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Social Cohesion, Institutions, and Growth

Author: W Easterly and J Ritzan
Date: 2006
Size: 10 pages (110 KB)

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Summary

What are the links between social cohesion, the quality of political institutions and economic growth? This paper from the Centre for Global Development conducts an empirical investigation to identify any causal sequence between the three, finding that there is a strong correlation between them. It suggests that insufficient social cohesion constrains politicians’ capacity to build institutions and implement pro-development policies. It advocates further research into the determinants that contribute to social cohesion and recommends that governments should deploy education and public services in a way that promotes unity.

Social cohesion can be measured by indicators which reveal the nature and extent of social and economic divisions within society. Measures include national polls asking whether people can generally be trusted, the share of income going to the middle 60 percent of the population, and the probability that two randomly selected individuals will not belong to the same ethnolinguistic group. The quality of political institutions can be assessed by proxies measuring voice and accountability, civil liberties and government effectiveness. By comparing these indicators with econometric measures of growth, their respective influence on economic development can be assessed.

Close, frequently causal links are found between cohesion, institutions and growth:

• Countries with less ethnic heterogeneity and a higher earnings share among middle income groups grow faster than less cohesive societies – a trend especially prevalent during the global recession between 1974 and 1994, and particularly during the late 1980s.
• Countries with higher-quality institutions are positively associated with higher average growth rates and lower levels of inequality, suggesting “all-encompassing” governments better redress imbalances.
• Ethnic divisions impede institution-building: in the absence of a common national identity, politicians can opportunistically exploit factionalism, hindering the political will to build institutions.

Although politicians should not impose redistribution and assimilation on society to force cohesion, they should aim to unify the population to strengthen institutions and enhance growth:

• In societies with well-developed institutions, ethnolinguistic diversity does not impair growth, but strong institutions are most beneficial in fragmented societies.
• Policymakers should recognise historical inheritance as a determinant of social cohesion: Latin American silver mines promoted a divided population, while small-scale production of food grain in North America encouraged middle-class development.
• Education can promote cohesion by increasing public awareness of the social contract: teaching socially responsible behaviour and communicating the consequences of breaking the social contract.
• The government can help shape a cohesive context and climate for the operation of civil society by providing public services fairly and efficiently.
• Redressing overt discrimination and other social barriers can empower domestic communities, which promotes unity more effectively than aid conditionalities imposed by donors and development agencies.

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Source: Easterly, W., 2006, 'Social Cohesion, Institutions, and Growth', Working Paper 94, Centre for Global Development, Washington