A New Chapter in the Story of Social Capital

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 judgment, 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.” The “social” indicates the relational component, and the “capital” highlights the deep value of this phenomenon. The greater degree and quality of social capital a community has, the more likely it is to consist of happy, healthy, and flourishing people. One might go so far as to suggest that the happiest people are those with the strongest relationships: life is fully lived in and through relationships, something research has shown to be true. As Professor Robert Waldinger, director of the Harvard Study of Adult Development, one of the world’s longest studies on health and happiness, suggests: “our relationships and how happy we are in our relationships has a powerful influence on our health… Taking care of your body is important, but tending to your relationships is a form of self-care too. That, I think, is the revelation [of the study].” This important intangible transcends all else as we contemplate its importance on our death bed. It all comes down to relationships in the end. A similar insight applies to the world of business.

This may seem an obvious point, but one not regularly grasped in its fullness. It is, one might say, a story known, but not properly told. Harnessing the possibilities of social capital for business success necessitates telling the story properly, or unraveling elements of its plot not otherwise brought to light. After all, the least interesting part of any successful business’s story is a numerical account of its bottom line or dollar value. The story that everyone most enjoys hearing has to do with the human successes: the story of social capital operating at its best. And it is a story that is becoming all the more relevant, as we are entering a new stage in economic history and human development; having progressed through the nomadic, sedentary/agricultural, and industrial phases of production, we now find ourselves on the cusp of the “post-industrial economy,” the “knowledge economy,” the “information society,” or any number of similar terms expressing such things as changes in the nature of work, in the structure of social and economic relations, and in the dissemination and importance of data—all of which raises the stakes and importance of human social capital in our contemporary world. This essay introduces a way of thinking about the story of social capital in a deeper sense.

Bookshelves are full of biographies of great leaders and entrepreneurs, and the public is often captivated by the lives of individuals such as Steve Jobs, Richard Branson, Bill Gates, and Jeff Bezos, to name just a few. And yet, while leadership is indubitably an important component to organizational success, the substance of the group led is of great significance. What is the “substance” of any given group, in business and otherwise? Simply speaking, it is the relationships, within, beyond, and across the group itself. As has been acknowledged since the beginning of Western thought, human beings are social animals. And while there are other gregarious beasts and beings in the world, the social or relational aspect of human existence is distinguished by a consciousness of our sociality, as well as that we can communicate it. The quality of relationships is enhanced by our ability to understand our relationships in its various facets, not least of all with respect to its strength and stability, or, in a word: its level of trust. While businesses are often evaluated numerically on the balance sheet, calculations overlook the level of trust, the quality and substance of relationships—the degree of social capital—as they consider it unquantifiable. While qualitative in nature, and therefore difficult to measure with the same accuracy as a bottom line, nevertheless there are ways to capture social capital so as to assess it, for its value is immense. Researchers Kevin A. Hassett and Robert J. Shapiro, in their study, “What Ideas Are Worth: The Value of Intellectual Capital and Intangible Assets in the American Economy,” calculated that by the year 2011 (the date of publication), the value of intellectual capital reached $9.2 trillion and other intangible assets were valued at an estimated $14.5 trillion. It is a matter of adopting creative and innovative ways of thinking about these intangibles, so as to measure as well as access them. Insofar as a business is a sort of small-scale society, and its members communicate in their sociality, the business itself can only be improved by being able to articulate and communicate—as well as improve—its quality and degree of social capital.

To be sure, the importance of social capital in business is often recognized, but rarely is it discussed, or captured, directly. Worse yet is when it is tightly regulated or confined into a structure, under a company’s authoritative leadership and control, and thus eliminated. At any rate, instead of communicating about social capital, observers and analysts turn to discuss tools of communication. This is but an inadvertent way to access it. While such instruments of communication and connectivity are valuable (such as social media platforms, video conference software, electronic communication and messaging methods, etc.), and they aid in created social relationships, they are properly understood as supplements to genuine social capital. These supplements operate best when social capital and trust already exist in a concrete sense, and they regularly fail when they seek to substitute for social capital in its fullness. In short, social capital is much more than connectivity, for connections alone do not make people successful. There are many well connected people, for example, on Facebook or Linked-In, with many “friends” and “links,” who have not achieved their desired level of success or satisfaction. Similarly, there are businesses that have connectivity in this regard without the optimal relationships required to advance in performance, growth, and quality to which they aspire. Consequently, there are deeper factors that contribute to a company’s social capital beyond this superficial, or supplemental, level of connectivity that in turn influence the growth and development of the company. Thus, we need a deeper as well as more direct way to access it for measurement. It is time to challenge the assumption that denies a proper metric for genuine social capital, to benefit both business and society at large with its use and application.

At present, the Social Development Department of the World Bank is supporting two research initiatives working towards measuring social capital, the first of these endeavours being the Social Capital Initiative Working Paper Series. Its goals are as follows:

1. to assess the impact of social capital on project effectiveness;
2. to demonstrate that outside assistance can help in the process of social capital formation;
3. and to contribute to the development of indicators for monitoring social capital and methodologies for measuring its impact on development.

While the World Bank’s approach is to be applauded, insofar as it aims to create conversation surrounding social capital’s influence on development, it does not go far enough toward formulating a metric for social capital. The intangibility of social capital poses an apparent obstacle, which we aim to overcome.

To be sure, values are given to other intangible assets, such as the value of a certain brand according to customer recognition, or the intellectual property captured by patents and other similar management strategies, carried out in accordance with accounting standards, or otherwise considered according to pricing mechanisms. Thus, intellectual capital can be approximated based on a variety of features, such as the organizational structure of the company, the financial data of the company, and other data gathered on the operation and performance of the business. Efficiency of different levels and aspects of the company can be aggregated to give an estimate of the influence of intellectual capital on the business, and the ratios between these efficiency values—both within that company, as well as compared to other businesses in similar and different industries—provide one way of gauging the value of the intellectual capital of that company. There are a number of methods available that adopt this approach.[1] And while they are valuable, they overwhelmingly focus on physical and intellectual capital, and thereby exclude the significant variable of social capital. Bridging the gap between monetary values and a company’s success through a social capital metric is requisite for this missing link.

The numerous accounting practices provide a measure of intellectual capital in a consequentialist sense, as they provide measures of intellectual capital in terms of what it produces for the company as compared to the tangible assets of the company. These methods hint at, but do not include, the value that is added to a company by the expertise and experience of its employees, by the vast range of relational elements within an organization, and the associated knowledge that is present among individual employees in their familiarity with any number of internal processes, procedures, organizational structures, and other functional elements of the company—all of which adds tremendous value. What is needed is the creating of a larger story, one that fills in the blanks regarding social capital as manifest in the experiences of employees. In other words, it is a matter of connecting individual stories of the workplace together, in an intelligible way, so that the larger story of the business becomes one in which all employees participate, and tracing this to be fundamental to a business’s success. This is what makes any business’s own social capital success story come alive. The first step, therefore, in uncovering this story, or weaving it together, is in collecting the requisite data.

Currently, passive data collection is something that is very common and already practiced on large scales, though not explicitly in a business context. Software processes such as Google Analytics harvest massive amounts of data on internet users, which can be combined with user information obtained through login and user data from different web apps, sites, and social media platforms to produce an elaborate profile of users and groups of users. This metadata can then provide information to advertisers, businesses, governments, and other organizations, who can in turn derive various conclusions from it about the users. Despite the convenience of this method, it creates an abundance of data without an understanding of the many variables influencing these numbers. They are so many facts without an overarching structure, or so many details without a coherent plot, so to speak. Without the proper method of communication—without translating relationships into a measurable quanta and an ability to account for it with the proper language—the data regarding social capital remains obscure, or misunderstood. Furthermore, as in the case with Google Analytics, the company ‘owns’ the content and may attempt to harvest the value from other organizations and groups. So much is evidenced by the recent decision of the European antitrust officials to fine the giant search engine a record $2.7 billion for “unfairly favoring some of its own services over those of rivals.”

For example, a company may hire a manager who has all the necessary qualifications and knowledge to complete the job. However, a lack of motivation and drive makes this same prospective employee less than desirable. To reiterate, passive data gathering does not tell the story of the users. No explanations are given with the numbers. Instead, based upon numbers assumptions are made. And assumptions, on the one hand, often define us—for better and for worse—and, on the other hand, can leave us with incorrect information and unanswered questions. Therefore, to understand these analytics one must understand the related story. A quick, efficient, and effective way to gain knowledge of this story is to ask another person who knows the individual to quantify the story. After all, even those without explicit understanding nevertheless integrate many other sources of knowledge, including critical thought and judgment, subconscious and intuitive awareness, or even gut feel, and combine these into a kind of device of knowing. Despite convention, intuition is a powerful tool, and no less a light than Einstein called the intuitive mind a sacred gift—it is a gift that we ought to honour by giving it greater voice. Building on the previous example, one could imagine a corporate enterprise software with the ability to include internal as well as external connections between employees and other entities—to begin not only mapping, but narrating, the relational dimensions of a business. Such a software would allow for substantial data to be harvested with minimal time or efficiency cost to the project and employee, and not require any specialized adaptation of the software. In sum, any given group, company or country could restore the value of harvesting this data, rather than risk losing it to third parties or external servers, such as Google.

So, what of the metric? Social capital is surely a multi-dimensional concept, as it includes such things as: trust; bonding and bridging within and across groups; both informal and formal networks; and participation in greater or lesser degrees in groups and communities that vary in their organizational structures. While the bulk of previous research suggests that social capital is too complex to be measured, in 2002, however, the World Bank introduced a measurement system of social capital referred to as SOCAT. To evaluate households, communities and organizations, SOCAT collects data through household surveys, community questionnaires or interview guides, and organizational guides and scoresheets. In combination with surveys that capture income and expenditures, SOCAT is able to relate the results of the questionnaires to economic standing. The SOCAT survey poses a variety of qualitative questions, largely in the form of “the two-answer way,” whereby survey participants give two answers to any given question. While valuable to a certain extent, such qualitative research does not achieve the objective of more precise measurement to which we aspire. To create reliability and validity in social capital measurements, it is our suggestion that a formula be implemented. This formula would better account for variables such as trust, respect, experience, location of employee, and familiarity with the job.

To amalgamate the quantitative and qualitative aspects at hand, a shift in thinking is required. While metrics such as those used to measure time, weight, monetary value and otherwise have become accepted as standard, or foundations of truth, in our society, we limit our understanding by accepting these to be the exclusive forms of measurement. In the case of social capital, something apparently complex, but elegant in its simplicity at bottom, is proposed. A form of measurement, or metric, that is participatory, somewhat fluid, but otherwise intelligible. The equation we propose for the measurement of social capital is one to be incorporated within a proxy voting system. It is just such an equation that would provide a quantitative basis for social capital so as to become another salient form of fact, or data, in our world that is so heavily influenced by the scientific method born of seventeenth century thinking. And yet, as is readily accepted, knowledge and science change and improve over time with new discoveries. What the advances in science uncover is certain patterns and invariant relationships, or laws, across all forms of life. The area of “social physics”—first coined by Auguste Comte and recently picked up by Alex Pentland—explores the parameters for human behaviour and decision-making in groups. Pentland’s work, for example, engages precisely “how social networks can make us smarter,” which is an insight not lost on certain urban planners and thinkers like Edward Glaeser, among others. Whether examining things from the cellular or molecular level, or upwards from the larger social and civil perspective, there are emergent laws and constraints operating that shape—and in some cases determine—the interactions and dynamics of human individual and collective behaviour, on the basis of evolutionary and cultural developments. This is relevant for our purposes insofar as the logic of vote transference converges with the discipline of science and its drive toward quantification, insofar as we begin to quantify trust: the sum of all steps, or transfers of votes, can be formulated into an equation that produces a trust value—trust follows along the lines of diminishing quarters (Trust = A + ∑ e¼, where “A” is the original vote numeric and “∑” is the sum total number of steps or transfers).

The form of this metric is supported through logic and research. It makes sense that I trust a person and that I would trust that person’s friend less than I trust that person. This is the beginning of a convergent series as the degree of separation from the source of the trust increases. We are also able to see in the biological sciences, that all of nature, from single cell organisms to elephants and whales follow nonlinear mathematics and scaling allometry. Further, as an example drawn from psychometrics, when people are asked what level of discomfort they have on a 0-10 scale, individuals automatically scale it non linearly.

But trust is also relative. Some individuals and groups, will appreciate trust more than “the cold hard facts” and as such diminish its value relative to the more important quantities. So, although the comparable total value is less in some situations, the “shape” of the trust still follows an exponential pattern (convergent series). Or more specifically, a hyperbolic pattern for the people interested in math. For example, because GE has a strong value proposition in its brand and momentum, it may value its people less along with their social capital and trust and caring less about employee turn-over. This is in contrast to a new start up where the majority of value is in people, social capital and trust. So incorporating this relative perspective, the total value of an organization would be T = x (conventional value) + y(A + ∑ e¼), where x and y can be synchronized to the organization or beliefs of the group.

This is but one formula for quantitatively capturing trust and offering a metric into calculating social physics. Further developing this new science of social equations will open new vistas for analyzing groups and companies—for approaching the relational aspect of human life with a degree of mathematical accuracy. Such developments in creative and technical thinking may soon offer ways of predicting erratic and undesirable behavior, as well as preventing catastrophic or destructive patterns from unfolding.

In light of the aforementioned, the schemata of proxy voting, properly understood and undertaken, offers a means by which to begin to measure social capital, and thereby ameliorate the method for building and enhancing social capital, it likewise holds out the prospect for improving democracy at large. Proxy voting, also known as vote transferring, is different from the aforementioned questionnaire format. Additionally, it makes participation easy and rewarding. The concept is simple, and therefore appealing. If an eligible voter chooses to pass up the opportunity to vote, they in turn give their vote to someone else—someone they deem more qualified, better equipped for the vote (i.e., with greater knowledge, experience, confidence, etc.). This transfer of vote itself is precisely an instance of social capital: it exemplifies the very elements of social capital, as the transfer emerges on the basis of an assumed relation between the one who transfers and the one to whom it is transferred. Simply speaking, it is an outward display of trust, of participation, and the execution of a relationship, or informal network. In terms of the story of social capital and business success being told, vote transferring is the communication of this narrative. Thus, when a vote is transferred it becomes more valuable, for all that is implied about social capital in the transfer itself. The transfer of a vote is the creation of value—an act of added value—and one that may continue to increase as additional transfers ensue. Any such transfer between voters is referred to as a unit of social capital.

Not only does a proxy voting system offer a window into the underlying story of social capital and a way to measure it, but it also creates an environment where individuals are encouraged to be involved: it is a method of increasing engagement, which is part of building greater social capital. The means meet the end; the instrument is part of the objective. Individuals thus choose to participate in an election despite their potential lack of knowledge, knowing that someone else’s expertise, experience, knowledge, and so on, can be advantageous to the outcome of the election. Proxy voting increases the reliability of the voting process, while increasing the impact every individual’s vote, or voice.

The value of inserting various efficiency-related elements of human capital into a larger picture cannot be overstated, for it brings life to a business’s social capital success story. More concretely, such a structure would offer the means of mitigating or removing lost time in bringing a new team member up to speed, or in a supporting employee from another team. Furthermore, for larger organizations with teams working in different locations on similar projects or in the same department, building up this knowledge base would allow for the incorporation of developments from across the organization to impact and improve the performance of team members in any number of various locations. The proposed software would be a powerful tool for any group. It could be structured around an entire organization or club, or a group within a group, each creating a knowledge bank around the core of what brings a given group together. It would help with better decision-making through its creation of a shared memory bank that stores the genius of all its members, even after they leave. This allows for organizational protection, on the one hand, and would make it easier for new members of the group to situate and orient themselves in the organization, as well as in their specific tasks. Through the creation of a simple tool to get feedback from the entire group it gives everyone an equal voice, highlighting the skills and attributes of members that may have previously gone unnoticed, thereby making a group’s otherwise invisible assets visible. A software capable of doing this would inspire innovation, highlight leaders, and open a window to better understanding a company’s culture, so as to ultimately increase its revenue. Businesses that are not heavily dependent on their human capital could still find great advantage in such applications. Any large organization that has a significant number of locations (national or international franchises) would be able to streamline operations according to the expertise and experience gained by the higher-level managers across different regions and levels of the company.

Because social capital plays such a critical role in the success or failure of an organization and is currently unmeasured, it remains intangible, and therefore misunderstood. Consequently, it becomes challenging to build it, enhance it, and apply it as an influential factor in the success of a business. By breaking down this multi-dimensional concept into a singular unit we are able to access the metanarrative of social capital to tell a fuller story, and thereby increase its benefit for businesses. Through this new metric, social capital is demystified and exemplified, in theory and in practice. By grasping a quantitative aspect of social capital, its inherently qualitative properties are not undermined, but rather made intelligible. And by considering social capital as a quantitative measure, to be analyzed alongside other scientific data, its story can be told with the fullness merited. This new metric, one might suggest, thickens the plot of social capital, and makes for a compelling and captivating story of human proportion.

[1] Consider some of the following: Value-Added Intellectual Coefficient (VAIC), Skandia Navigator, Intangible Assets Monitor, Economic Value Added (EVA), and a variety of financial reporting and accounting standards, including Generally Accepted Accounting Principles (GAAP), Accounting Standards for Private Enterprise (ASPE), and International Financial Reporting Standards (IFRS) IAS (International Accounting Standard) 38.