Levelling up: How human and social capital can help address regional inequalities

16 June 2021


Reported by Camilla Faidutti, CSaP Policy Intern (April-July 2021), and Kate McNeil, CSaP Communications Coordinator

In the latest seminar of the ‘Levelling up’ series, organised in partnership with the Bennett Institute for Public Policy, Dr Saite Lu (Postdoctoral Affiliate of Trinity College and Research Associate for the Wealth Economy project at the Bennett Institute for Public Policy) discussed how human and social capital can help alleviate the regional disparity, and be better integrated into policy and investment decisions as part of the levelling up agenda.

While extensive attention in ‘levelling up’ related research has focused on physical assets such as infrastructure, Dr Lu believes that more attention should be given to intangible assets in the policy debate on levelling up. Noting that “human capital is the knowledge, skills, competencies, and attributes (including health) embodied in individuals that facilitate the creation of personal, social and economic well-being and contribute productively to the economy”, Dr Lu argued for increased attention for these forms of assets in levelling up discourse. Here, he stressed that human capital requires several forms of investment to grow, including schooling and training programmes, experience and on-the-job training, healthcare, and migration. Moreover, human capital can diminish over time because of factors including ageing, illness or the emergence of disruptive technologies that make existing skills obsolete.

Social Capital and Levelling Up:

Dr Lu also highlighted several ways through which social capital can positively contribute to human capital growth: the social network effect, social contagion effect, and health. Unlike human capital, he noted that social capital is more difficult to measure. Trust, social cohesion and feeling of belonging are some of the commonly used proxies for social capital, which can be described as “connections among individuals - social networks and the norms of reciprocity and trustworthiness that arise from them”.

Dr Lu noted that there is a correlation between the average percentage of the degree-educated population in a region and productivity growth. In lagging regions, students are often subject to inequality of access to educational resources, such as the difficulty of attracting new teachers and the lack of investment in teaching facilities, and they are less likely to invest in their education and training. This lack of investment is partly caused by social conformity, through which people’s perceptions and decision making are influenced by others in their social networks. It contributes to limiting the economic productivity of the region and it could be counterbalanced by having aspirational figures within one’s social network.

Meanwhile, through the social contagion effect, a new technology can replace an existing one only in cohesive and highly interactive communities, where a large enough user base can be reached to allow for the technology switch. Without sufficient bridging social capital that connects different socioeconomic clusters within a society, diffusion of innovation can be inhibited in the presence of tight-knit communities, where low-skill local economies tend to persist.

A third channel through which social capital can contribute to human capital is through health. Explorations of human capital have often failed to account for the health dimension, which includes wellbeing. However, the covid-19 pandemic has helped to shine a light on the importance of this factor in our communities. There is a deep desire to form and maintain social bonds, as well as to belong, which are fundamental to the physical and mental health of human beings. Without a strong social capital, societies divide further, and social issues increase.

Connecting through Social Infrastructure:

Throughout the participant discussion which followed Dr Lu’s presentation, seminar attendees focused on how social infrastructure can help generate and encourage interactions among people and different communities, and how it can contribute to a sustained progress in lagging regions. For example, stronger markets for professional households would bring new inflows of highly skilled labour forces in regional cities and town. One case study of building social capitals leading to a sustained long-term intervention is the Grameen Bank in Bangladesh. The bank is using group lending methods to provide micro-credits among the poor. This approach requires a social group, which provides a financial safety net to those people who lack collateral and credit history and ensures that repayments are made. The social group also strengthens the social network within different communities, allowing people to help each other during financial difficulties.

The analysis on human and social capital has highlighted their importance to address regional inequalities across the country. As Dr Lu notes, these intangible assets will now have to be translated into concrete policy recommendations, that can be successfully delivered into different regions.

The 2021 CSaP ‘Levelling up’ Seminar Series aims to bring Policy Fellows from different departments together to discuss the challenges of addressing unequal economic performance within regions of the UK. This year's series is hosted in partnership with the Bennett Institute for Public Policy. This series will help to stimulate the policy debate around levelling up by exploring key areas such as the role of infrastructure, the importance of data and measurement, the relationship between trust, social capital and levelling up, and the impact of a transition to a net zero carbon economy on left-behind places. It will also look outside of the UK for examples of how other countries have managed regional inequalities. You can follow the Bennett Institutes blog series here.