Social capital, trust, Target, and the economy

Social capital

Late last year we released my report “The X-Factor? Social capital and economic well-being: A quantitative analysis.” The key finding was that levels of what we call “social capital” are linked with levels of economic wellbeing, as measured by median household income. In short, about 55% of the variation in median household incomes across 3,000 counties in the United States can be explained by variations in their levels of social capital.

This can all sound a bit abstract, so here is a concrete example.

Trust

One of the key components of social capital is “trust.” One of the subindices in the Social Capital Project‘s state index of social capital is ‘% who trust all/most neighbors.’ As Figure 1 shows, Minnesota (in purple) scores highly in that, ranking 4th nationally with 74.5%, but also in the top ten are all four of our neighboring states (gray). There is a regional aspect to our high levels of social capital.

Figure 1: Trust all/most neighbors

Trust is nice in itself, but it also has economic benefits. You are more likely to do business with people you trust and if you are doing business with people you do not trust you will demand all sorts of costly insurance against misbehavior, like higher levels of collateral or payment up front. As the cost of transactions increases, there are fewer of them.

Who do you trust? Well, hopefully your family members, but that is generally a pretty small market. Where trust can really pay economic dividends is when you feel you can trust people you do not know. This allows you to engage in a wider range of economic activity without all that costly insurance against misbehavior.

Italy is often given as an example of that. Levels of trust in Italy are relatively low which accounts, in part, for the profusion of family businesses and lower incomes. In states like Minnesota, however, levels of trust are higher and that drives higher incomes.

Target

One obvious aspect of trust is the belief that people are unlikely to steal your stuff. But, for some retailers, that likelihood has increased in recent years. The Star Tribune reports:

For more than two years, companies such as Target and CVS have suffered from an increase in retail losses. Target reported its shrink costs grew more than $500 million last year compared to 2022.

The stores have been forced to react. They have closed stores and, in those that remain open, have initiated onerous anti-theft measures, “with everything from deodorant to boxer briefs under lock and key at a growing number of stores” and “wheel-locking carts if shoppers venture too far from the store.”

The economy

As increased theft has eroded trust and prompted these measures, it is having an economic impact:

“They’ve locked up a lot,” said Joey Mueller, 31, about his local Target store in northeast Minneapolis. “It’s toothpaste, deodorant, laundry detergent. … Out of principle, if it’s locked up, I don’t buy it.”

…

Mueller lamented in an online review of his local Target how it “converted half the store into a museum of deodorant, toothpaste, laundry detergent, shampoos and vitamins.”

He — like Gallagher, who enjoys being able to freely compare products, look at ingredients and smell or feel items — will also venture to the suburbs for necessities. 

All of this increases the cost of a given transaction, like buying cheese or shaving foam, in terms of both money and time. This leaves less of each to devote to other transactions, and economic activity decreases.

The Social Capital Project’s index is a snapshot. A subject for future work will be to try and extend it over time. Social capital, like any capital, can be depleted. We hope, instead, to track its growth.