25 October 2011

Inequality, Trust and Sustainability

Really interesting paper, there's quite a bit of quantitative modelling in it. See my take home point below and the interesting figure on page 3 shown poorly below.

Instrumental arguments linking inequality to sustainability often suppose a negative relationship between inequality and social cohesion, and empirical studies of inequality and social trust support the assumption. If true, then redistribution should increase levels of social cohesion and thereby ease the implementation of policies that require collective action to achieve shared benefits.

An examination of the data by the Stockholm Environment Institute (SEI) suggests that at least part of the relationship may be explained by income level, rather than income distribution, suggesting that growth, rather than redistribution, may achieve the same goal.

This paper tests for the possibility and suggests that income is indeed important in explaining differences in levels of social trust. However, the effect of income level is insufficient to explain all of the dependence on income inequality; both income level and income distribution are correlated with social trust. The analysis is done at the income decile level using individual response data from the World Values Survey.

While the analysis is limited by the availability and reliability of the underlying data, the results suggest that neither redistribution nor growth alone is sufficient to raise a low-trust country to a position of medium or high trust. Rather, using the parameters estimated in this paper, a combination of growth with narrowing income distributions could, over a period of perhaps two decades, produce a significant change in levels of social trust.

My take home point from the conclusion:
This analysis support the supposition; inequality matters for social trust. The level of income also matters, but growth by itself appears insufficient. A policy of “broad-based” growth that leaves income distributions unchanged will not effectively move a low-trust society to a medium-trust society, much less to a high-trust society. Perhaps for high-income countries, but certainly for currently low-income countries, the results suggest that a combination of growth with increasing equality is more effective for improving levels of social trust than either growth or redistribution alone.

Source: Inequality, Trust, and Sustainability, Eric Kemp-Benedict, Stockholm Environment Institute, Working Paper No. 2011-01