. There had never been a market for high quality tuna and the fishermen had traditionally been pushed to fill their boats with as much tuna as possible regardless of its size or condition. A truck from the cannery would await the boats at the pier, and the bloodied tuna would be simply thrown into steel boxes and taken away.

The drastic cut in the tuna quota had meant that instead of 60,000 tons, the
Australian tuna fishermen were left with only 14,000 to fish. Of these, the Esperance fishermen only had the right to less than 140 tons, which left them with a combined annual gross revenue of less than $300,000, hardly enough to keep up with their boat repayments. I expressed my concern to both fishermen I spoke to and suggested that a meeting be organized with the other five tuna fishermen to seek a common solution. They shook their heads at that idea and made it clear that, short of a miracle, nothing would make them work together. It took a good three months for the “miracle” to eventuate. I met more fishermen at Mauri’s business launch and had the impression that my work there had not gone unnoticed. Finally, one morning five of the local fishermen came to see me. I had the immediate impression that they had begun to work together because they had a strategy already worked out and were ready to try it on me!

I was working for the government, they said, and I should go back to the government and tell the people in charge that they had destroyed the tuna industry. “Now,” they said, “the only hope is to catch big tuna for the Japanese market.” But money was needed for a big boat and research, and they wanted me to get it out of the government. The argument was delivered with great passion and fists were slammed on the table to make clear their contempt for the ruthless government intervention. I told them that my task as a consultant was to help Esperance people and that I would have my contract renewed only if I succeeded in doing so. My loyalty, therefore, was with them and I wanted to help, but my understanding of their predicament was different from theirs and so was my proposed course of action. I knew that the government had already given a research grant to fishermen on the south coast to find the elusive big tuna to be air freighted to Japan. The results had been dismal, and I doubted that the government would give them a $150,000 grant to try again. I also told them that their reputation as fishermen was very poor and that the Fisheries Department bureaucrats considered them to be young, unruly “cowboys” among the tuna fishermen.

They looked totally deflated. If I wasn’t a government representative and if I wasn’t willing to make a representation on their behalf, then what was that meeting all about? I told them that unless they could find alternative markets for the small tuna they had easy access to, they would never be better off. Instead of trying to develop a fishery for the mythical big fish, they should carry out marketing research to dispose of their usual catch at better prices. They asked me how much it would cost to do a marketing study and I told them that the question wasn’t how much a marketing study would cost, the question was how much they were prepared to invest in one. They looked at each other, thought for a while, and finally the figure of $200 each was agreed upon. If they had been ready to ask for a large amount of money from the government, when it came to their dollars, the amount had shrunk considerably. Nonetheless, with $1,000 pledged I advised the five to pen a common bank account under the name Esperance Sashimi Development Group, “sashimi” being the term they had used in our discussion on the highly priced tuna which the Japanese eat raw. Next I advised them to publicize and be proud of their newly found solidarity, and I told them that I would try to find some matching finance to assist with the marketing research.

This I did and, as in the case of Mauri, I didn’t get any satisfaction from approaching any of the various government agencies and assorted development corporations, which are supposedly there to help small business. Nobody wanted to get involved with the fishermen, and I was told repeatedly that those fishermen were “cowboys” who only fished when they felt like it, were uncommitted, would not cooperate, and could not be trusted. Such comments were repeated by local people who made it even harder to seek support for the project.

Finally, all other avenues being exhausted, I turned to the Local Member and asked for a matching $1,000 from his ministerial discretionary funds. He was willing to encourage the fishermen to work together and promptly obliged with a check. This gesture had a profound effect on the fishermen and, indirectly, on the town. Somebody trusted them, and the previously unruly and unmanageable fishermen became, from that day on, a different bunch who would show Esperance people a thing or two. While the money was being organized, I asked the director of the local technical college, who was a keen member of my support committee, whether he could finance a sashimi fish handling demonstration for the benefit of the fishermen, Mauri, and local restaurateurs. It would require finding a willing Japanese chef and paying for his fees, travel, and expenses to come to Esperance. In his inimitable style, that excellent man had the funds made available and a ticket donated by an airline the same day.

I found the Japanese chef in Perth, and a couple of weeks later we had a big day at the Esperance Youth Hostel, or rather in its kitchen. About 20 locals came to see the visiting chef at work and admired his skills in preparing a tray of sashimi and a tray of sushi made exclusively with fresh fish provided by the Esperance Sashimi Development Group. What happened that day would have effects far beyond our joint expectations and would change not only the fishermen’s attitude hut also Mauri’s fish smoking practices and showed how we could create wealth from Australia’s resources by value-added practices.

The fishermen had provided the chef with a 10 kilo tuna, which was average size for their catch. The fish was about one-sixth the size of the tuna that reached fabulous prices in Japan. At the end of the elaborate and meticulous preparations, we were invited by the chef to try the sashimi. One of the fishermen asked him if in fact that could be called sashimi because in the videos and other documentation he had seen only very big and very fatty fish were used in preparing that particular dish. He, and in fact all of us, were surprised to hear from our instructor that sashimi meant “raw” and
that the term had nothing to do with size or type of fish. Many varieties could be used to prepare that traditional and highly sought-after dish. Fat tuna, he said, was considered by the Japanese to be the most exquisite food and big tuna fetched as much as $200 per kilo. But small tuna, if killed and handled to Japanese standards, were widely used in sashimi preparations.

All of a sudden it dawned on the fishermen present that what they had been selling to the cannery for 60 cents per kilo could be sold to the Japanese for sashimi. The question, which was on everybody’s lips, was finally asked: “Do you mean to say that your restaurant would buy small tuna from us?” The answer was “yes, this is small but very fresh, very good tuna.” “And how much do you think your restaurant would pay for it?” came the immediate second question. The answer was $3.50 per kilo, nearly six times the price paid by the cannery.

At that moment, there was a long combined whistle of all those present, and I could hear the noise of their brains calculating! If all their catch could be sold at that price, the value of their catch would shoot to nearly three million Australian dollars which would be more than they made before the introduction of the federal quota. They would be able to catch less and make much more.

In Mauri’s case, witnessing the work of the Japanese chef gave him the idea to smoke tuna fillets and to try this new product versus the more conventional whole fish he had previously used. His experiment with the local tuna combined with his skill in using native local woods for flavour created an extraordinary product which launched his smokehouse into the gourmet market in the capital cities of Australia; it also created an additional market for the tuna once destined for the cannery.

Not long after that momentous sashimi demonstration day, I had the task of finding a consultant willing to undertake the marketing research for the Esperance Sashimi Development Group. Knowing that the “experts” in the Department of Fisheries considered the project unfeasible and that $2,000 could not buy me much time of an established marketing firm, I remembered a person whom I had met months before, and called him.

David Leith had come to meet me on the advice of a mutual friend who knew of my work with Mauri. David was at that time a frustrated public servant who was longing to leave his job if only he could find something challenging to do. Of New Zealand background, he had memories of his grandfather smoking fish, and the story of Mauri, as told by our friend, had made him want to meet me even though he had nothing specific to ask me or to propose. At the end of our first meeting, he told me that he would love to get involved with anything to do with fish and that, if the occasion presented itself, I should not to hesitate in calling him. On the chance that he could be willing to take up the daunting task of rescuing the Esperance tuna industry, I called him and explained the situation. David became interested and, as he then worked full-time, offered to come to Esperance during his Christmas holiday. The amount of money available was really small, but that didn’t concern him. What worried him was the fact that he had never seen a tuna in his life. But he would do his best for the fishermen if they were prepared to take him for what he was, somebody with an economics background but with no experience in marketing fish.

I told him that, as the experts had given the project no chance at all, we knew that his mission was “impossible” and we would settle for the best that he could do. A meeting was organized, and I introduced David to the fishermen with these words: “This is David. He has never seen a whole tuna in his life, and he is here to help you!”

And help he did. Following up our experience with the Japanese chef, he introduced the project to all the Japanese restaurants in Perth, only five at that time, and then he rang all the other Japanese restaurants across Australia. Convinced that a market could be found, he took four months leave from work, borrowed $10,000 from his bank, and signed an exclusive contract with the fishermen. He took the product to Singapore where it sold for AUS $11.70 per kilo. He then resigned from his job, set up his own company, and, at the start of the new fishing season (eight months after his first meeting with the fishermen), sent five fish to Japan, where they were individually auctioned. After one week a telegram came back from the Japanese distributor saving “fish A1″!

The following week a representative from that company came to Esperance and, in partnership with another large tuna fishing company from South Australia, an agreement was reached for the establishment of a sashimi processing plant in Esperance. The new plant was built in twelve weeks and, that fishing season, 140 tons of tuna was air freighted to Japan at the average price of a cool $15 per kilo!

We all had big smiles on our faces that season. The impossible had been done and the sceptics, both in Perth and Esperance, had to eat their words. Mauri’s smoked tuna and the Esperance Sashimi Development Group became the “good news” items not only in the local press but also in the state papers. As if by magic, Esperance was no longer a town in recession. Things were happening there, the name of Esperance being heard, and the locals, all of them, including those who had never believed that their own neighbours deserved to be trusted and helped, basked in the glory.

Can you do it again?

The success of the sashimi enterprise was a turning point in my work in Esperance. Before the opening of the sashimi plant, I had been approached by quite a number of individuals but never by the “establishment,” that is, the wealthy local business people and farmers. The publicity that surrounded the launch of the new fishing venture, however, was such that some of the farmers started to take notice.

One of them expressed the feeling of the entire farming community by saying to me: “If those idiots of fishermen can do a thing like that, there must be something really wrong with us farmers.” He was referring, of course, to the inability of farmers to take control of their products and to make more money adding value to them. It was in recognition of what those “idiots of fishermen” had achieved that I was asked by a farmer to help solve the recurrent problem of getting rid of the old ewes, the mutton that nobody wanted and that was so difficult to dispose of.

Year after year millions of old ewes would hit the market during the same months and the price would collapse to the extent that often farmers who sent the ewes to market for sale at auction not only wouldn’t receive a cent, they would be billed for the transport!

Mutton was another seemingly insoluble problem and affected hundreds of farmers in the Esperance area and tens of thousands Australia-wide. I asked the farmer who sought my help whether he wanted to research the problem individually or as a group and he told me that, since it would cost money, he would try to get some of his “mates” involved. He got back in touch with me with 48 other farmers who pledged $100 each towards a feasibility study to try to find a way of not losing money disposing of the old ewes. My task was to find somebody to do the job, and this time I had no qualms whatsoever about approaching “non-experts”, having discovered, through David’s experience, that experts often knew too much to be able to look at old problems with fresh eyes.

Ted Lefroy and John McComb had an interesting and varied background with degrees in agricultural economics but no specific insight into the marketing of mutton. In their early thirties, they were both self-employed and willing to try their hand at the job. During the months that followed, they came up with a specific business plan which transformed a certain yearly loss into net profit. Their plan had the remarkable title “NEW USES FOR OLD EWES,” and it looked at commissioning the local abattoirs to slaughter the old ewes for a fixed fee and to return the bodies and skins to a farmer-controlled company. The meat would then be processed into small-goods and the skins, after being chemically depilated, would be pickled and sold. Finally, the wool would be sold as a separate and valuable item.

The most extraordinary part of the plan was the latter part. Traditionally the ewes would be sent to slaughter or to the markets after being shorn at the cost of $1 each. Ted and John’s suggestion was that the ewes be slaughtered with their wool on. The wool would be removed chemically after the slaughterhouse had returned the skin. Sold at auction, the wool produced by this method would fetch eight percent less than shorn wool but, since it came from a dead animal, it was exempt from the payment of 10% duty on shorn wool. With this system, not only would the farmers save $1 by not shearing, they would make two percent more out of their old ewe’s wool.

John and Ted demonstrated to the farmers in the group that the combined value of the
small-goods, skins, and wool added up to a tidy profit and reminded the farmers that, if they wanted to work together, they could find solutions for even seemingly intractable problems.

Twenty-seven farmers came together to look at what else they could possibly do to stop soil erosion and utilize their marginal land. They financed another remarkable study conducted by one of their former “enemies”: Keith Bradby, the most vocal of the local environmentalists! Keith was a very active local “greenie” — a radical environmentalist who had been influential in stopping new land releases in Western Australia. He had enormous love and respect for the local native flora and was able to show the farmers that the scrub, which thrived on their marginal land, had the potential to provide wildflowers and seeds, which had a commercial value.

Another project was then launched. Soil salinity and erosion plagued Esperance farmers to the point that ten percent of each farm’s land was considered “marginal” — not fit for agriculture. With the assistance of Keith, local awareness of the delicate ecosystem grew so much that a special course in revegetation was organized by the local technical college and 65 people enrolled.

My greatest satisfaction came from a remark made by the president of a local farmer’s organization who for years had been carrying on a written feud in the local paper with “greenie” Keith. “You know,” he said to me, “for years I have been fighting with Keith, and I can hardly believe that tomorrow he will be coming to visit my farm, paid by me, to tell me what to do on my marginal land!” I had started to trust the locals, and now they had started to trust each other.

One year after my first day there, the news from Esperance was good.

Underpinning Knowledge: Building Communities from the Inside Out

 A Path Toward Finding and Mobilising a Community’s Assets

By John P. Kretzmann and John L. McKnight

The Traditional Path – A Needs-Driven Dead End

For most Americans, the names ‘South Bronx’ or ‘South Central Los Angeles,’ or even ‘Public Housing’ call forward a rush of images. It is not surprising that these images are overwhelmingly negative. They are images of crime and violence, of joblessness and welfare dependency, of gangs and drugs and homelessness, of vacant land and buildings. They are images of needy and problematic and deficient neighbourhoods populated by needy and problematic and deficient people.

These images, which can be conceived as a kind of mental ‘map’ of the neighbourhood often convey part of the truth about the actual conditions of a troubled community. But they are not regarded as part of the truth; they are regarded as the whole truth. Once accepted as the whole truth about troubled neighbourhoods, this ‘needs’ map determines how problems are to be addressed, through deficiency-oriented policies and programmes. Public, private and non-profit service systems, often supported by university research and foundation funding, translate the programmes into local activities that teach people about the nature and extent of their problems, and the value of services as the answer to those problems. As a result, many low income urban neighbourhoods are now environments of service where behaviours are affected because residents come to believe that their well-being depends upon being a client. They begin to see themselves as people with special needs that can only be met by outsiders. They become consumers of services, with no incentive to be producers. Consumers of services focus vast amounts of creativity and intelligence on the survival-motivated challenge of outwitting the ‘system’ or on finding ways – in the informal or illegal economy – to bypass the system entirely.

There is nothing natural or inevitable about the process that leads to the creation of client neighbourhoods. In fact, it is important to note how little power local neighbourhood residents have to affect the pervasive nature of the deficiency model, mainly because a number of society’s most influential institutions have themselves developed a stake in maintaining that focus. For example, much of the social science research produced by universities is designed to collect and analyse data about problems. Much of the funding directed to lower income communities is based on the problem-oriented data collected in ‘needs surveys’, a practice emulated by government human service agencies. Finally, the needs map often appears to be the only neighbourhood guide used by members of the mass media, whose appetite for the violent and the spectacularly problematic story seems insatiable. All of these major institutions combine to create a wall between lower income communities and the rest of society – a wall of needs which, ironically enough, is not built on hatred but (at least partly) on the desire to ‘help’.

The fact that the deficiency orientation represented by the needs map constitutes our only guide to lower income neighbourhoods has devastating consequences for residents. We have already noted one of the most tragic – that is, residents themselves begin to accept that map as the only guide to the reality of their lives. They think of themselves and their neighbours are fundamentally deficient, victims incapable of taking charge of their lives and of their community’s future. But other consequences flow as well from the power of the needs map. For example:

• Viewing a community as a nearly endless list of problems and needs leads directly to the much lamented fragmentation of efforts to provide solutions. It also denies the basic community wisdom which regards problems as tightly intertwined, as symptoms in fact of the breakdown of a community’s own problem-solving capabilities.
• Targeting resources based on the needs map directs funding not to residents but to service providers, a consequence not always either planned for or effective.
• Making resources available on the basis of the needs map can have negative effects on the nature of community leadership. If, for example, one measure of effective leadership is the ability to attract resources, then local leaders are, in effect, being forced to denigrate their neighbours and their community by highlighting their problems and deficiencies, and by ignoring their capacities and strengths.
• Providing resources on the basis of the needs map underlines the perception that only outside experts can provide real help. Therefore, the relationships that count most for local residents are no longer those inside the community, those neighbour-to-neighbour links of mutual support and problem solving. Rather, the most important relationships are those that involve the expert, the social worker, the health provider, the funder. Once again the glue that binds communities is lost.
• Reliance on the needs map as the exclusive guide to resource gathering virtually ensures the inevitable deepening of the cycle of dependence: problems must always be worse than last year, or more intractable than other communities, if funding is to be renewed.
• At best, reliance on the needs map as the sole policy guide will ensure a maintenance and survival strategy targeted at isolated individual clients, not a development plan that can involve the energies of entire community.
• Because the needs-based strategy can guarantee only survival, and can never lead to serious change or community development, this orientation must be regarded as one of the major causes of hopelessness that pervades discussions about the future of low income neighbourhoods. If maintenance and survival are the best we can provide, what sense can it make to invest in the future?

The Alternate Path: Capacity-Focused Development

If even some of these negative consequences follow from our total reliance upon the needs map, an alternative approach becomes imperative. The alternative path, very simply, leads toward the development of policies and activities based on the capacities, skills and assets of lower income people and their neighbourhoods.

In addition to the problems associated with the dominant deficiency model, at least two more factors argue for shifting to a capacity-oriented emphasis. First, all the historic evidence indicates that significant community development takes place only when local community people are committed to investing themselves and their resources in the effort. This observation explains why communities are never built from the top down, or from the outside in.

The second reason for emphasising the development of the internal assets of local urban neighbourhoods is that the prospect for outside help is bleak indeed. Even in areas designated as Enterprise Zones, the odds are long that large scale, job-providing industrial or service corporations will be locating in these neighbourhoods. Nor is it likely, in the light of continuing budget constraints, that significant new inputs of federal money will be forthcoming soon. It is increasingly futile to wait for significant help to arrive from outside the community. The hard truth is that development must start from within the community and, in most of our urban neighbourhoods, there is no other choice.

Creative neighbourhood leaders across the country have begun to recognise this hard truth, and have shifted their practices accordingly. They are discovering that wherever there are effective community development efforts, those efforts are based upon an understanding, or map, of the community’s assets, capacities and abilities. It is clear that even the poorest neighbourhood is a place where individuals and organisations represent resources on which to rebuild. The key to neighbourhood regeneration, then, is to locate all of the available local assets, to begin connecting them with one another in ways that multiply their power and effectiveness, and to begin harnessing those local institutions that are not yet available for local development purposes.

This entire process begins with the construction of a new ‘map’. Once this guide to capacities has replaced the old one containing only needs and deficiencies, the regenerating community can begin to assemble its strengths into new combinations, new structures of opportunity, new sources of income and control, and new possibilities for production.

The Assets of a Community: Individuals, Associations, Institutions

Each community boasts a unique combination of assets upon which to build its future. A thorough map of those assets would begin with an inventory of the gifts, skills and capacities of the community’s residents. Household by household, building by building, block by block, the capacity mapmakers will discover a vast and often surprising array of individual talents and productive skills, few of which are being mobilised for community-building purposes. The basic truth about the ‘giftedness’ of every individual is particularly important to apply to persons who often find themselves marginalised by communities. It is essential to recognise the capacities, for example, of those who have been labelled mentally handicapped of disabled, or those who have been marginalised because they are too old, or too young, or too poor. In a community whose assets are being fully recognised and mobilised, these people too will be part of the action, not as clients or recipients of aid, but as full contributors to the community-building process.

In addition to mapping the gifts and skills of individuals, and of households and families, the committed community builder will compile an inventory of citizen’s associations. These associations, less formal and much less dependent on paid staff than are formal institutions, are the vehicles through which citizens in the US assemble to solve problems, or to share common interests and activities. It is usually the case that the depth and extent of associational life in any community is vastly underestimated. This is particularly true of lower income communities. In fact, however, though some parts of associational life may have dwindled in very low income neighbourhoods; most communities continue to harbour significant numbers of associations with religious, cultural, athletic, recreational and other purposes. Community builders soon recognise that these groups are indispensable tools for development, and that many of them can be stretched beyond their original purposes and intentions to become full contributors to the development process.

Beyond the individuals and local associations that make up the asset base of communities are all of the more formal institutions which are located in the community. Private businesses; public institutions such as schools, libraries, parks, police and fire stations; non profits institutions such as hospitals and social service agencies – these organisations make up the most visible and formal part of a community’s fabric. Accounting for them in full, and enlisting them in the process of community development, is essential to the success of the process. For community builders, the process of mapping the institutional assets of the community will often be much simpler than that of making an inventory involving individuals and associations. But establishing within each institution a sense of responsibility for the health of the local community, along with mechanisms that allow communities to influence and even control some of aspects of the institution’s relationships with its local neighbourhood, can prove much more difficult. Nevertheless, a community that has located and mobilised its entire base of assets will clearly feature heavily involved and invested local institutions.

An Alternative Community Development Path: Asset Based, Internally Focused, Relationship Driven

Asset-based community development can be defined by three simple, interrelated characteristics:

1. Asset-Based. We start with what is present in the community, the capacities of its residents and workers, the associational and institutional base of the area – not with what is absent, or with what is problematic, or with what the community needs. 
2. Internally Focused. We concentrate first of all upon the agenda building and problem-solving capacities of local residents, associations and institutions. This is to stress the primacy of local definition, investment, creativity, hope and control. 
3. Relationship Driven. We need to constantly build and rebuild the relationships between and among local residents, local associations and local institutions.

Skilled community organisers and effective community developers already recognise the importance of relationship building. For it is clear that the strong ties which form the basis for community-based problem solving have been under attack. The forces driving people apart are many and frequently cited – increasing mobility rates, separation of work and residence, mass media, segregation by race and age not least from the point of view of lower income communities, increasing dependence upon outside, professionalised helpers.

Because of these factors, the sense of efficacy based on interdependence, the idea that people can count on their neighbours and neighbourhood resources for support and strength has weakened. For community builders who are focused on assets, rebuilding these local relationships offers the most promising route toward successful community development.

Underpinning Knowledge: Social Capital

Social science research and international organisations are awash with jargon that many non-specialists find either confusing or unhelpful. Can this be said of the notion of social capital? According to Robert D. Putnam, Peter and Isabel Malkin Professor of Public Policy at the JFK School of Government at Harvard, and author of the influential book, Bowling Alone, social capital is an idea whose time has come. What exactly is social capital and how can it help policy-makers?

What exactly is social capital?

As would be true of any new concept whose use has exploded exponentially in a short space of time, people use the term in a variety of ways. But I would insist on a lean and mean definition: social capital refers to social networks and the associated norms of reciprocity. The core idea is very simple: Social networks have value. They have value to people in the networks – “networking” is demonstrably a good career strategy, for example.

But they also have “externalities,” that is, effects on bystanders. Dense social networks – barbecues or dinner parties or whatever – in a neighbourhood can deter crime, even benefiting local people who don’t themselves go to the barbecues. Not all externalities are positive. Some networks have been used to raise finance for terrorism. Just as human and physical capital – through knowledge of chemistry or aircraft, for instance –
can be used for bad purposes, so can social capital.

Moreover, social capital comes in many forms, not all fungible. A dentist’s drill and an oil-rigger’s drill are not interchangeable. Similarly, we need to distinguish among different types of social capital, like the difference between “bonding” social capital – these are links among people who are similar in ethnicity, age, social class, or whatever – and “bridging” social capital, which are links that cut across various lines of social cleavage.

But the main point is that social networks can be a powerful asset, both for individuals and for communities.

Where do you see its particular strengths and weaknesses?

The central theses that social networks have effects on information flow and that repeated interactions in networks can help resolve dilemmas of collective action are entirely consistent with conventional economic theory. Even the idea that networks can affect “identity”– if I interact more often with a group, I’m more likely to take their interests into account – is akin to some recent work on “endogenous preferences” in economic theory.

Advocates of “social capital” have reported many robust correlations between vibrant social networks and outcomes like better school performance, lower crime rates, better public health, reduced political corruption, improved market performance, and so on. But that does not prove causation. This will be hard to do, since it’s not easy to imagine an experiment in which some people are required to have friends or attend church or whatever, and others are required not to.

I entirely agree with critics who say that we need to be as rigorous as possible, and I’ve been encouraged by efforts within the OECD to develop more sophisticated, cross-country measurements of different forms of social capital. Still, I believe that sufficient hard evidence is accumulating on the importance of social connectedness or social cohesion or, as I prefer, social capital, that policy-makers should not have to wait for a couple of decades of detailed research before asking whether attentiveness to social capital might be worth their while.

What can we actually do about social capital, assuming that it is a relevant factor? Here I want first to record my strong disagreement with the view, sometimes heard, that Bowling Alone Is an argument for shutting down the welfare state and relying on civil society to solve problems. Nothing could be further from the truth. More than 10 years ago, in my very first essay on the topic of “social capital and public affairs” I wrote (with emphasis in the original):

“Social capital is not a substitute for effective public policy, but rather a prerequisite for it and, in part, a consequence of it. Social capital, as our Italian study suggests, works through and with states and markets, not in place of them. The social capital approach is neither an argument for cultural determinism nor an excuse to blame the victim…. Wise policy can encourage social capital formation, and social capital itself enhances the effectiveness of government action…”

The trouble is that government policies can inadvertently “destroy” social capital. Think of the closing of post offices in small towns and rural areas. Governments should understand that investing in social capital requires time. As our labour markets develop greater flexibility on the part of employers can allow employees to better reconcile professional demands with the needs of family and community.

Steep Declines

As he demonstrated in Bowling Alone, social capital has a crucial impact on crime reduction, educational achievement, even life expectancy. His research had exposed steep declines in all forms of social capital across much of the developed world, which he detailed in Bowling Alone with its central image of the end of US bowling leagues, but Putnam maintains he is “optimistic about social capital”.

What fascinates him is tracking where the new forms of social capital are developing and why they are successful. One of his key areas of interest is religion – religious affiliations account for half of all US social capital. He cites US mega-churches which, typically, attract tens of thousands of members, as “the most interesting social invention of late 20th century.”

He identifies the secret of their success: “They have very low barriers to entry – the doors are open, there are folding chairs out on the patio – they make it very easy to surf by. You can leave easily. But then they ramp people up to a huge commitment – at some mega-churches, half of all members are tithing [giving a tenth of their income]. How do they get from the low to the high commitment? By a honeycomb structure of thousands of small groups: they have the mountain bikers for God group, the volleyball players for God, the breast cancer survivors for God, the spouses of the breast cancer survivors for God, and so on.

“The intense tie is not to the theology but in the emotional commitment to others in their small group. Most of these people are seeking meaning in their lives but they are also seeking friends. The small groups spend two hours a week together – doing the volleyball or the mountain biking and praying; they become your closest friends,” he says. These churches form in places of high mobility – people live there for six weeks and the church provides the community connection. When you lose your job, they’ll tide
you over, when your wife gets ill, they’ll bring the chicken soup.”

Putnam believes that this low entry/honeycomb structure could be successfully copied to reinvigorate many other organisations, from trade unions to scouts’ clubs and rotary clubs. He points out that the leader of the US’s biggest trade union, the Service Employees Union International, is intrigued by the potential of the mega-church model.

The other fast developing area of social capital is on the internet. Putnam has been studiedly cautious about the impact of the internet and insists it’s too early to be definitive: “We’ve got to get beyond the [notion that] the internet is good or bad for social capital. What is interesting is how it can be used to encourage ‘alloyed networks’ – which are both cyber and face to face – like email.

“I think strong social capital has to have a physical reality – a purely virtual tie is a pretty thin reed on which to build anything; it’s highly vulnerable to anonymity and spoofing and very difficult to build trust. But I’m a member of Facebook, the social networking site, and it enables me to keep up with old students; it has the potential to be both positive and meaningless – I get notices from people all over the world asking me to be my friend on Facebook but what does that mean?’

What could be really interesting, says Putnam, is what would happen if you put the model of mega-churches together with social networking – that could produce new and powerful forms of organisation. He introduced the leader of one of the biggest mega-churches to the founder of the meetup.com, which connects people with others in their neighbourhood with similar interests. It is a very successful website but not “sticky” in internet terms, people do not keep up with the site, whereas mega-churches are extremely successful at sticky so he is curious whether the two types of social organisation might be able to complement each other.