Social Capital

What is 'Social Capital'

Social capital is an economic idea that refers to the connections between individuals and entities that can be economically valuable. Social networks that include people who trust and assist each other can be a powerful asset. These relationships between individuals and companies can lead to a state in which each thinks of the other when something needs to be done.

BREAKING DOWN 'Social Capital'

Along with economic capital, social capital is a valuable mechanism in economic growth. As technological advancements continue to make the world smaller and the global population more interconnected, companies rely on social capital more than ever to drive business. While in decades past, companies could rely on persuasive marketing to get customers in the door, in the 21st century, those customers are plugging into social networks and relying on their peers to direct them to a provider when a business need arises.

Examples of Social Capital

Social capital permeates many aspects of the business world, including companies acquiring new customers and individual job-seekers finding employment. A person who knows somebody at a company where he is applying for a job and uses this connection to secure the position has benefited from social capital in his employment search. Likewise, an insurance agent who joins a local church or civic organization and uses the relationships he builds within to acquire new clients and increase his book of business has also employed social capital.

Companies such as Airbnb and Uber have harnessed social capital to grow their market shares and become major disruptive forces in their industries. Both companies rely on the power of social networks not only for marketing but for quality control, as users contribute public reviews of provider quality and vice versa.

Bonding vs. Bridging Social Capital

Bonding and bridging represent two forms of social capital. Bonding social capital is social capital that arises from the connections formed by homogeneous groups, such as employees within a single company or enthusiasts of a specific hobby. Bridging social capital, by contrast, results when members of different groups forge connections to share ideas and information.

Negative Effects of Social Capital

Social capital can also have negative effects. For example, negative social capital results when a social network is used for manipulative or destructive purposes that affect the economy negatively, such as when a group colludes to fix market prices. Nefarious groups, such as gangs and drug cartels, use social capital to strengthen bonds within the group and to reach out to like-minded individuals to increase their ranks. Moreover, the presence of such groups can decrease the overall social capital in a neighborhood or city, which causes local businesses to suffer, as potential customers avoid these areas on account of their less-than-stellar reputations.

RELATED TERMS
  1. Social Networking

    The use of internet-based social media programs to make connections ...
  2. Social Responsibility

    The idea that a company should embrace its social responsibilities ...
  3. Socially Responsible Investment ...

    Socially responsible investing looks for investments that are ...
  4. Social Enterprise

    An organization that is directly involved in the sale of goods ...
  5. Social Security Tax

    The tax levied on both employers and employees used to fund the ...
  6. Social Security

    A United States federal program of social insurance and benefits ...
Related Articles
  1. Retirement

    An Analysis Of Social Security Benefits And Their Future

    Social Security is a significant driver of the US economy--as good a reason as any to make sure you understand it!
  2. ETFs & Mutual Funds

    When Socially Responsible Investing Hurts

    Socially responsible investing can make you feel good but it may not boost your returns.
  3. Managing Wealth

    Social Finance Careers: Creating A Better World

    A financial career can be used to do more than just bring in profits. Find out how to get a career with a more social objective.
  4. Retirement

    When Do I Stop Paying Social Security Tax?

    Almost never, unless you belong to one of these special groups.
  5. Retirement

    Introduction to Social Security

    You've probably contributed to this fund, but will you reap the benefits? Find out here.
  6. Professionals

    Implementing A Small Business Social Media Strategy

    As social media continues to change the way people communicate, it has become an increasingly important tool for small businesses.
  7. Professionals

    Implementing A Small Business Social Media Strategy: Introduction

    As social media continues to change the way people communicate, it has become an increasingly important tool for small businesses.
  8. Retirement

    The Purpose of a Social Security Statement

    Learn what information your Social Security benefit statement contains and how you can use the information to more intelligently plan for retirement.
  9. Retirement

    Who Pays Your Social Security Benefits?

    The short answer is, current earners. Taxes on current wages pay the Social Security benefits of retirees, the disabled, children and other beneficiaries.
  10. Financial Advisor

    When Taking Social Security Early Can Make Sense

    Sometimes it makes financial sense to take Social Security early. Here's a look at when this might be a good idea.
RELATED FAQS
  1. What are some examples of different types of capital?

    Learn about the different types of capital, including financial, human and social capital, and how each is a valuable asset ... Read Answer >>
  2. What is the Social Security administration responsible for?

    Learn about the Social Security Administration's main responsibilities along with its history, structure and social safety ... Read Answer >>
  3. Is there any way to opt out of paying Social Security?

    Understand more about the purpose of the Social Security system and learn which groups of taxpayers are automatically exempt ... Read Answer >>
  4. Why is social responsibility important to a business?

    Take social responsibility seriously, and your business could benefit from happier, more productive staff members while helping ... Read Answer >>
  5. What are the most common scams regarding Social Security benefits?

    Learn about some of the most common Social Security scams that occur by phone, email and direct mail, and how to recognize ... Read Answer >>
  6. How do you craft an effective social responsibility policy?

    Craft social responsibility policies to brand the business, provide direction for the company's mission and motivate employees ... Read Answer >>
Hot Definitions
  1. Glass-Steagall Act

    An act the U.S. Congress passed in 1933 as the Banking Act, which prohibited commercial banks from participating in the investment ...
  2. Quantitative Trading

    Trading strategies based on quantitative analysis which rely on mathematical computations and number crunching to identify ...
  3. Bond Ladder

    A portfolio of fixed-income securities in which each security has a significantly different maturity date. The purpose of ...
  4. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  5. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  6. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
Trading Center