Economists Studying “Social Capital”

Once, economists studied physical capital–the bricks and mortar of economic life. Then, they studied investment capital–the financial resources that provide the wherewithal to build industry. More recently, economists have explored the role of human capital–the endowments of education and health that individuals possess.

Now, in belated recognition of the importance of group membership and social relationships, economists are studying “social capital.” Hard to measure and difficult to define, social capital comprises an intricate web of relationships, norms of behavior, values, obligations, and information channels. Within groups and regions, its presence may boost productivity and incomes, while its absence may hinder growth.

The essential quality of social capital, as opposed to physical or human capital, is that it reflects a community or group and that it impinges on individuals regardless of their independent choices. That means that if community leaders toil to elevate the quality of life, reduce crime, and improve the schools in a neighborhood, all area residents get to enjoy the benefits.

The wealthy industrial town of Lumezzane, Italy, is one example of social capital at work set forth in a groundbreaking 1993 book by Harvard political scientist Robert Putnam. In the book he showed that the high levels of social capital in northern Italy in the 1970’s and 1980’s were associated with strong economic growth and effective local and regional institutions, while relatively lower levels in southern Italy were linked to weak performance.

Other researchers, too, are finding that social capital is a concept with global applications. Some are linking growth rates with levels of trust, and economists are now using the results of studies to correlate growth and trust systematically.

What this all says is that there is growing evidence of a direct correlation between social ties and performance, that what most of us in the collaboration field have been observing directly for years is now being studied and quantified by the experts.

As this information becomes more available, the movement toward collaboration, involvement, empowerment, and teams will continue to gain a wider acceptance.