What Is Social Capital?

Social capital is a positive product of human interaction. The positive outcome may be tangible or intangible and may include useful information, innovative ideas, and future opportunities.

In business terms, social capital is the contribution to an organization's success that can be attributed to personal relationships and networks, both within the organization and outside of it.

The term social capital is also sometimes 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 in a group to work together effectively to achieve a common purpose.
  • In business, social capital can contribute to a company's success by building a sense of shared values and mutual respect.
  • The Internet has revolutionized social capital by enabling an infinite number of social connections suitable to any occasion.

Understanding Social Capital

The term social capital may have been coined no later than 1999. However, the concept that social relationships can have productive outcomes for an individual or a group is an old one.

Broadly speaking, social capital is a set of shared values that allows any group of people to work together effectively to achieve a common purpose. As such, the study of how social capital works or fails to work pervades the social sciences.

Today, social capital is arguably as valuable as financial capital. The Internet allows professionals to form global social connections and networks in many variations. Social capital is no longer narrow and local in scope.

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.

Types of Social Capital

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

  • Users of web services from Airbnb and Uber to eBay use social capital in order 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, or past experiences, such as a shared hometown or a past employer.
  • Social networks also have become a primary source of social capital for small business people, who can showcase their products and services online as effectively, if more cheaply, than big corporations.

Special Considerations

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 an example.
  • Bridging is the creation of social capital across groups. If the 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.

The Internet allows professionals to form global social connections; social capital is no longer narrow and local in scope. 

Negative Effects of Social Capital

Social capital can be used for manipulative or destructive purposes. In business, an example would be a group of executives in an industry colluding to market prices. Nefarious groups, such as gangs and drug cartels, use social capital to strengthen bonds within the group and to recruit new members.

Moreover, the emergence of such groups can decrease the overall social capital of a neighborhood or city. Residents and local businesses suffer, and potential customers avoid the area.