Social Capital - Riveting Insights on the Phenomenon

The domain of economics presents many promising opportunities for aspiring students. Seizing these opportunities means you have to grasp every complex theories and concept that are relevant to the field of economics. Speaking of complex concepts, social capital is one of them.

Social Capital is a concept that emphasises the importance of social contacts between and within groups. It essentially means that social networks have a value attached and are not always detrimental in nature as was previously perceived.

What is Social Capital?

The phenomenon of social capital became popular only recently. But its existence can be traced back to a century while the ideas associated with it go back further.

Social capital comprises of the economic resources derived from human interactions. The resources can either be non-tangible and tangible assets, like innovative ideas, information, and financial support.

Social capital typically involves three dimensions:

Interrelated networks between individuals and groups (social participation or social ties),
Elements of trust that defines these ties
Resources or advantages which are both achieved and transferred by virtue of social participation and social ties.

Types of Social Capital

Social capital is categorised according to the network perspective and the social structure perspective.

From the network perspective

If we consider the network perspective social capital can be categorised as either bridging or bonding along with a third distinctive type known as linking.

Bridging social capital

According to the network perspective, bridging social capital places people in structural roles where each is able to use the social network resources of the other’s social group. This is also identified as vertical ties and often functioning through formal hierarchical structures.

Bridging social capital may not come with many shared norms but is likely to be connected with reciprocity and ‘thin trust’. It may offer access to network resources outside of a person’s normal circles and can present substantial individual (and group) benefits.

Bonding social capital

Bonding social capital is often defined as horizontal ties between people belonging to the same social group (as compared to vertical ties between social groups).

Bonding social capital is often connected with local communities where many people are familiar with many others within a group (network closure). Bonding social capital often involves strong norms and trust which can have both positive and negative implications and manifestations for social exclusion. Many members can access similar network assets. Therefore, while offering solidarity, bonding social capital may not present helpful network assets in some scenarios.

Linking social capital

Social structure perspective

Social capital is classified depending on the social structure.

Structural social capital

This type defines the aspects of social structure that presents opportunities for the social realisation of productive outcomes. Structural social capital involves social networks and established roles backed by rules, processes and precedents. It allows structure and stability to social transactions. It is more than the norms. Structural social capital is developed from the historical foundations of the prevailing culture and institutions of society.

Cognitive social capital

It includes shared social norms, attitudes, values, and beliefs, prompts individuals to take mutually beneficial collective action.

Relational social capital

It depends on the attributes of social relationships between people and it usually involves trust and trustworthiness.

Negative Social Capital and Its Impact

Social capital producing negative outcomes is termed as negative social capital. Listed below are the negative impacts.

Herd Behaviour

High levels of trust and prevailing collaborative relationships within a social network can propel herd behaviour or herd mentality.

Such behaviour is identified by the ability to think and act in the same way as the majority of individuals within the community. Although most individuals are accustomed to taking cues from others because of inherent sociability, this phenomenon can also result in poor decisions with dire consequences.

Economic Disruptions

Individuals or organisations can often maintain alliances depending on their shared interests. These alliances allow them with considerable influence or bargaining powers over their competitors or a particular entity like the government or the entire market itself, thus resulting in a market failure.

The concept of social capital emphasises that disruptive alliances are made owing to the economic value, and high levels of trust through the social network.

Cross-cultural Contamination

One of the adverse impacts of social capital is cross-cultural contamination. According to this phenomenon, the apparent exclusive or unique norms and values become blurred within a specific culture or get distributed across different cultures.

Cross-cultural interaction also results in conversion. While this process helps in developing heterogeneity, it can result in the degeneration of a specific culture.

Privacy Breach

Social capital can prompt the over-sharing of details that might be too personal for others. This is mainly because interrelationships within a social network involve the unrestricted flow of information through multiple channels.

This phenomenon makes it possible for someone with malicious intent to be a member of the network. In simple terms, more trust and inclusiveness can make private information vulnerable.

Misinformation

The advent of social networking websites like Twitter and Facebook have changed the way contents with embedded information are created and shared. Negative social capital is quite prevalent in this era of social networking. It has made way for participatory culture.

Now, the downside to participatory culture involves the creation and dissemination of contents, along with an unbridled flow of information. This means more opportunities for misinformation.

The Importance of Social Currency in Business and Brand Building

In many ways, moving the consumers from the ‘consider-to-purchase’ stage is simple enough. However, turning them into advocates requires incorporating something extra. That “something extra” is known as social currency.

Social currency focuses on your business’s social relationship with its consumers. Let’s look at Apple- one of the biggest companies in the world. By focusing on its social currency, they not only lead in smartphone sales but also charge some of the highest prices for its products.

Better insights into the consumers

It strengthens the connections between your business and your consumers. You’ll have clarity of what the consumers want or what they don't, and gaps in the market your brand can bridge.

You’ll also understand how consumers perceive your brand. This will let you manage your brand’s reputation.

More impact

Social currency enables consumers to find more value in your products or services. This provides more utility from your brand. This, in turn, amps up their likelihood of becoming a brand advocate. It is an upward spiral of consumer loyalty, value, and advocacy.

Broader circle of influence

When you have garnered adequate social currency, your brand develops the ability to take on the influencer’s role. This gives you more power with other influencers.

The opportunity for organic growth

When your business’ social currency reaches a certain level, you will witness a “snowball” effect. All the activities you have carried out in the past will compound. You might notice Metcalf’s Law- the phenomenon where audiences reach critical mass and increase in popularity.

Premium prices on offer

If you are trying to decide on a premium price point for your brand, social currency can be particularly helpful. Building social currency allows your brand to have more control over how consumers derive value. You can charge a premium price by emphasising on non-price related social currency (like identity).

Better Word of Mouth

How will the existing consumers react to these investments? They will offer better recommendations for your business. They will be backing your word-of-mouth marketing. This way, you can promote your business to more people.

Huge number of high-quality leads

The pointers discussed above add up to generate more leads. Your consumers become encouraged to refer their professional network to your business. This way, you drive a continuous stream of qualified leads that result in the growth of your business.

The Relationship between Social Currency and Economy

Many experts and theorists believe that social capital is going to take on a behemoth shape in the years to come. The experts also emphasise on the components that the financial system within a thriving economy must have. These components develop in the “social economy” model.

Just like any economy, the social economy comes with a currency that all members transact in (which is recognised as a social currency). How social currency is identified differs considerably depending on the individuals you ask. To put it simply, social currency emphasises on the attention you get from others and comprises of the number of social connections you may have at any given point.

This attention comes in the form of any social interaction like views, likes, shares, comments, etc. It involves anything where consumers have invested time and engaged with the information you have shared. Social media platforms did a brilliant job of quantifying the number of interactions and the influence a specific profile or piece of content has.

Deciphering the phenomenon of social currency is vital in order to convert it into real currency. Businesses have to figure out what drives social currency for them and present a cohesive funnel for turning that into sales or to drive key business KPIs.

For instance, a finance company can share content on personal finance, like tips on retirement planning or securing a mortgage. Consumers will engage in that content, and the finance company can utilise the engagement to sell its financial services. This means the content is a marketing technique for the company to get the consumers to act.

So, the social economy functions on the same principles of any market and consists of content creators and content consumers. The market prefers first/early initiators who can leverage the white space through different approach with their content. Something that constantly focuses on the demands of the market.

In conclusion,

Social capital is an intrinsic part of the sphere of economics that you have to master in order to enjoy flourishing academic prospects. These insights are going to provide complete clarity over the topic that will reflect on your academic performance in the long run.

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