Social Capital

The founder of the term of social capital in academic literature might be J.L Hanifan (1916, p 130) who argued on the differences of social capital compared to usual term of “capital” which can be described as tangible like financial resources for example cash. Hanifan (1916) described social capital by an example where a person makes a contact to their neighbor and they together contact the next neighbor so they pose accumulation of social capital which can satisfy the social need of an individual. Together they bear a social potentiality which can lead to the substantial improvement of living conditions in the community they are members at. After Hanifan there have been many researches who have tried to define and measure social capital.

Which gets support from the Organization for Economic Co-operation and Development (OECD, 2001) stated “that much of what is relevant to the concept of social capital is tacit and relational and therefore defies easy measurement or codification.”

There have been researchers from nine different academic fields over the past century trying to define social capital. These fields are families and youth behavior; schooling and education;

community life both virtual and civic; work and organizations; democracy and governance;

public health and environment; crime and violence; collective action; and economic development. (Wallis, Killerby & Dollery 2004) Since my field of research is on economics I prefer to focus the literature review on earlier research in economic development, community (civic) life as referred to sociological research and work & organizations. I combine the findings from the social, human and relational capital into a context of international entrepreneurship research.

Jackson et al., (2015) links together two growing literatures, social capital and economic freedom. They argue whether economic freedom contributes to social capital. According to their research there is no evidence that better economic freedom would lead to more or less social capital. Research of Weigi et al., (2015) highlight the influence of social capital in the financial performance of the firm in the hospitality sector in China. Their findings highlight importance of both internal and external social capital for the positive financial result. What I find very interesting research is Lisbeth et al., (2015) whose research look for linkage of social capital and cultural adjustment of the individuals in Non-Governmental Organizations (NGO) on international assignments. Their main argument is that support networks matter when

adjusting to the host country both on work and off work activities. Richards & Reed (2015) evaluated the role of social capital in the development of volunteer led cooperation. Their research is based on the case of one social enterprise of a third sector organization volunteer food industry operating in United Kingdom since 2007. They divide social capital to three categories which are bonds, bridges and linkages and describe how these categories keep the community together. Findings review the relations between key stakeholder groups of the cooperative; customers, volunteers and institutions and is the impact of three social capital categories positive or negative to key stakeholders relations. Importance of their research is that social capital can also have negative impact on relations since many other researcher focus only on the positive side of social capital in the company.

Tandardini & Kroll (2015) research organizational social capital in the context of performance management. Their theoretical frame of social interaction, trust and common goals is based on research of Nahapiet & Ghoshal (1998) who created the three dimensions of social capital as structural, cognitive and relational. Tandardini & Kroll (2015) do not provide any practical aspect on the topic which sounded really interesting research. They focus only on the earlier research done in the field and try to fill the theoretical gap by linking social capital to context of performance management. Their paper is like a combination of what has happened in their academic field and the results of the research they prefer not to reveal. They want to bridge the performance management to a broader organizational science research so they use the term of social capital to get there by renaming the social capital as “organizational social capital”.

Alguezaui & Filieri (2010) takes social capital to the academic field of innovation performance.

Their research investigates the role of social capital in innovation. They start by analyzing the origin of social capital theory and how it contributes to organization and management studies.

Later they argue the importance of social capital as a facilitator to knowledge search and knowledge sharing activities which they value as important factor on creating new innovations.

Finally they focus on structural dimension of Nahapiet & Ghoshal (1998) by focusing on contribution of two different configurations and effect on innovation networks: sparse vs cohesive. Paper of Alguezaui & Filieri (2010) is very theoretical and combination of the field like the research of Tandardini & Kroll (2015). Alguezaui & Filieri (201) provide only few real solutions in the conclusion such as innovation happens elsewhere than R&D laboratories and in order to innovate new products company should include all possible actors of their networks to innovation process. These actors according to their innovation model can be suppliers, customers, universities and research teams (Alguezaui & Filieri 2010).

In the end they describe how social capital and innovation research are aligned by highlighting few earlier research such as benefits of social networks to company (Ahuja 2000).

Many of the recent research papers of social capital are based on the earlier definitions and interpretations of Bourdieu (1986), Coleman (1988), Putnam (1995), Nahapiet & Ghoshal (1998), and Adler & Kwon (2002). As these can be stated as the main theories of social capital I will use their research as a base of literature review starting from the earliest research of Bourdieu (1986) and Coleman (1988). After Coleman I introduce the thoughts of Putnam (1995) on social capital before going deeper to Nahapiet & Ghoshal (1998) theoretical model of three dimensional social capital. Final chapter concerning social capital will come from the findings of Adler & Kwon (2002).

The main argument of Bourdieu (1986) was that capital can be measured in different types of forms within a social world. Originally the forms of different capital was introduced by Reinhard Kreckel (1983) in article made in German “Ökonomisches Kapital, kulturelles Kapital, soziales Kapital” published in Soziale Ungleichheiten (Soziale Welt, Sonderheft 2, 183-198) and the article has been translated earlier by Richard Nice. Bourdieu criticize economic theorist of the time for lacking imagination of other types of capital which can be intangible instead of just tangible like money. According to argument of Bourdieu (1986) capital can present itself in three forms depending on the context and can all be convertible on economic capital. These three forms are economic capital which can be measured with money or property rights. It can be a cultural capital which could be converted in specific conditions to economic capital as well like measured with educational qualifications which I understand Bourdieu to refer on professional position and salary. Capital can also be a social capital which is referred to connections between people or as “social obligations” that can be measured in economical form of a symbolic title (Bourdieu 1986). As an example of cultural capital Bourdieu refers cultural capital converted to economic capital in the form of paintings or writings of maestros’ which has certain set financial value and can be therefore sold to other collectors who want to purchase desired paintings or writings for themselves as symbols of success.

On social capital Bourdieu (1986) argues it to be an actual or potential resource which are linked between relationships of individuals in possession of a specific network. It can be a membership in a group which owns a collectivity owned capital of knowledge that members can use. These relationships might exists just on practical form but can include material or symbolic exchanges

between members in order to maintain the relations. Other form of social capital may be a socially instituted like being combined under a specific name or a brand like a family name (Trump) or a tribe (IBS students) or even a political party (Democrats). The power of the social capital in specific network is depending on the size of connections by the individual and what he or she is able to mobilize with the volume of the capital (economic, cultural or symbolic) within those connections (Bourdieu 1986). So the assumption is that social capital cannot be completely independent of the bearer since it requires exchange to happen between the members of the network. This allows network to create possible profit in a solidarity among its members if that is the goal of the specific network but there are those networks too which do not aim for profit in economical perspective since the relations itself can be the symbolic profit for a member in a network like to be part of something rare which is desired by many (Bourdieu 1986).

According to Bourdieu (1986) in order to gain access to specific network is not easy since those important connections are not handed out naturally or socially even among members. It is the end product of continuous effort of an individual to connect among people and would require to pass certain criteria’s or social rites along the way. Bourdieu argues it is up to the investment strategy of an individual as a term which can open up to desired relations for the member of specific network. That selected investment strategy can transform connections to people as closer relations between same people. Exchange between both parties of a relationship encourages and produces mutual knowledge with social recognition. When a new member is selected to become part of the network he or she could modify the group if there is no set rules or criteria that new member needs to follow in order to be accepted as part of the society (Bourdieu 1986). Every moment that new member is selected the identity, values and limits of the network are put in test and exposed to possible redefinition. Since attempts of being accepted as a member require resources like time it can be measured directly or indirectly as economic capital. The gain of specific competences or knowledge of combined social capital within a network can be seen as an investment and therefore spent resources could pay off in future if the created relations can help individual to reach a higher level in personal or professional life (Bourdieu 1986).

Coleman (1988) argues there are two major intellectual streams describing and explaining social action. Sociologic stream is defined by an ability to describe behavior in a social context by explaining how action is shaped within the context. Other stream is more economic since it is defined by economists. In sociologic stream the main argument is that environment where individual operates matter and define their action. On contrary in economical stream argument is based on the social context such as norms, networks, social organization, interpersonal trust that individual have which are important factors for operation of society but also for economy.

Coleman states that both of the streams have some flaws and many researchers have tried to mix the streams in order to find the universal definition. In the economics one researcher defined a term called “connection” (look Yoram Ben-Porath, 1980 for more). The f-connection is defined by families, friends and firms since he consider those to affect in the economic exchange.

What Coleman means by the flaws of the intellectual streams of that time is that he has a better solution of combining elements from both economic and sociologic stream without discarding one or other. He called his model as a social capital. He argues that social capital is defined by its functions since it is not a single entity but collection of several entities which have a certain structure and the structure facilitate actions of actors within. These actors can be individuals or companies. Social capital compared to other forms of capital can make some achievements possible which could not be done if the social capital is missing since it is based on the relations of individuals for example sharing information that would not be otherwise available. There are different forms in social capital and it can be conceptualized as action of personal aid that can lead to different solution for the individual. Like a concept of a smartphone which can be in many sizes, colors, forms and manufactured by different companies but it is still a smartphone.

Form of social capital in the view of Coleman includes obligations, expectations and trustworthiness to structures. Expectations and obligations can be defined if person X does something for person Y for example lend certain amount of money and trust person Y to pay back in time. This puts person X in the expectation and person Y to obligation role. It comes down to trust and trustworthiness between persons X and Y. If person X knows person Y and trust he/she will pay back then there is lower risk of losing the lent money. Nevertheless there is always a risk of bad debt if person Y breaks the trust and does not pay back so the trust of person X was misplaced. According to Coleman that depends on the trustworthiness of social environment and structure where individuals perform and the norms of that environment.

If there is a norm that obligations must be repaid, then individuals in that environment should do so otherwise losing the credibility among other members of the social structure and getting some other sanctions because of his/her bad behavior (Coleman 1988). In order for Coleman definition of social capital to be accurate it requires that the structure of social capital is a closure. If the social structure would be without closure then the members of the structure would be in different positions even as person X and person Y would be in the same network with persons Z and W but these two might be totally strangers to X and Y since they would not have any relation with any of them. In this example person Y would not lost his/her credibility among the other members’ Z and W of the social structure since they are not aware of the agreement between X and Y and person Y could continue lending money creating new expectations in the environment without ever paying the obligations back. Only then persons Z and W will figure out the lack of trust to person Y when they have had similar situation as person X. When the social structure is closed all these four members have relations with each other and persons Z and W would know how the agreement between members X and Y and how did it unfold.

Closure of social structure have many benefits for its members since they can combine forces to constrain the actions of a member of the community who have not followed the agreed norms in this case person Y. Coleman (1988) argues that trustworthiness is a key element for social structures which are in closure and highlights the importance of a voluntary organizations where members of the group can co-operate by providing their professional human capital in the use of their community. In time this professional human capital transforms as part of social capital of their structured community. In Coleman’s example there were group of people building houses during Second World War and they lack resources and faced several physical problems due to poor construction. They founded knowledge from the society and addressed needed help to join them. After the houses were rebuild the quality of life improved in the community and members of knew where they would get the help they needed (Coleman 1988). Max Gluckman (1967) debated that there is a distinction between simplex and multiplex relations which can proof the example given by Coleman. Multiplex relation is that individuals within the community are linked with more than one context. They can be co-workers, neighbors, part of same voluntary association, play in a same bowling team etc. while simplex relation individuals could be only co-workers or just neighbors or playing in a same bowling team. The importance of this difference is that multiplex relations can be helpful to create sustainable impact to community together but can be also appropriated for use of others as well which can be seen as a negative side of social capital usage (Gluckman 1967).

We do bowl alone in Finland or we like to bowl online. Putnam (1995) in his article “Bowling Alone: America’s Declining Social Capital” argues the differences in the American society where people usually went bowling together and took some beer in a group but during mid 1990’s situation changed. People tend to go and bowl alone and the financial resources spent on beer diminished dramatically. Putnam refers to early 1930’s when people tend to be part of many civic and communal groups but not that much anymore. The same dilemma has been founded on several other fields of academic research such as education, urban poverty, unemployment, control of crime and abuse, and even in health. Researchers have all come to solution that difference between success and not being so successful came down to social capital. Putnam (1995) wants to make clear difference between the terms of human capital and social capital since some think those are the same. Individual productivity can be measured with human capital such as tools and training but social capital refers to social organization such as networks, norms, values and trust which facilitate cooperation and coordination of mutual benefits.

The article gives examples of different civic engagement activities which have been declining during 1990’s compared to earlier decades. These activities are all community groups which have seen the radical change in amount of active citizens’ at their ranks. Examples come from religious groups where people tend not to visit the church on Sundays which is very typical in the American culture. There have been drop in the membership of labor unions in four decades in late 1950’s to 1990’s. People tend to not vote on the political elections either. Putnam argues the reason could be the lack of trust on politics and governments since there were many scandals since 1960’s like Watergate, Vietnam war, political assassinations and so on. (Putnam 1995) One of the major issue was lack of participation on volunteering on civic and NGO. American people seem to have focused on something else during 1970’s to 1990’s since many organization such as Boy Scouts lost 26 % of their members during those few decades. (Putnam 1995) Why the term bowling alone? Since people do not bowl in groups as much as they did earlier the entrepreneur running the bowling alley loose income as lone bowlers do not spent money on other offered additional services such as food and drinks. Earlier there were groups of people playing in the organized leagues and cash came in on additional services too but since there are fewer organized bowling communities the amount of money spent on beer and pizza after bowling have been diminished. There have been change in the organizations and other civic or communal groups have replaced the old ones.

For example the American Association of Retired Persons (AARP) had 400 000 members in 1960’s but in 1993 the amount of members had reach to 33 million becoming the largest private

For example the American Association of Retired Persons (AARP) had 400 000 members in 1960’s but in 1993 the amount of members had reach to 33 million becoming the largest private