What is Social Capital?

Published on Apr 15, 2016

Social capital is “a relatively less familiar form of capital investment” and, as a result, may be less understood and social capital does not get its strength from individual actors but the collective as a whole (Knoke 2012).

Knoke, David. 2012. Economic networks. Cambridge: Polity Press.


What is Social Capital ?
Prepared by Larry Boustead

Recent research conducted by (Fukuyama 2010), (Cohen and Prusak 2001) and (Saul 2011) indicates that social capital is a result of individuals with similar interest and beliefs coming together and developing a relationship forged out of trust.

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The type of trust that allows individuals to interact and freely exchange information, knowledge, and resources in a way that benefits the organization with measurable results (Prusak and Cohen 2001).

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Relationships built out of trust take time (Fukuyama 1999).

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Efficient well run organizations foster an environment that promotes trust (Cohen and Prusak 2001).

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According to (Fukuyama 1999), social capital is an informal norm that promotes cooperation and reciprocity between at least two individuals or can be more complex exchanges between larger groups.

Social capital is the informal exchange between individuals or groups and is more efficient than more formal methods such as contracts, hierarchies, and bureaucratic rules. As a result, social capital reduces transaction costs (Fukuyama 1999).

Social capital does not get its strength from individual actors but the collective as a whole (Knoke 2012).

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(McFaden and Cannella 2004), suggest that social capital is both the interpersonal relationships of an individual as well as the resources embedded in those relationships.

As managers, we are only as good as our team. A team is more than a group of individuals simply working together; a highly efficient team is a group of individuals that trust one another working towards a common goal.


References (Continued)

References (Continued)

  • McFaden, Ann M., and Albert A. Jr. Cannella. 2004. "Social capital and knowledge creation: diminishing returns of the number and strength of exchange relationships." Academy of Management Journal 47 (5): 735-746. Accessed September 9, 2015. doi:10.2307/20159615.
  • Prusak, Laurence, and Don Cohen. 2001. "How to invest in social capital." Harvard Business Review.

References (Continued)

  • Saul, Jason. 2011. Social innovations, inc. San Francisco: Jossey-Bass.