Social Cohesion, Institutions, and Growth

Abstract from a William Easterly paper:

In seeking to unpack the notion of social cohesion, we concede from the outset that some infamous historical figures with a narrow—even sectarian—agenda have invoked social cohesion-type arguments as the basis for their actions.

The desire to cultivate a sense of national unity and “purity” brought us the Holocaust and ethnic cleansing, so we are most surely not arguing that social cohesion equals cultural homogeneity or intolerance of diversity; quite the opposite. On the other hand, nor are we invoking some naïve suggestion that socially cohesive societies are always harmonious, devoid of political conflict or dissent.

Rather, we use the concept of social cohesion to make the general point that the extent to which people work together when crisis strikes or opportunity knocks is a key factor shaping economic performance.
Graphic scenes on CNN during the 1997 financial crisis in South Korea neatly illustrates social cohesion in action: everyday citizens were shown tearfully selling their modest family treasures in the belief that their humble contribution was somehow making a difference to the financial health of their country.

Where this sense of cohesion is lacking—as it was in, say, Indonesia— the response to the crisis was far more sluggish and uneven, heightening a number of other latent and manifest political tensions. Managing these tensions during crises, and ensuring that they do not descend into outright or violent conflict, is a key political task.

One of the primary reasons why even good politicians in countries all over the world, but especially in low-income countries, often enact bad policies is that they experience significant social constraints on their efforts to bring about reform. These constraints are shaped by the degree of ‘social cohesion’ within their country. We show that social cohesion determines the quality of institutions, which in turn has important impacts on whether and how pro-growth policies are devised and implemented.
A country’s social cohesion is essential for generating the confidence and patience needed to implement reforms: citizens have to trust the government that the short-term losses inevitably arising from reform will be more than offset by long-term gains.

The inclusiveness of a country’s communities and institutions (e.g., laws and norms against discrimination) can greatly help to build cohesion.

On the other hand, countries strongly divided along class and ethnic lines will place severe constraints on the attempts of even the boldest, civic-minded, and well-informed politician (or interest group) seeking to bring about policy reform.

We argue that the strength of institutions itself may be, in part, determined by social cohesion.
If this is so, we propose that key development outcomes (the most widely available being “economic growth”) should be more likely to be associated with countries governed by effective public institutions, and that those institutions, in turn, should be more likely to be found in socially cohesive societies.

If social cohesion is so important, how can it be nurtured? While social cohesion is partly shaped by national leaders, social cohesion also depends on some exogenous historical accidents.
A nation-state that has developed a common language among its citizens is more cohesive than one that is linguistically fragmented. This is not to say that linguistic homogeneity is bad or good; most nations started out as very diverse linguistically. Linguistic homogeneity may simply be an indicator of how much a group of nationals have developed a common identity over the decades or centuries that national identity forms.
Where such a common identity is lacking, opportunistic politicians can and do exploit ethnic differences to build up a power base.
It only takes one such opportunistic politician to exacerbate division, because once one ethnic group is politically mobilized along ethnic lines, other groups will.

This should not be interpreted in a pessimistic light – that nations where there are large cleavages of class and language are condemned to poor institutions and low growth.

Of course, nations should not embark on forcible redistribution and mandatory linguistic assimilation. These results only say that on average lack of “exogenous” social cohesion has been exploited by politicians to undermine institutions, which in turn has resulted in low growth. But politicians can choose to build good institutions, unify fractionalized peoples, and defeat the average tendency to divide and rule.
In fact where institutions are sufficiently well developed, there is no adverse effect of ethnolinguistic diversity on growth. The corollary is that good institutions are most necessary and beneficial where there are ethnolinguistic divisions. Formal institutions substitute for the “social glue” that is in shorter supply when there are ethnolinguistic divisions.

The other determinant of social cohesion is whether the historical legacy is one of relative equality or of a vast chasm between elites and masses. Engerman and Sokoloff describe how inequality in Latin America arose out of factor endowments and historical accidents.
The tropical land in Latin America was well-suited for large scale enterprises like silver mines and sugar plantations, worked by slaves or peons. The benefits of these operations largely accrued to the small criollo class. The elite was kept small by restrictions on immigration
from Iberia or elsewhere to the Iberian colonies. The labor force had to be forcibly recruited through the import of African-American slaves and the encomienda system that tied the indigenous people to the elite’s land.

In Canada and in the North of the US, by contrast, the factor endowments were conducive to small-scale production of food grains. A middle class of family farmers developed.
Practically unrestricted immigration and abundant available land (once the tragic process of despoiling the native inhabitants was completed) swelled the size of the middle class. Immigrants voluntarily assimilated into (and actively contributed to) the dominant middle class culture. The American South was a kind of intermediate case between North and South America, with a mixture of free family farmers, elite slaveowners, and African-American slaves.

One potentially important policy lever for enhancing social cohesion is education.
Heyneman identifies three ways in which education contributes to social cohesion.

First, it helps provide public knowledge about the very idea of social contracts among individuals and between individuals and the state.

Second, schools help provide the context within which students learn the appropriate behavior for upholding social contracts, by providing students with a range of experiences in which they learn how to negotiate with people, problems, and opportunities they might not otherwise encounter. As Heyneman puts it, “the principle rationale, and the reasons nations invest
in public education, have traditionally been the social purpose of schooling... The principle task of public schooling, properly organized and delivered, has traditionally been to create harmony within a nation of divergent peoples.”

Third, education helps provide an understanding of the expected consequences of breaking social contracts; indeed, it helps citizens understand and appreciate the very idea of a social contract.

Given the vital role the state has in shaping the context and climate within which civil society is organized, it can, in some cases, also actively help to create social cohesion by ensuring that public services are provided fairly and efficiently (i.e. treating all citizens equally), and by actively redressing overt forms of discrimination and other social barriers.
These happy outcomes are most likely to come about through the empowerment of domestic constituencies rather than via “conditionalities” imposed by external donors and development agencies. This is one of the conclusions of two recent World Development Reports.

We have pointed to the importance of a research agenda that looks into the cohesiveness of societies and the quality of public institutions, and their relationship to sustained growth.
We need to know a lot more about how equitable and fairly to manage the costs and benefits associated with the transformation of society (Bates 2000), especially how to foster a greater sense of cooperation and inclusion in environments where there is (actual and potential) division, exclusion, and disaffection.