What Is Social Capital?

The term social capital refers to a positive product of human interaction. The positive outcome may be tangible or intangible and may include useful information, innovative ideas, and future opportunities. It can be used to describe the contribution to an organization's success that can be attributed to personal relationships and networks, both within and outside an organization. It can also be used to describe the personal relationships within a company that help build trust and respect among employees, leading to enhanced company performance.

Key Takeaways

  • Social capital is a set of shared values that allows individuals to work together in a group to effectively achieve a common purpose.
  • The idea is generally used to describe how members are able to band together in society to live harmoniously.
  • In business, social capital can contribute to a company's success by building a sense of shared values and mutual respect.
  • Social capital can manipulate people and destroy order as is the case with drug cartels and corporations that team up to drive out the competition.

Understanding Social Capital

Social capital allows a group of people to work together effectively to achieve a common purpose or goal. It allows a society or organization, such as a corporation or a nonprofit, to function together as a whole through trust and shared identity, norms, values, and mutual relationships. Put simply, social capital benefits society as a whole through social relationships. As such, the study of how social capital works or fails to work pervades the social sciences.

Although the term social capital may have been put into use more recently, the concept itself—that social relationships can have productive outcomes for an individual or a group—has been explored for quite some time. It was commonly used to describe civic and social responsibility or how members of a community work together to live harmoniously and in unison. When used in this context, the definition is purely social with no financial implications.

But the term can have different meanings depending on how it's applied. In fact, social capital is no longer narrow and local in scope. The concept is commonly used to describe the relationships that help contribute to the success of businesses. It is arguably considered as valuable as financial or human capitalNetworking, the use of the internet are prime examples of how social capital works in a business sense. These allow professionals to form social—and often global—connections in many variations. In purely practical terms, it is estimated that up to 85% of jobs are filled through informal networking rather than through job listings. That is social capital in action.

Unlike other forms of capital, there is no general consensus on how to measure social capital because it can be fairly subjective.

Types of Social Capital

Researchers see two primary forms of social capital. Bonding refers to social capital created within a group with shared interests and goals. A neighborhood association is a good example of how bonding works. Bridging, on the other hand, is the creation of social capital across groups. When bridging is successful, individuals in the two groups discover shared interests and goals and work together to achieve them. A neighborhood association that links up with a local police department is an example of how bridging works.

The internet has revolutionized social capital, effectively creating an infinite number of social connections suitable to any occasion. For example:

  • Airbnb, Uber, and eBay users are able to use social capital to make a selection based on the reviews of past users. The same people contribute to social capital by leaving their own reviews later. The companies that own those sites use reviews as an essential component of their quality control programs.
  • Social networking sites such as Facebook strengthen bonds based on personal interests, such as hobbies, past experiences, a shared hometown, or a previous employer.
  • Social media is also a primary source of social capital for small business owners who can showcase their products and services online as effectively, if more cheaply, than larger corporations.

Disadvantages of Social Capital

Many people believe that the success of an organization—whether that's society as a whole or a specific group—depends on the degree of social capital available. This is why social capital has always been linked to positive change. But that's not always true. Although there are distinct advantages to social capital, it can be used for manipulative or destructive purposes.

Nefarious groups, such as gangs and drug cartels, often use social capital to strengthen bonds within the group and to recruit new members. Similarly, a group of corporate executives may collude to manipulate and market prices to drive out the competition. The emergence of these kinds of groups can decrease the overall social capital of a neighborhood or city. Residents and local businesses suffer, and potential customers avoid the area.