The Value of Social Capital

Who doesn’t enjoy a good story? Human beings are natural storytellers and story-lovers. Our lives are constituted by stories

– overlapping stories, insofar as they consist of many layers, plots, meanings, and peoples. Our individual stories include the history that precedes us, and extend around us in the present to include the many interrelated stories of others around us, and beyond us in the future as the story of humanity continues to unfold. This is just one way of suggesting that we are relational beings: we are in constant relation to one another, as we are never the only actor in our own story. Stories are a record of our decisions made, of our judgments, and actions taken, individually and together. Stories are, in short, the speaking or speeches about our deeds. And the story of relationships, or the relational account of human life, is what social scientists often refer to today as “social capital.” An obvious economic result of this is that communities who have more social capital, more stories, have more trust between its members, and therefore perform better economically. Trust translates to more income earning potential. In a sense, it’s obvious but science has shown time and time again, that the obvious can prove to be the most wrong. However, research studies have shown that indeed, as degrees of trust increase, so does GDP. For a business, there is no better proof that increasing social capital, or trust amongst employees, is not only good for building corporate moral, but also for improving the bottom line.

If increased social capital is linked to increased economic prosperity, then it is in the clear interest of businesses, and not just government and civil society to support it; a social employee is an effective employee. However, within economics more broadly, intuition is highly prized but unquantified. Many leading businessmen such as Warren Buffet and other leading economists understand the intangible value of an organization may be its greatest asset. And yet, without the ability to quantify it, that intangible value is unable to reflect the true worth of an organization.

Fig 15 Trust vs GDP per capita, 2014 – % of agreement with statement “most people can be trusted

Social capital is defined as the value derived from the total of one’s social networks and community activity. Social capital, then, includes personal and professional relationships (in physical or virtual form), social networks and support, civic engagement and belonging or membership to specific groups (from fraternities and societies to boards and neighborhood watch groups). Social capital also includes the benefits generated through these connections and actions. Since there is so much known about social capital, there is no doubt that social capital exists. But can it be effectively measured? This is the area that humanity has struggled with recently.

In the early days of social capital research, the concept was applied exclusively to the social potential of an individual (in characteristics such as charm, sociability, affability and usefulness to neighbors). More recently, the influential sociologist Robert Putman has reframed social capital into an attribute of collectives. He focuses on social norms and trust relationships as producers of social capital. For Putnam, social capital benefits the individuals who possess it as well as the wider community of which they form a part. Also, social capital is germane to our present considerations, because of its positive contribution to a range of measured societal factors, such as personal well-being and crime rates. So, when we increase social capital, that leads to benefits on many levels: individual, community, regional, national, and global.

Furthermore, social capital has been recognized as a driver of economic growth. This is because an increase in social capital results in greater economic efficiency (Putnam, 2000, 1993; Fukuyama, 1995). At a macro-level, it is likely that higher levels of trust and cooperative norms reduce transaction costs, thereby driving productivity (Putnam, 2000, 1993). At an individual level, people with wider social networks are more likely to find employment (Aguilera, 2002), to progress in their career (Lin, 2001), and to earn high wages (Goldthorpe et al., 1987). World Bank efforts to estimate the “true wealth of nations” suggest that intangible capital, made up mainly of human and social capital, represents around 60-80 per cent of true wealth in most developing countries (World Bank, 2006). It is apparent that social capital is real, and valuable.

Although some researchers have tried to estimate the value of social capital assets as a proportion of total wealth (Hamilton and Liu, 2013), social capital differs from natural and human capital as it is a broad concept, based largely on interpersonal relationships. That makes it very challenging to measure. In fact without a comprehensive view of the underlying mathematics, previous attempts to quantify social capital have failed.

To accurately measure social capital, one has to understand that it is an aggregate concept addressing not only interactions with a group but also individual behavior, attitude, and predisposition. Of course, the problem of measuring or even estimating the presence of these and trust in a social network is a challenging one. Specifically Trust, as an aspect of social capital, remains both undefined and poorly understood. If psychological attributes such as trust cannot be quantified, then the field of social science cannot benefit from the power of mathematical analysis that has proven so valuable in so many other fields of science. However, we do think it can be quantified.

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