What is 'Social Capital'

Social capital consists of the economic resources obtained from the interactions between businesses and individuals or networks of individuals.  The resources include those of tangible and non-tangible assets, such as information, innovative ideas, and financial support.

BREAKING DOWN 'Social Capital'

Social capital is as valuable as financial capital.  Technological advances, such as the Internet and social media, allow businesses to form global social connections and networks, including many individuals. Before these advancements, social networks were narrow and local in scope. 

Types of Social Capital

Social capital is vital for businesses across many industries.  For example, social capital is essential to the profitability of a company and is crucial for people looking for new employment. Most service professionals acquire new customers through their social networks, and approximately 85% of new jobs are filled through networking.  

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 for not only marketing but also for quality control, as users contribute public reviews of provider quality.

Bonding and bridging are the most common forms of social capital. Bonding social capital arises from the connections formed by homogeneous groups, such as employees within a single company, women's groups, or enthusiasts of a specific hobby. Bridging social capital, by contrast, arises when members of diverse groups forge connections to share ideas and information, such as a local police force and a neighborhood association.  

Negative Effects of Social Capital

Social capital can also have negative effects. For example, adverse social capital results when a social network is used for manipulative or destructive purposes that affect the economy negatively. An example would be 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 as a way 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 because of their less-than-stellar reputations.

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