China economy eyes post-quake gain in social capital

By Alan Wheatley, China Economics Editor - Analysis

BEIJING (Reuters) - It's callous when nearly 70,000 people lie dead to wonder whether anything good economically could emerge from the rubble of last month's Sichuan earthquake.

But as well as a short-term boost to output as reconstruction kicks in, there is a chance that the outpouring of civic spirit in response to the disaster may not only reshape China's politics but also strengthen its economic foundations.

The idea of social capital as a long-term driver of growth is well known to academics. The U.S. political economist Francis Fukuyama identified social cohesion as one reason why Japan and Germany recovered so quickly after World War Two.

"One of the most important lessons we can learn from an examination of economic life is that a nation's well-being, as well as its ability to compete, is conditioned by a single, pervasive cultural characteristic: the level of trust inherent in the society," Fukuyama wrote in his 1995 book "Trust".

Chinese, wary of working together for common purposes in groups beyond the family, appeared on Fukuyama's list of "low-trust societies".

The reaction to the quake challenges that appraisal. Donations of money, goods and blood poured in. An efficient relief operation seems to have strengthened the social contract between the citizenry and a leadership it often sees as aloof.

"Governments need that support which comes voluntarily, and the legitimacy that allows them to rule is derived in part from people's view of how they respond to crises," said James McCormack, head of Asia sovereigns at Fitch Ratings.

HISTORICAL PRECEDENTS

It's important, though, to keep a perspective. China has a long history of pulling together in times of crises.

In 1906, merchants in Jiangsu province mobilized to feed people after a devastating flood. Outside charity also relieved Shaanxi province when it suffered a terrible drought and widespread famine a century ago.

Chinese researcher Zhao Yandong, who has studied post-disaster recovery, says that if a community has trust only among people who know each other well, its prospects for getting back on its feet are not bright.

"Only when trust breaks through this circle of familiars and expands to include trust in strangers and institutions is the post-disaster revival of victims assured," he wrote in the Chinese-language journal "Sociological Studies" late last year.

One scenario is that if, in a burst of openness, investigations show corrupt, corner-cutting officials are to blame for the collapse of hundreds of schools, new-found trust will be rapidly exposed as hollow, said Oded Shenkar, a business professor at Ohio State University in Columbus.

But economists Ting Lu and TJ Bond with Merrill Lynch in Hong Kong are optimistic that trust can indeed put down deeper roots.

They believe the quake has created a platform for improved coordination and governance. They see signs in the way the disaster was handled of a more open society that will demand more accountability from governments and developers, building trust and trustworthiness.