Why economists need to pay attention to social structures…
COVID-19 has underlined the need to fundamentally re-imagine the ways in which we produce and distribute resources. As countries across the world scramble to mitigate the impacts of the COVID pandemic, arguments rage on the world stage between supporters of state-led and market-led models and their implications for agency and choice; equity and resilience. Those who suffer (and will continue to suffer) most from the economic and health effects of the pandemic are those for whom the redistributive mechanisms of state and market have failed to be effective. The sheer scale of the pandemic underlines the implications of these failures for our collective resilience, and opens the opportunity for us to look beyond these dichotomies as we rebuild our systems for creating and sharing resources.
When we think about resource distribution, the big systemic forces that immediately come to mind are the market and the state. However, between the state and the market lies a vast and relatively uncharted terrain where resources are distributed and leveraged through complex and often longstanding social norms. These institutions and relations not only support survival (sometimes against the odds), but can also provide a window into alternative approaches the help us to ‘re-think’ our economies and interrogate their value for resilience and wellbeing.
At a recent symposium organized by the Royal Academy of Engineering, Isabelle Guerin and Awa Ambra Seck spoke about their work on the social dimensions of the economy. Their work illustrates how failure to pay attention to social structures blindfolds us to key drivers of our economies and obstructs our ability to capture their effects, let alone change their course.
Guerin underlines the point that social structures are neither good nor bad: they range from hierarchical relations constructed, for instance, through labour markets (e.g. indentured labour; employer debt/credit relations); to the fierce egalitarianism of the age grades discussed by Awa Ambra Seck. Seck and her coauthor Jacob Moscona show how government cash transfers in northern Kenya and Uganda are distributed in different ways in vertically organized clan-based communities where hierarchies are maintained, and horizontally organized age-grade communities inspired by an ethos of brotherhood and equality. In clan-based communities, risks are distributed across a more diverse pool creating longer-term resilience; but equally there may be more exclusion in who benefits. In age-grade communities, resources are redistributed equally, but exposure to risk is also shared, potentially undermining resilience. Social structures in these cases, have a significant bearing on the effectiveness of government cash transfers, both in terms of resilience and equality.
In developing economies, as Guerin points out, social relations are particularly important in production and exchange where the regulatory structure of the state in underpinning contracts is weak: ‘Would you agree to hire someone or lend them money if there is no contract and no rule of law? Only if you know the person, or if this person is recommended by someone whom you know and whom you trust.’ Guerin goes on to highlight the importance of social relationships in the absence of formal safety nets, where reciprocal social ties provide an economic, social and often emotional cushion against risk and shocks.
Cultivating social relationships- like other valuable assets- involves investment and hard work. This is one reason why savings schemes in developing countries often fail. Bank savings, far from circulating to build social assets, cut you off from your social ties (Storchi 2016; Banerjee et al. 2020). Similarly, informal credit relations are actively sought and cultivated not only to access capital and bridge liquidity needs; but to create social bonds that facilitate deeper engagements with the economy (FSD Kenya 2016). Ongoing relations of debt to an employer for instance, may also serve to perpetuate access to a job; a debt to a known and trusted acquaintance or an informal group can create the flexibility needed to navigate unpredictable income streams which the formal sector cannot. Indeed, the formal economy is not only in competition with these informal arrangements, but is often crucially dependent on them for its success- an apt illustration being Kenya’s mobile money revolution which rode on pre-existing social networks (Johnson 2017, Heyer 2019).
As we battle with the effects of COVID-19, research is showing how the pandemic has not only destroyed people’s economic wealth, but is also threatening their social relationships which are a key part of their wealth. Where debts are reneged on and flows of money cannot be maintained, relationships that are key to resilience, growth and wellbeing fall apart (Guerin et al. 2020; Schmidt et al. 2020; Zollmann 2020); informal groups that remain a backbone of lower income economies disintegrate, removing a vital source of support for economic recovery. The pandemic has clearly revealed the significance of social relationships for economic resilience. But paying attention to social relationships can also reveal much more.
Sibel Kusimba, researcher on mobile money in Kenya shows how social ties are cultivated through mobile money transactions (gifts and loans) between friends and family not simply as a social safety net (Jack & Suri 2014; Blumenstock et al 2019), but to create a collective identity in which individuals can attain status and value (Kusimba 2018). Here, the economic interaction creates social value rather than vice versa. In Guerin’s words, ‘people engage in economic practices not only to make money… but also to give meaning to their lives’. This serves to illustrate how a large portion of our productive and distributive activity is incentivized by norms and aspirations that are very different from utility maximization and economic growth. The examples above also illustrate how closely the economic and the social are intertwined (Johnson et al 2016).
Paying more attention to social structures and motivations- the search for meaning and identity, the drive for power, the need for familiarity and solidarity, the control over values and ethics can help us to move beyond the platitudes of economic growth and utility maximization as the key drivers of economic activity. If your only tool is a hammer, all you will see are nails. As we think about how to make our economies more inclusive and resilient, broadening our toolkit to analyse the role of social drivers can support a more informed and useful debate about what we value, and how our socio-economies can be shaped to deliver this.