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Written by Marco Felici

Measuring social capital for Industrial Strategy

Work by the Wealth Economy project has been adopted by the Industrial Strategy Council for their ‘Success Metrics’ – Marco Felici writes on what makes social capital crucial for successful economies.

Social capital is a crucial element of wealth and prosperity. Societies with low social capital do not thrive, either economically or in any broader sense.

It is also a multifaceted concept. There are therefore many definitions: for example, we could define it as the glue that holds society together, or as the ability to overcome collective action problems, or as networks of social connections. However, its measurement remains elusive.

The Wealth Economy project’s aim is to improve the measurement of social capital to make it usable and relevant for policy.  Our work on this has been adopted recently by the UK Industrial Strategy Council. In its new website presenting their Success Metrics - a benchmark dashboard against which to assess the implementation of the Industrial Strategy – the Council has included our two related measures of trust as their indicator of social capital.

Why should trust be the best indicator for social capital and why should it be structured in two components? Trust is a commonly surveyed variable, holds a similar definition across cultures and languages and is widely used in research to study the effects of social capital on societal outcomes. There are also specific reasons to consider trust within a wealth approach to sustainability: it can be considered a purely public good improving individual and collective well-being, it is persistent over time (that is a stock can be built up) and finally it contributes productively to the functioning of the systems which underpin the economy and society.

Trust is also well suited to the application of latent variable methods, such as principal components analysis. This is precisely the approach we adopted and the one revealing a two-component nature of trust. As the underlying data, we used the eight waves of the European Social Survey, a questionnaire which investigates individual opinions, behaviours and demographic profile across a variable number of European countries every two years. This dataset allows us to consider ten different nuances of trust through ten different questions, seven concerning trust in institutions and three concerning trust in individuals; it also allows to connect these responses on trust to a set of individual characteristics, including country of residence, age, income or educational attainment.

Starting from these ten variables on trust, we reduced their dimensionality by extracting two components which can explain, together, about 65% of the total variation across all ten questions. While the first component can be thought of as general trust and captures about 50% of the total variation, the second relates to a trade-off between trust in individuals and trust in institutions. The usefulness of this exercise (the principal component analysis) lies in its ability to efficiently summarise information, as well as to separate the essential features of the data from the noise.

As discussed in our recent report “Measuring wealth, delivering prosperity”, once we predict the two components for each individual in the survey, we can see how they vary across individual characteristics and location. On a geographical level, for instance, both components appear highest for people in Scandinavia and lowest for those in Mediterranean and Eastern countries (Fig. 1).

Figure 1: Trust components by region

Fig 1

Figure 2: Trust components by age group

Figure 2

Turning to the demographic dimensions, the general trust component is highest among the very young and on average, decreases with age, while the second component is lowest among the very young and increases with age, suggesting that young people are sizeably more trusting than their older counterparts in general, but also relatively more trusting of institutions rather than people (Fig. 2). Moreover, the first component increases with income, while the second does not vary much along this dimension, so that economic advantage seems to clearly correspond to higher general trust, but does not affect the relative trust placed in other people as opposed to institutions (Fig. 3).

Figure 3: Trust components by income quintile

Figure 3

Figure 4: Trust components by opinion on Brexit

Figure 4

Finally, the first, general component is higher among those who believe the United Kingdom should remain in the European Union as compared to those who think it should leave, while the second is higher for the second group (Fig. 4).

While these results are able to show interesting patterns across demographic groups and to compare levels of trust in the United Kingdom to other countries, more research is needed on both the variation of trust within the UK, as well as on the drivers of trust more in general. In fact, this is the direction where our efforts are heading.

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  • About the author

    Marco Felici, Research Assistant

    Marco Felici a Research Assistant for the Six Capitals Programme at the Bennett Institute for Public Policy, working in The Wealth Economy project.    Learn more

    Marco Felici