I just came across this paper by Gruber and Hungerman on crowding out of private sector charity by government spending. (Its an NBER paper, so not everyone may be able to get it). I always thought that Putnam’s response in Bowling Alone to the “crowding out” effect of government services displacing civil society institutions was an especially weak part of his argument (although there are plenty of other weak points as well).
As David Beito showed in his superb book From Mutual Aid to the Welfare State, “intermediary”/”civil society” institutions provided many of the basic social services that the welfare state has displaced. If Putnam is correct about the decline of social capital (a questionable proposition itself), part of this may be because of government crowding out of these social services. Once these groups stop offering medical and insurance services, then all they are is a place to drink beer, in which case they are competing with television and other forms of entertainment. Putnam, I think, fails to appreciate that the generation of social capital from these groups is a positive externality of the provision of these private benefits, and that without the private benefits, the economic structure of the groups break down. People stay home and watch tv, or go out to restaurants privately, rather than coming together in these groups.
Here’s the abstract from Gruber and Hungerman:
Abstract:
Interest in religious organizations as providers of social services has increased dramatically in recent years. Churches in the U.S. were a crucial provider of social services through the early part of the twentieth century, but their role shrank dramatically with the expansion in government spending under the New Deal. In this paper, we investigate the extent to which the New Deal crowded out church charitable spending in the 1930s. We do so using a new nationwide data set of charitable spending for six large Christian denominations, matched to data on local New Deal spending. We instrument for New Deal spending using measures of the political strength of a state’s congressional delegation, and confirm our findings using a different instrument based on institutional constraints on state relief spending. With both instruments we find that higher government spending leads to lower church charitable activity. Crowd-out was small as a share of total New Deal spending (3%), but large as a share of church spending: our estimates suggest that church spending fell by 30% in response to the New Deal, and that government relief spending can explain virtually all of the decline in charitable church activity observed between 1933 and 1939.
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