Term Paper on "Application of Social Capital in Modern Economy"

Term Paper 15 pages (4231 words) Sources: 10 Style: APA

[EXCERPT] . . . .

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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… READ MORE

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