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.

  1. Social Networking

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

    A measurement based on aggregated social media data that helps ...
  3. Social Impact Bond - SIB

    A social impact bond is a contract with the public sector or ...
  4. Social Identity

    A company's image as derived from its relationships. An organization's ...
  5. National Social Security Fund (China)

    A government-controlled investment fund established primarily ...
  6. Social Data

    Social data is information that social media users publicly share ...
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. Retirement

    Are Social Security Benefits a Form of Socialism?

    Socialism is a loaded word in the U.S., but Social Security, one of the nation's most popular benefit programs, is wholly government-run.
  3. Retirement

    Is Social Security the Next President’s Problem?

    Social Security isn't going bankrupt, but someone will need to fix it at some point.
  4. Retirement

    Will My Social Security Benefits Be Taxed?

    If, and how much, your social security benefits are taxed depends on your income and where you live.
  5. Retirement

    Will Social Security Be Around for My Retirement?

    Here's what you may not know about our Social Security system and how it can affect your future.
  6. Retirement

    4 Things That Are Reducing Your Social Security

    Worried about Social Security dwindling? We discuss four ways it’s already happening.
  7. Personal Finance

    How To Ruin Your Career Using Twitter And Facebook

    Many people use social media in their professions. However, sometimes things can go wrong. Here are some things you should be aware of when using social media at work.
  8. Retirement

    Who Can Really Help at Your Local Social Security Office

    Many calls to Social Security end in frustration. It doesn't have to be that way.
  9. Retirement

    Can the Market Affect Social Security Benefits?

    What you should know about the relationship between the stock market and your monthly Social Security check.
  10. Small Business

    Social Media: High Risk, High Potential Returns

    Carefully selecting social media ETFs can provide you with the opportunity to diversify your portfolio and enjoy financial rewards due to user growth.
  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 >>
Hot Definitions
  1. Money Market

    The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities ...
  2. Perfect Competition

    Pure or perfect competition is a theoretical market structure in which a number of criteria such as perfect information and ...
  3. Compound Interest

    Compound Interest is interest calculated on the initial principal and also on the accumulated interest of previous periods ...
  4. Income Statement

    A financial statement that measures a company's financial performance over a specific accounting period. Financial performance ...
  5. Leverage Ratio

    A leverage ratio is any one of several financial measurements that look at how much capital comes in the form of debt, or ...
  6. Annuity

    An annuity is a financial product that pays out a fixed stream of payments to an individual, primarily used as an income ...
Trading Center