The expression “social capital”, first popularized by Harvard political scientist Robert Putnam in 1970s, is used to characterize the cultural differences between economically advanced and backward (or developed and developing) regions. Social capital captures the voluntary associations whose knock-on effects increase the general welfare of those involved in them. Moreover, these knock-on effects may be produced more efficiently than, say, a state that administers to the needs of everyone as isolated individuals. Social capital thus testifies to the power of positive feedback: we are vindicated by, and hence trust, others who have made decisions similar to ours about which groups to join. Ideally this would attenuate the state's need to provide tax relief or investment subsidies as incentives for collective risk-taking. In many developing countries, people depend on the state to compensate for their mutual distrust, which then places a prohibitive moral and financial burden on the state.

Compare social capital with a concept that captured the imaginations of social scientists and policy-makers in the previous generation: public good. The US economist Paul Samuelson invented the concept in the 1950s for goods that the state had to provide because they would never be provided efficiently in a pure market environment. These goods turned out to be the ones that would come to epitomize the welfare state over the next twenty years: healthcare, education, utilities and transport systems.