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The Building of Social Capital Published: Sunday, June 16, 2002 By: Sr. Rafael Ríos

Research support the hypotesis that there is a correlation between high levels of social capital and effective democratic institutions. The regions of Italy with rich social capital (networks of co-operation, norms of civic engagement, and a spirit of trust) enjoy responsive regional governments and strong economic development. But the regions with poor social capital suffer from unresponsive governments, distrust, and social isolation.

Profitability is positively correlated with the complexity in a company’s network of ties with customers, suppliers, and alliance partners.

Social capital is a learnable skill. Building social capital as an organizational competence means providing significant, regular opportunities for training on relationship building and networking. Inside training is important, but outside is even more important because it provides natural opportunities to build external ties and create structural holes.

Individuals, organizations and societies that are best prepared to face the uncertainties of the future are those that among other things are effective in building social capital as a competence.

Social capital is the combination of personal and business networks and unfortunately is a much under-rated asset these days. It influences the outcome of takeovers, the direction of strategic alliances and the acquisition of venture capital. It is a set of institutionalized expectations that other social actors will reciprocate cooperative overtures. This expectation generates cooperation by making otherwise untrusting actors willing to undertake those overtures in the first place. To put it in simple terms, (probably too simple) social capital is a social equilibrium that captures the circularity of the relationship between the act of cooperation and the likelihood of mutual collaboration in the future. From the World Bank to city hall, the creation of social capital has been embraced as a solution for social problems as diverse as urban poverty and crime, economic underdevelopment and inefficient government. Yet despite the wide spread attention it has received, the understanding of the concept of social capital is still in its infancy.

Social capital (the resources in personal and business networks) is more important than ever for personal and organizational success. Massive organizational changes-notably the widespread shift toward flat and fluid organizational designs, growing information and learning needs, continuous improvement, and closer integration of customers, suppliers, and competitors-require organizations to build social capital as a distinctive competence. Physical capital, financial capital, and human capital are no longer enough. Social capital, for instance, influences the acquisition of venture capital. Various surveys sponsored by the U. S. Small Business Administration show that most start-ups find a secure financing through the “informal investing grapevine” (the social networks of capital seeks and investors.) Similarly, polls of stock purchasers taken in the late 1980s and 1990s by Robert Shiller of Yale University, reveal that most institutional and individual investors made their decisions to buy based on information from a friend or business associate, or because they knew someone who bought the stock.

Social capital influences the use and success of strategic alliances. Good alliance partners find each other through their social and business contacts. The more strategic alliances a company creates, the more competitiveness in the future, according to research by Ranjav Gulati of the Kellogg Graduate School of Management at Northwestern University.

Copyright 2002 QBS, Inc.
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