Social Capital – Why We Shouldn’t Ignore it

With COVID-19 restrictions disrupting many aspects of our daily lives and preventing traditional face to face social interactions, Simon Bridge, Ulster University Business School Visiting Professor, takes a look at the role of social capital and its influence on business success.

People with businesses know that financial capital can be crucial for the success of their enterprises. But how often do they recognise and value the benefits that social capital can bring?

Of course, the label social capital can be confusing, not least because it has been used in different ways. But what else should it be called?

Social capital is something that comes from social interaction and, like financial capital, must be accumulated before it can be used.

And now is actually a good time to think about it. COVID-19 restrictions have precluded a lot of traditional face-to-face social interaction so it is appropriate to reassess why contacts matter and how they might be maintained by other means.

We are a social species

Nearly four hundred years ago John Donne famously commented that “No man is an island, entire of itself. Each is a piece of the continent, a part of the main”. Humans are a very social species. If you don’t believe that read the book Herd by Mark Earls. In it he explains that “We do what we do because of other people and what they seem to be doing”, or as he put it in a radio interview, “Independent thinking is to humans as swimming is to cats: we can do it if we have to.” So hands up those who have seen a cat swim.

We may think we act rationally, as traditional economic thinking has assumed, but as Benjamin Franklin once explained: “so convenient a thing it is to be a reasonable creature, since it enables one to find or make a reason for everything one had in mind to do”. Which is consistent with the view that often we decide what we want to do and then decide why, and then we believe the rationale we have actually invented. Could that be because often we do things to conform to social example, which is so much a part of us that we don’t notice it?

As Jonathan Rowson and Iain McGilchrist explained in their publication Divided Brain, Divided World: “The notion that we are rational individuals who respond to information by making decisions consciously, consistently and independently is, at best, a very partial account of who we are. A wide body of scientific knowledge is now telling us what many have long intuitively sensed – humans are a fundamentally social species, formed through and for social interaction, and most of our behaviour is habitual.”

Social connections and business

Nevertheless, we are accustomed to assume that businesses are guided by rational logical decisions. Whereas, if we were to focus instead on the people behind them, we would realise that social contact can be very influential. So why haven’t we been taught about it?

Why social capital matters

Traditionally it has been thought that businesses needed intellectual capital (ideas), human capital (people with the right skills), physical capital (plant and machines), natural capital (raw materials) and financial capital – as people need a diet which includes protein, carbohydrates, fats, fibre and minerals. But a diet of just those is not enough without vitamins, and businesses similarly need social capital, without which the other components won’t work properly.

But what actually is social capital?

It seems that it is not just one thing but encompasses a number of aspects of social interaction. For instance, one commentator, James Coleman, has suggested that:

“It is defined by its function. It is not a single entity, but a variety of different entities having two characteristics in common: They all consist of some aspect of social structure, and they facilitate certain actions of individuals who are within the structure.”

He also proposes that the ‘useful capital resources’ social capital can provide include ‘information channels’; ‘obligations, expectations and trustworthiness’; and ‘norms and effective sanctions’.

Categories of social capital

Sources of information

Examples of the first of these categories can be relatively easy to find. There is a lot of information relevant to a business which cannot easily be obtained from the web. For instance “Who is a good supplier?”, “Are there any unwritten rules in this area I need to know about?”, “How should I word a grant application?” and “Who are nuisance customers I need to avoid if possible?”. So it will be useful to have contacts who could answer such questions. This is the aspect of social capital most readily associated with ‘networking’ and it can be used to find many types of information useful to enterprises.

The benefits of trust

The second category is also a crucial aspect of social capital and its importance is illustrated by Francis Fukuyama in his book Trust, in which he describes how counties where strangers can trust each other in their business dealings have built stronger economies, and by Tim Harford in his book The Undercover Economist, where he suggests that in many underdeveloped countries it is a lack of trust in economic dealings which makes them so poor. This category of social capital encourages and facilitates the provision of support and/or co-operation, often on a reciprocal basis. Trust has to be earned but, once it is built up, it can be used to establish credibility and support obligations.

This aspect of social capital can include cultivating people who will vouch for your reputation, provide you with references, or otherwise act as an advocate for you or be a mentor – because they trust you and you trust them. It also includes the establishment of a habit of mutual support where someone in another business will help you when you need it because they know you would do the same for them.

The power of social norms

The first two categories of social capital might seem to be the more obvious, not least because it may be easier to see how they can contribute to business and because their use has been relatively widely highlighted. But Coleman’s third category can be just as important and might merit a little extra attention because it is less overt. It is the sort of social capital which establishes and maintains norms of behaviour and provides the ‘social glue’ or bonding which can be found in family or ethnic groups and also underlies the maintenance of trustworthiness when transgressors are ‘punished’ by social disapproval.

Even in business we try to follow the established norms and this sort of social capital can encourage us to feel that what we are doing is commendable and worthwhile.

In conclusion

Obviously there is a lot more than can be said about each of those categories but, to sum up, social capital is important because it can influence business in many ways. However, like vitamins, it has taken us a while to appreciate its importance – and we are still learning about it.

The clear implications are that it will be helpful to appreciate the uses, and abuses, of social capital; to learn how to build it (trust, like financial capital, needs to be earned and accumulated if it is to be used and can be lost by being misused) and to understand the influence of behavioural norms. It has been suggested that obesity is like a virus because people obviously catch it from those with whom they socialise. If your associates are not helpful, you can change them - so, if you are not getting the support you want, you can look for and cultivate friends who will provide it.

Simon Bridge, Ulster University Business School Visiting Professor

Further reading:

Mark Earls, Herd: how to change mass behaviour by harnessing our true nature, (Chichester, UK: John Wiley & Sons Ltd, 2009)

Jonathan Rowson and Iain McGilchrist, Divided Brain, Divided World, (London: RSA, February 2013)

James Coleman, 'Social Capital in the Creation of Human Capital', American Journal of Sociology, Vol.94 Supplement, 1988, pp.S95-S120