Conclusions

Some strong conclusions emerge from our review of the literature on the consequences of economic growth for social structures. They may be summarized as follows.

4.1. The foremost importance of sectoral shift phenomena

If we take a historical or a cross-country perspective, it is clear that the major con­sequences of economic growth for social structures go through sectoral shifts of the population, and possibly, at a later stage, through shifts across more narrowly defined socio-economic groups.

Other important shifts take place throughout the growth process, the most powerful ones from a social point of view being the drive towards education and a skilled labor force and a fuller integration of women into market activities.

4.2. The role of market integration

It was observed historically that economic development proceeds together with a ‘mar- ketization’ of societies. Markets develop by covering an increasing share of all transac­tions. The most significant difference between sectoral shifts observed in industrialized countries on the one hand and in low- or lower-middle-income countries on the other is not only the nature of the sectors involved but also the degree of market integration of society.

4.3. Social costs of transitory adjustment

In reality, such balanced growth paths are unlikely to be observed. In presence of any permanent shock in technology or in policy, adjustment lags in either the demand or the supply side of factor markets produce tensions with possibly durable social effects. Case studies of both developing and developed countries reveal the presence of such tensions. Unemployment problems in some European countries or the rise in earnings inequality in the US during the 1980s and 1990s are sometimes seen as symptoms of such tensions. Even though these disequilibria may be expected to be transitory, they may have powerful and long-lived social consequences, potentially able to affect future economic growth. A fortiori, this conclusion holds true when markets mechanisms are working imperfectly.

Some other dimensions of social structures have been examined in this chapter that fit these conclusions or may be direct consequences of them. This is the case in particular of the economic role of women and male-female economic and social differences. Sec­toral shifts explain the changing roles of men and women, whereas the move towards market integrated economies may be the cause of increased female labor force partici­pation, as well as of decreasing male-female differences both in the economic and the social spheres.

These are important conclusions. Yet, as indicated at the beginning of this chapter, this is only part of the whole story. Two other parts are missing. The first is the sec­ond half of the circle that links economic growth and social structures. By choice, this chapter has focused on the social consequences of growth, but the effect of changes in social structures on the pace and structure of economic growth is equally important - as shown in various chapters of this Handbook. The second missing part has to do with the effect of changes in social structures on social institutions themselves, and on social relations. This is briefly discussed in closing this chapter.

4.4. Effect of growth on social structures through social institutions

In addition to the changes in social structures resulting directly from economic growth, the general way in which individuals relate with each other is also likely to be modified under the effect of growth. For instance, a more affluent population may have more time and interest for collective tasks and for political participation, thus modifying the nature of the public decision-making process. As another example, a higher standard of living may induce a higher risk aversion and therefore a demand for more social insurance. We conclude this chapter by focusing on two examples of how social relations are likely to be modified under the effect of economic growth, with the social structure effect analyzed above often playing an intermediate role in that evolution.

The first example has to do with the size of the public sector. It is the well-known “law of expanding state activities” formulated in 1883, in the midst of a period of rapid in­dustrialization and social change, by AdolfWagner [Wagner (1883), Cameron (1978)]. Several explanations have been proposed to explain this law, some of them directly linked to growth and some others indirectly, through the channels of increasing educa­tion and political participation.^[467] Theories of the direct link between economic growth and government size emphasize the income elasticity of the demand for certain types of public goods, such as roads or education, or for the correction of negative public ex­ternalities due to growth, such as pollution or congestion. Theories of the indirect link insist on the redistribution role of government and the way in which growth may affect the factors that determine that role. For instance, in the classic Meltzer and Richard (1981) paper, the growth of government is explained by the combination of the expan­sion of universal suffrage and initial inequality in the distribution of income. Then the drive towards democracy is explained by the effect of economic growth on political par­ticipation, either through a direct income effect,^[468] or through an indirect one as in the political economy models proposed for instance by Justman and Gradstein (1999) or Acemoglu and Robinson (2000a, 2000b). A second channel is education brought about by, or coming together with, growth.^[469]

It is difficult to test for the relationship between economic growth and government size while taking into account the various channels mentioned above. In a cross-country reduced form framework, however, it is interesting that the relationship is a rather weak one, especially when one controls for fixed county effects - see Table 1.^[470]

As a second and not unrelated example, consider the demand for social insurance. As with Wagner’s law, there are direct and indirect effects of growth on social insurance and family structures.

These two examples of the way social institutions may be affected directly or indi­rectly by economic growth show the power of economic growth and its determinants to transform the social functioning of societies and not only their economic characteristics. Of course, these changes in the way individuals relate to each other, the way they make public decisions and the nature of these decisions come on top of all other effects of growth. These include changes in consumption behavior caused by increasing income and technical progress as well as the changes in social structures analyzed throughout this chapter. More than in the latter cases, however, changes in social institutions are af­fected by a host of noneconomic phenomena that make it difficult to identify and isolate the role of economic growth. Economic determinism might be dangerous here. In-depth case studies combining the whole range of social sciences would seem the appropriate way of approaching this issue.