Comparisons of Trends in GDP and Economic Well-being - the Impact of Social Capital

This paper discusses the connection between social capital and trends in economic well-being. Although arguments for the growth-enhancing aspects of social capital are concerned with the impacts of social capital on well-being, in practice research has focussed on the relationship between social capital and trends in GDP per capita. However, there are severe disadvantages to using GDP per capita as an indicator of trends in economic wellbeing. Sections 2 to 4 develop an index of economic well-being for selected OECD countries for the period 1980 to 1996 and compare trends in economic well-being to trends in GDP. We argue that the economic well-being of a society depends on: (1) effective per capita consumption flows, which includes consumption of marketed goods and services, unmarketed goods and services, and changes in life span and in leisure; (2) net societal accumulation of stocks of productive resources, including tangible capital and housing stocks, human capital and R&D investment, environmental costs, and net change in level of foreign indebtedness; (3) income distribution, (as indicated by the Gini index of inequality, and depth and incidence of poverty); and (4) economic security (from unemployment, ill health, single parent poverty and poverty in old age). Estimates of the overall index and the sub-components are presented for 1980-1996 for the USA, UK, Canada, Australia, Norway and Sweden. In every case, growth in GDP per capita exceeds growth in economic wellbeing, although to different degrees in different countries. Section 5 then discusses why the connection between social capital and trends in economic well-being might be stronger than the relationship between social capital and GDP per person. 1 Lars Osberg is with the Department of Economics, Dalhousie University, 6214 University Avenue, Halifax, Nova Scotia B3H 3J5, 902-494-6988, fax 902-494-6917, [email protected]. Andrew Sharpe is with the Center for the Study of Living Standards, 111 Sparks Street, Suite 500, Ottawa, Ontario K1P 5B5, 613-233-8891, fax 613-233-8250, [email protected].