Does Social Cooperation Affect Macroeconomic Performance? Research Project

Macrosocial Feedback Effects – Firm Structure and Political Economy Consequences

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Principal Investigator: Steven Bosworth

Dr Steven Bosworth is a behavioural economist working as a Lecturer at the University of Reading. His research explores how motivation influences cooperation. In particular, he studies how social preferences depend on context. This work incorporates game theory and laboratory experimental methods. Steven’s current work explores the implications of context-dependent motivation within organizations.

His research uses microeconomic theory and controlled laboratory experiments to investigate how context, motivation and the social environment influence human cooperation. He has published on the topics of uncertainty and coordinated decisions, the distribution of prosocial dispositions in the society and competition, and the consequences of social fragmentation on wellbeing.

Co-Investigators: Dennis Snower (CEPR and the Blavatnik School of Government, Oxford University)

Project Summary

The last 10 years have seen a growing threat to economic stability from the increasingly polarised politics of western democracies. In 2016 a slim majority of voters in the United Kingdom voted to leave the European Union. Later that year Donald Trump was elected president in the United States on a platform of increasing trade barriers with China and Mexico, among others.

 

In 2018 the French government was forced by the Gilets Jaunes movement to scrap tax increases on fuel due to their regressive distributional burden, though most economists consider such taxes to be an efficient source of revenue and a key policy lever for promoting de-carbonisation of economies.

 

Underlying all these developments is an increasing sense that governing elites have become disconnected from ordinary citizens, and that their discontent about their position in society has been exploited to build support for dubious economic policies.

 

This project analysed the socio-economic objectives of those who have been “left behind” by socioeconomic polarisation and the implications of these objectives for political economy. The work has developed an explanation of how economic fragmentation (in terms of income disparities) gives rise to social fragmentation (in terms of socio-economic objectives). That work has given rise to a model that structurally links citizens’ economic frustrations and their turn away from liberalism.

 

The underlying theoretical framework considers people’s adoption of social values concerning whether to derive more self-esteem from comparisons with others (materialistic but universalist values) or to derive relatively more self-esteem from membership of a group with its distinguishing characteristics (communitarian nationalism).

 

The model predicts that the socioeconomically well-off gravitate towards cosmopolitanism while those of lower status gravitate towards nationalism. Crucially, the middle classes are predicted to align more and more with nationalist values when the status advantage of those at the top increases, holding their own income constant (i.e. rising socioeconomic inequality). These shifts also increase size of the political constituency for enacting protectionist policies, which act as a stabilising force against socioeconomic polarisation. The model therefore predicts political realignments from the incidence of income growth and the importance of status-oriented (conspicuous) consumption.

 

We have also examined data to identify the mechanisms underlying the relationship between socioeconomic inequality and support for nationalist populism, guided by the theory developed. Specifically, we have constructed individual as well as regional indices of relative deprivation, which all predict lower life satisfaction amongst respondents in the Understanding Society panel. Switching to support for the Conservative party away from other parties however attenuates this drop in life satisfaction among the relatively deprived. The Conservatives seem therefore to have hit upon a compelling package of substitutes for the declining material fortunes of Britain’s “left behind”, most prominently in Brexit.

 

Building back support for “open” policies requires us to understand what builds resilience to identity threats created by economic polarisation. This will suggest where the social buffers against polarisation

may be found, but also allow governments to zero in on the specific anxieties which may be driving voters to nationalist populism.

Results

 

Economic, Social and Political Fragmentation: Linking Knowledge-Biased Growth, Identity, Populism and Protectionism  

Dennis J. Snower and Steven J. Bosworth | March 19, 2021

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