The application of social capital in the modern economy

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Human capital has a definitive influence on the economic success of individuals, and entire nations. Consequently, human capital is a major concern in today's society; all developed countries try to maximize human capital in order to foster innovation and increase wealth. Dakhli & de Clercq (2004) demonstrate that while Human Capital is a trigger for innovation, Social capital might be not. The purpose of this discussion is to demonstrate that social capital does have an impact upon the wealth of a nation. The research will demonstrate the positive correlation between social networks and economic development and the need for both human and social capital. The research will also discuss the positive correlation between social capital and prosperity, and the implications for organizations and the manner by which companies extend their sociopolitical agendas in order to develop social capital.

Human Capital

According to Dakhli and De Clercq (2004) human capital is defined as "individuals' knowledge and abilities that allow for changes in action and economic growth (Coleman 1988). Human capital may be developed through formal training and education aimed at updating and renewing one's capabilities in order to do well in society (Dakhli and De Clercq, 2004)." The authors explain further that there are three different types of human capital: Firm specific Human Capital, Industry-specific human capital and Individual-specific human capital.

Human capital that is firm specific is associated with the knowledge and skills that are important as it relates to a particular firm (Dakhli and De Clercq, 2004). Although this type of human capital may be essential to the success of a particular firm, because the knowledge and the skills acquired are specialized firm specific human capital tends not to have a significant impact on innovation as it relates to the larger society (Dakhli and De Clercq, 2004).

Industry specific human capital pertains to the knowledge and skills acquired as a result of working in a particular industry (Dakhli and De Clercq, 2004). Unlike firm specific human capital, industry specific human capital does appear to have some impact upon the economic success of entrepreneurial endeavors. For this reason, industry specific human capital can serve as an indicator for innovation in broader society and result in economic growth and development (Dakhli and De Clercq, 2004).

Finally, individual specific human capital pertains to skills or knowledge that can be utilized in a broad range of firms or industries. This type of human capital is inclusive of entrepreneurial experience and general management skills (Dakhli and De Clercq, 2004). The authors also points out that individual specific human capital has the most significant impact on the economy. In fact Kilkenny et al. (1999) found that business success was positively correlated with business experience, and level of training. In addition, one study investigated the impact of the education system on productivity. The study found it necessary to balance general academia with professional and vocational training. The author explains that such training provides students with job specific skills (Dakhli and De Clercq, 2004).

As you can see these three facets of human capital play various roles as it relates to productivity and economic benefits. It is evident that human capital can have a profound impact on the success or failure of a firm on an industry. The research also indicates that individual-specific human capital is the most significant in terms of innovation and productivity because it encompasses a broad range of skills and knowledge. Now that we have garnered a greater understanding of human capital, let us discuss social capital and the manner in which the two theories differ.

Social Capital

Although human capital and social capital are related theories they have different definitions and a slightly different impact on the economy.

According to Field (2003) social capital simply asserts that relationships matter. The author further explains that the relationships created in the context of social capital allow individuals to work collectively to achieve goals that could not be achieved individually or would be extremely difficult for the individual to accomplish alone.

The author also asserts that People connect through a series of networks and they tend to share common values with other members of these networks; to the extent that these networks constitute a resource, they can be seen as forming a kind of capital. As well as being useful in its immediate context, this stock of capital can often be drawn on in other settings. In general, then, it follows that the more people you know, and the more you share a common outlook with them, the richer you are in social capital (Field, 2003, pg.1)."

The author further asserts that the very theory of social capital has become increasingly influential. Farr (2004) asserts that social capital is similar to any other capital in that it assist in future productivity of both groups and individuals. The author also points out that this productiviy does not just pertain to economic matters but also to community matters (Farr, 2004).

As such, social capital can be explained as a network of behaviors, associations, or relations that bring individuals together as a community as a result of commonly shared practices and trust. The author asserts that these characteristics are necessary components of a civil society (Farr, 2004).

Farr (2004) also explains that during the nineteenth century political economists evaluated capital from the social standpoint. However in more modern times "the social" is evaluated from the standpoint of capital. Indeed "Social capital" was once an aspect of political economy during a period of change, now social capital is associated with economized politics, which expresses the broad authority of economic methods of analysis in both society and social science (Farr, 2004).

Each of these perspectives serve the purpose of cultivating an understanding of the social relations associated with modern capitalist societies, and to position capital as a major asset (Farr, 2004).

With these things being understood, Nahapiet & Ghoshal (2004) report that even though the concept of social capital tends to encompass many forms, there are two primary characteristics that are usually evident. These two characteristics are as follows:

Factors correlated with the social structure. That is the social capital should be considered a social-structural resource and social capital is a primary component in the dealings between individuals. Also social capital is dissimilar to other types of capital because it is co-owned by the parties in a relationship, and no one member has the capacity to own the rights exclusively. In addition, even though it is a valuable asset social capital cannot be easily exchanged because friendships and commitments do not transfer from one individual to another (Nahapiet & Ghoshal 2004).

Facilitate the actions-of individuals within the structure- that is social capital ensures that certain goals will be achieved that would otherwise be impossible to achieve (Nahapiet & Ghoshal 2004).

The research indicates that social capital involves the relationships that are developed in society. The developing and sustaining of such relationships or networks appears to play an integral role in allowing people to work together to achieve common goals. In addition to human capital which is associated with the development of knowledge and skills, social capital is focused more on the development of relationships that ultimately result in individuals and groups working side by side who would not ordinarily cross paths. In the context of the work environment such social capital may result in people from different departments of a firm working together to create a new product or service. As such, social capital becomes a valuable tool as it relates to productivity and the economic well-being.

Types of Social Capital

Bezanson (2006) reports that social capital is associated with three types of networls. These networks are as follows,

Bonding Social Capital- this encompasses social capital that is responsible for bringing or binding the members of a group together. In addition this type of social capital is associated with significant ties uassually associated with survival and individuals that are closely related. In most cases Bonding social capital is ussually found amongst women and family (Bezanson,2006).

Bridging Social Capital- this type of social capital is associated with bringing people together from various social groups. In most cases this type of social capital is related to upward mobilty (Bezanson,2006).

Linking Social Capital- this final type of social capital brings very weak and very powerful individuals together to creat a patron-client relationship. According to the author, "This kind of capital is ostensibly vertical and ties the poor and other marginalized groups with "the capacity to leverage resources, ideas and information from formal institutions beyond the community" (Woolcock, 2001: 13; Bezanson, 2006)."

Bezanson, (2006) explains further that one of the most attractive aspects of the theory of social capital is the attention is has received from a number of different areas of study. As such this theory may eventually encompass a significant range of topics (Bezanson,2006). However, at the current tme it is most often discussed within the context of economics and political debate (Bezanson,2006). The author further explains that social capital holds appeal for progressive thinkers who see an opportunity to re-embed the social economy, and to claim space for bolstering intimate and community social relations. It also appeals to conservatives who are interested in charity-based social supports, and wish to see individuals and communities, rather than the state, providing solutions to persistent problems such as poverty or social exclusion. It also holds appeal for neo-liberal states that seek to bolster social engagement without addressing structural issues such as changes in employment forms and decreases in social service expenditure (Bezanson,2006)."

On the other hand, the versatility of the theory has been criticized. Some have asserted that the theory may become "all things to all people" and as such it will become a theory that is not viable in any format (Bezanson,2006). With all these factors taken into consideration it is also apparent that, the theory of social capital does single out the importance of informal caring relationships to the quality of life afforded to individuals and groups (Bezanson,2006).

Each of the three aforementioned types of social capital serves a purpose in the cultivation of the type of social capital that would result in beneficial outcomes from an economic standpoint. The research indicates that on the one hand, social capital is a promising concept in the sphere of economics because it encourages synergy. However, on the other hand, social capital is problematic because it has been embraced or used to analyze so many different subjects. As such there is a fear that using social capital in the analysis of economic factors will be inadequate.

Social Capital and Modern Economics

Grootaert & Van Bastelaer (2002), contend that if social capital is to be defined as capital its economic impact must last.

For example, if a community comes together everyday to allocate commons for the day, the social interaction in that community will generate social benefits but no economic stock (Grootaert & Van Bastelaer, 2002). In this case, social labor has occurred as opposed to social capital (Grootaert & Van Bastelaer, 2002). The lasting effects of that capital can be associated with the social interaction or the influence of the social interaction (Grootaert & Van Bastelaer, 2002).

According to the author the most apparent way social relationships can generate lasting effect is by promoting investment in physical capital (Grootaert & Van Bastelaer, 2002). For instance, if a community comes together to build a school, there will be an economic benefit associated with the social interaction that occurred (Grootaert & Van Bastelaer, 2002). Although the school is not social capital -- they are considered physical capital. However, social interaction was the impetus and persistent economic benefit was the result (Grootaert & Van Bastelaer, 2002). Therefore, the social capital allowed the community to overcome a free-rider problem: everyone in the community desires to have the school, but no one wants to assist in the paying for the school (Grootaert & Van Bastelaer, 2002).

Also as it relates specifically to Social Capital and Modern economics the research seems to indicate that there is a growing conection being made. Bezanson,(2006) reports that there has been a rise in the use of social capital when discussing economics. Some economists have asserted that there is an embrace of "the "social" by economists within a shift at the level of international states and institutions, as well as academic theoretical currents. In reaction to the repeated incapacity of economic theory to predict or explain failures in international economic initiatives, economics has turned greater attention to the "social" (Bezanson,2006)."

The author insist that this change is indicative of a movement from neo-liberalism and post modernism towards a new interest in a point-of-view that is more concerned with income distribution and wealth (Bezanson,2006). When such a movement is applied to social capitalism, the theory may be come an enduring subject that will be utilized to compensate for the insignificant amount pf information available as it relates to market systems (Bezanson,2006). In other words the social aspect of the theory may become the explanation for any or all market imperfections (Bezanson,2006).

With all these things being understood the author points out that social capital is a theory that has advantages and disadvantages as it relates to methodology, Conceptuality, and the creation of new policies (Bezanson, 2006). From a conceptual standpoint, discussions concerning social capital must have as a foundation the history of the concept which was established upon social inequality and power relations as the primary components of economies (Bezanson, 2006).

The author points out that the utilization of micro-level studies may be beneficial for further analysis of the correlation between communities, individuals and social participation. On the other hand as it relates to the political economy, social capital must be examined in a more historic context which often insist upon integrating the economic into the social (Bezanson, 2006). Additionally, the author asserts that all capital is social at its foundation. To think otherwise would be to assert that the economy could be separated form the social without any interferences or consequences. Also when an emphasis is placed on developing, bridging and linking social capital there is often too much emphasis placed on networks and commonly utilized models as the sources of progress in the job market (Bezanson, 2006). As such social capital can be utilized as a vehicle for an employability model of welfare states (Bezanson, 2006).

Such an emphasis on job market outcomes is also misplaced as it relates to the bonding type of social capital which is most often associated with women who carry the primary burden of developing social bonds and reproduction (Bezanson, 2006). With this being understood the social bonds created in this manner do not commonly produce job advancement or networks that surpass class boundaries (Bezanson, 2006). As such the concept of social capital must be critically examined because high degrees of social capital can also be utilized in negative ways (eg. Hate groups) that will be of no benefit to the economy or communities (Bezanson, 2006).

From the perspective of the Methodology, most research concerning social capital within the context of a cure for imperfect markets, utilize quantitative methods associated with economic modeling (Bezanson, 2006). Nevertheless, data concerning the factors that create and maintain social capital may be most effectively exposed through the use of qualitative methods including time-use surveys, and interviews (Bezanson, 2006).

The author contends further that the timing of the surfacing of social capital as a theory of interest to governments and international institutions is somewhat suspicious (Bezanson, 2006). This suspicion exists because the outcome of neo-liberalism as the economic and social strategy model has resulted in a relatively stark Canadian welfare state (Bezanson, 2006). Such strategies have also resulted in a substantial reduction in policy tools that governments can utilize to manage and remedy disparities in income and opportunity (Bezanson, 2006).

In addition the utilization of the theory of social capital by conservative economists implies that, the economy cannot be alienated from the social aspect of the theory, even though the social is defined as networks of associations that disseminate business standards or assist in stabilizing communities so that investors can become established. The author further contends that the focus on the individual as a bearer of social capital that can be mobilized -- by volunteering at a local school, for example -- can result in the rather easy and convenient argument that the state has little role to play in the economy. Decentralization, a focus on the local or the "community," and an adherence to the idea that stronger social capital (networks, associational life, trust and confidence in institutions) will result in stronger communities means that redistribution and measures to counter structural class, race and gender inequalities (among others) are not foregrounded. While non-state organizations are central to fortifying democracy and building social movements (Norris, 2002), the Putnam version of social capital as a social or collective good, they cannot replace a redistributive and responsive state (Bezanson, 2006).

In addition to impacting local economies, the World Banks asserts that social capital is the essential component in combating the problems with the modern global economy, particularly as it relates to poverty. An article published by the World Bank entitled, "More Social Capital, Less Global Poverty?" social capital is needed in the context of eradicating poverty because it creates trust and promotes relationship building. In addition the article asserts that high social capital must be utilized in the distribution of foreign aid. The World Bank contends that policies governing foreign aid should promote "reciprocity by abandoning pre-set conditions set by donors, for example, or fostering the all-important task of coalition building...Equally important is the need to experiment with loans and grants to projects that seem to generate the kinds of social capital that are most important to poverty-eradication (Edwards, 2000)."

The author explains that bridging social capital is often the type of social capital needed in poverty stricken countries because it provides individuals with information and opportunities. Without this access to information and opportunities the cycle of poverty will continue and the need for foreign aid would persist (Edwards, 2000). In this respect social capital is needed to promote economic growth in areas of the world that has been paralyzed by poverty and its consequences (Edwards, 2000,: Worldbank, 2001).

Promoting Social Capital

Although there are definite disadvantages associated with social capital as an economic theory, the benefits that can be realized from the utilization of the theory in modern economics outweigh these disadvantages. As it pertains to the promoting of social capital there must be a concerted effort to promote social capital at institutions of learning and in the workplace (Wellman, 1999).

Many schools and universities currently embrace policies that are designed to promote social capital. The promotion of social capital begins as soon as a child enters kindergarten and continues throughout college. At the elementary school level children are taught to share and consider the feelings and the needs of their peers. By the latter part of elementary school children are working on teams to complete in-class assignment. By the time students enter high school teamwork is understood and expected. In addition, by high school teamwork is associated with higher stakes such as a large percentage of an overall grade for a class.

These high stakes prepare students for college or the workforce and teach the need for teamwork.

At the college level the stakes are even higher because there is an expense associated with the completion of college level courses. If a large percentage of an individuals grade is dependent upon the work produced by a group or team assignment, members of the group are more likely to work together to produce a good project.

Colleges and Universities also provide students with some of their first encounters with networking. These networks are inclusive of sororities and fraternities. Sororities and fraternities are networking tools because they have members all over the world form different professions. In addition to networking through fraternity and sorority affiliations, networking takes place on college campuses through job fairs and other social events where people come together to discuss job opportunities.