This article is a part of a series in which the Financial Times asks leading commentators and policymakers what to expect from a post-Covid-19 future
The writer co-founded Pro Bono Economics and is chief economist of the Bank of England
Pandemics erode the capital on which capitalism is built. They damage the lives and livelihoods of people, depreciating the human capital on which economies and their citizens rely. They lower asset prices, depressing the financial capital that fuels growth. And they threaten business activity, and often viability, causing physical capital to be paused or scrapped.
This capital destruction is the reason why, historically, pandemics have caused large losses to jobs and living standards. The coronavirus crisis is unlikely to be an exception.
Yet one source of capital, as in past pandemics, is bucking these trends: social capital. This typically refers to the network of relationships across communities that support and strengthen societies. From surveys, we know that people greatly value these networks, even though social capital itself is rarely assigned a monetary value.
The social distancing policies enacted across the world to curb the spread of Covid-19 might have been expected to weaken social networks and damage social capital. In fact, the opposite has happened. People have maintained physical distance while pursuing social togetherness. Existing networks have been strengthened and new ones created, often digitally. Even as other capital has crumbled, the stock of social capital has risen, acting as a countercyclical stabiliser across communities.
We see this daily on our doorsteps through small acts of neighbourly kindness. We see it in the activities of community groups, charities and philanthropic movements, whose work has risen in importance and prominence. And we see it too in the vastly increased numbers of people volunteering to help.
Before the crisis struck, the global volunteer corps numbered a staggering 1bn people. Since then, more people than ever have signed up for civic service, including 750,000 volunteers who are supporting the UK National Health Service. They are the often-invisible army helping fight this invisible enemy.
This same pattern appeared during past periods of societal stress, from pandemics to wars. Then, as now, faith and community groups provided the glue bonding societies together. During the 19th century, the societal stresses arising from the Industrial Revolution — homelessness, family separation, loneliness — were the catalyst for the emergence of the charitable sector.
The economic and social progress that followed the Industrial Revolution came courtesy of a three-way partnership among the private, public and social sectors. The private sector provided the innovative spark; the state provided insurance to the incomes, jobs and health of citizens; and the social sector provided the support network to cope with disruption to lives and livelihoods.
Back then, social capital (every bit as much as human, financial and physical capital) provided the foundations on which capitalism was built.
The importance of this trinity has been reinforced by this crisis. The private sector is innovating to supply digital connectivity, vaccines and medical equipment. The state is offering large-scale income insurance and investing heavily in health. And the social sector is rising to the challenge of supporting the left-behind and left-alone.
For the social sector, two policy lessons follow from the experiences of the past few months and the past several centuries. The most immediate is that this sector needs financial as well as volunteer support if it is to serve as a countercyclical societal stabiliser. The National Council of Voluntary Organisations estimates that UK charities face a £4.3bn hit to their finances, a gap partially filled by government support of £750m. Compare this with the societal value the charitable sector generates. I recently estimated that more than £200bn of social value was generated by the UK sector, or around 10 per cent of gross domestic product. The NHS volunteers alone are probably creating enough social value, at zero cost, to justify filling charities’ financing gap.
The second, longer-term, policy lesson is that societies and policymakers must recognise and strengthen the social sector in good times as well as bad. Failing to do so, as Raghuram Rajan wrote in The Third Pillar, has been a major contributor to the fractures appearing in the capitalist model.
Restoring that third pillar requires much greater recognition of the importance social capital plays in our economies and societies. By and large, those extra NHS volunteers will not appear in the UK’s national accounts or in the company accounts of businesses. They are statistically invisible.
The need to change how societies and companies keep score, to better recognise all of the capitals and all of the paid and unpaid contributions citizens make, is surely a lasting lesson of this crisis.
Restoring social capital also means strengthening the infrastructure that underpins the social sector, embedding for good the new model army of volunteers the crisis has spawned. To that end, national civic service should be established as a goal for everyone, young and old, rich and poor, supported and recognised by government and businesses.
In 1942, amid the second world war and severe societal stress, the Beveridge Report established two of Britain’s key institutional pillars — the welfare state and the NHS. It is hard to imagine how the country would have fared recently without either of them. In a lesser-known 1948 report, William Beveridge called for “a fruitful co-operation between public authorities and voluntary agencies”, saying it was a “special feature of British public life”. His words were not acted on. No institutional pillars were built for the social sector.
It is time to return to Beveridge’s words. We need to invest the rich endowment of social capital created by the crisis, by rethinking and rebuilding the institutional immune system that is our social sector.
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