Published on 13 July 2020
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In a pandemic, your real wealth is other people

Is it time to re-imagine public sector pay and minimum wage increases as social capital investments, rather than economic costs? And if the pandemic erodes social capital, could this undermine the economic recovery? Dr Matthew Agarwala argues that social capital must be an asset on which we can all depend.

Fair-weather assets that disintegrate at the first sign of trouble are hardly assets at all. While the value of all capital is subject to expectations about the future, one commodity that is always valuable – in good times and bad – is social capital. Encompassing trust, relationships, and the ability to overcome collective action problems, this is the kind of wealth we all need now. But like all assets, social capital can be depleted, for instance through confusing guidance, a lack of accountability, and the politicisation of science.

Assets are supposed to be durable, dependable, like bedrock. They are the basis of future welfare. Yet, as the economic reach of the global pandemic began to sink in, it was accepted as a fait accomplis that markets would crash. It seems equities – once the king of capital – have been wearing the emperor’s new clothes. In the face of record benefits applications, the subsequent stock market rebound brings little comfort. Even dead cats can bounce. So, what is left? What assets can we rely on now?

The question of “What is Capital?” has plagued economists for over a century. In his 1896 essay of that name, the great American economist Irving Fisher noted that “of economic conceptions, few are more fundamental and none more obscure than capital.” Despite numerous seminal contributions, Fisher never found a satisfactory definition (nor has anyone since). 

But our response to the coronavirus reveals one of the most important, durable assets underpinning modern life: social capital. It is that collective spirit that carried Britain through the blitz, it manifests itself in volunteer armies and the charitable sector, and it is what Raghuram Rajan calls the neglected ‘Third Pillar’ of modern economies. Both epidemiologists and social scientists recognise it as a key determinant of compliance with social distancing measures.

Yet, for various reasons, social capital is often placed on the back burner. It is obscure. The OECD defines it as “networks together with shared norms, values and understandings that facilitate cooperation within or among groups.” Such broad definitions make measurement difficult and valuation even harder.

We rarely hear about it in economic discussions, and when we do it’s a novelty rather than core economic reporting. Yet its centrality to addressing the pandemic induced Boris Johnson – at the time self-isolating with COVID-19 – to directly refute Margret Thatcher’s 1987 assertion that “there is no such thing as society.” So, what can we say about social capital in the UK?

As is often the case, the UK Office for National Statistics is ahead of the game. They collect and analyse data on multiple aspects of social capital, providing both the raw data and concise, easily understood bulletins. Their most recent, February 2020, reveals some troubling trends. Trust in national government across the UK fell by 11 percentage points in the year to autumn 2019. Our sense of belonging to our neighbourhoods declined from 2014/15 – 2017/18; and membership of political, voluntary, professional, or recreational organisations fell 5 percentage points between 2011/12 – 2017/18.

Even as lockdown lifts, it may still be too soon to tell how the pandemic and public and government responses will impact our stock of social capital. Optimists may hope that rainbows in windows and a shared desire to rally round the NHS could help repair the bitter divisions of Brexit. But recent data is unambiguous: public trust in government is falling. The Reuters Institute found that trust in UK government as a source of information on Covid-19 fell from 67% in April to 48% in May. One of the best sources of real-time data comes from UCL’s Covid-19 Social Study, led by Dr. Daisy Fancourt. Their nationally representative panel study of over 90,000 respondents similarly shows that both compliance with lockdown measures and confidence in government handling of the pandemic are falling (especially in England).

These data are troubling not just for what they say about our ability to work together in addressing the immediate crisis, but also for what they suggest about the economic recovery. A new working paper by my Bennett Institute colleagues Diane Coyle and Saite Lu analysed European data from 2002-2016, showing a positive association between social capital, productivity, and macroeconomic outcomes. Yet, a recent analysis of the effect of Spanish Flu on social capital shows that an increase in mortality of one death per thousand people resulted in a 1.4 percentage points decrease in trust, with the effect lasting for several decades. If the pandemic erodes social capital, this could undermine the economic recovery.

Of course, the current crisis may be different. We don’t know whether social trust will rebound as life returns to normal. Additionally, ours is a much more globalised world, medical advancements have transformed treatment, and contemporaneous media coverage of the two pandemics has differed crucially in prevalence, breadth, and tone. 

Either way, thinking about social capital reveals important lessons for managing the current crisis, our global recovery, and enhancing resilience to the next shock, whatever it may be. First, our public discourse and economic analyses need to take social capital more seriously. Measurement is hard but not impossible and will improve with greater attention and investment in the statistical infrastructure. This will help us identify policies to enhance it.

Second, we need to find a way to build trust and trustworthiness – in governments, communities, and their ability to support each other. Failing to do so risks creating a vacuum for organised crime to fill. From drug gangs enforcing lockdown in Brazil, to mafiosos supplying food in Italy, to the yakuza distributing PPE in Japan, there is already some evidence of this.

Finally, we must re-think what constitutes capital investment. Much of social capital revolves around trust, dignity, and respect. Many keyworkers used to be referred to as “unskilled” or “low-wage” labour. Yet when push comes to shove – as it literally did in the quest for flour and toilet paper – they are the ones carrying this country through the crisis. Perhaps it is time to re-imagine public sector pay and minimum wage increases as social capital investments, rather than economic costs. Indeed, research shows that the ability to comply with certain distancing measures is lower among the most economically disadvantaged. Social capital must be an asset on which we can all depend.


The Wealth Economy programme is funded by LetterOne

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The views and opinions expressed in this post are those of the author(s) and not necessarily those of the Bennett Institute for Public Policy.


Matthew Agarwala

Dr Matthew Agarwala

Project Leader: The Wealth Economy

Dr Matthew Agarwala is an economist interested in wealth-based approaches to measuring and delivering sustainability, wellbeing, and productivity. His research is motivated by the belief that 21st century progress cannot...

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