Social Cohesion and Economic Development: Unpacking the Relationship

Social inequality and societal fragmentation have become major concerns in many OECD countries and developing regions in recent years. Policymakers and researchers assume that economic factors such as income inequality and/or unemployment cause and aggravate these trends. The 2030 Agenda acknowledges the challenge and emphasises the importance of inclusive growth, equality

and peaceful, inclusive societies. However, for evidencebased policy-making we need more sound and comprehensive empirical evidence of the relationship between economic factors and societal fragmentation. This Briefing Paper gives an overview of the main findings of economic studies on social cohesion, and introduces the implications for development policies. Economists find a positive relationship between social cohesion and economic growth, on the basis that social cohesion improves formal and/or social institutions, which causally drives economic growth. Evidence of a relation running from growth to social cohesion exists but is still very scarce and limited to correlation analysis so that neither direction nor causality can be exclusively claimed. One

potential mechanism through which growth might influence social cohesion is inclusive, pro-poor-oriented improvements in development outcomes, namely employment creation, education and decreased inequality in income and resource distribution. Another potential mechanism is policy reforms, for instance in the fields of social protection and taxation. More research is needed, however, to fully understand whether there is a feedback loop from growth to social cohesion or whether the relationship

primarily runs the other way round. Development cooperation, particularly that involving Germany, has been increasingly focused on economic development in general and promotion of the private sector in particular. Explicit links to social cohesion are not part of most development strategies, peacebuilding being an exception. However, economic policies and growth do not necessarily

raise social cohesion and can even contribute to increasing social dissatisfaction and unrest if not properly distributed. Social cohesion is primarily a social phenomenon of relations between societal actors and institutions. It therefore requires prudent policies, which ensure that economic development is inclusive and that it translates into changes of social and societal realities that strengthen societal bonds. It is thus desirable that strategies for economic development include mechanisms to foster social cohesion or, at least, do not counter the “togetherness” of a society (“do no harm”). Policymakers, NGOs, charities and think tanks can address social cohesion as follows:

- Recognise the importance of social cohesion in development strategies. Social cohesion is not only a valuable goal in itself but also a key condition for the impact and sustainability of development cooperation and economic growth.

- Consider trust, identity and solidarity in support of social cohesion. Successful support of individual elements is likely to make a difference for social cohesion in a given society.

- Integrate mechanisms that foster social cohesion into strategies for economic development. Economic development in itself does not automatically increase social cohesion and hence does not necessarily contribute to counteracting the drifting apart of a society.