Who doesn’t enjoy a good story? Human beings are natural storytellers and story-lovers. Our lives are constituted by stories – overlapping stories, insofar as they consist of many layers, plots, meanings, and peoples. Our individual stories include the history that precedes us, and extend around us in the present to include the many interrelated stories of others around us, and beyond us in the future as the story of humanity continues to unfold. This is just one way of suggesting that we are relational beings: we are in constant relation to one another, as we are never the only actor in our own story. Stories are a record of our decisions made, of our judgments, and actions taken, individually and together. Stories are, in short, the speaking or speeches about our deeds. And the story of relationships, or the relational account of human life, is what social scientists often refer to today as “social capital.” An obvious economic result of this is that communities who have more social capital, more stories, have more trust between its members, and therefore perform better economically.
Trust translates to more income earning potential. In a sense, it’s obvious but science has shown time and time again, that the obvious can prove to be the most wrong. However, research studies have shown that indeed, as degrees of trust increase, so does GDP. For a business, there is no better proof that increasing social capital, or trust amongst employees, is not only good for building corporate moral, but also for improving the bottom line.
If increased social capital is linked to increased economic prosperity, then it is in the clear interest of businesses, and not just government and civil society to support it; a social employee is an effective employee. However, within economics more broadly, intuition is highly prized but unquantified. Many leading businessmen such as Warren Buffet and other leading economists understand the intangible value of an organization may be its greatest asset. And yet, without the ability to quantify it, that intangible value is unable to reflect the true worth of an organization.
Social capital is defined as the value derived from the total of one’s social networks and community activity. Social capital, then, includes personal and professional relationships (in physical or virtual form), social networks and support, civic engagement and belonging or membership to specific groups (from fraternities and societies to boards and neighborhood watch groups). Social capital also includes the benefits generated through these connections and actions. Since there is so much known about social capital, there is no doubt that social capital exists. But can it be effectively measured? This is the area that humanity has struggled with recently.
In the early days of social capital research, the concept was applied exclusively to the social potential of an individual (in characteristics such as charm, sociability, affability and usefulness to neighbors). More recently, the influential sociologist Robert Putman has reframed social capital into an attribute of collectives. He focuses on social norms and trust relationships as producers of social capital. For Putnam, social capital benefits the individuals who possess it as well as the wider community of which they form a part. Also, social capital is germane to our present considerations, because of its positive contribution to a range of measured societal factors, such as personal well-being and crime rates. So, when we increase social capital, that leads to benefits on many levels: individual, community, regional, national, and global.
Furthermore, social capital has been recognized as a driver of economic growth. This is because an increase in social capital results in greater economic efficiency (Putnam, 2000, 1993; Fukuyama, 1995). At a macro-level, it is likely that higher levels of trust and cooperative norms reduce transaction costs, thereby driving productivity (Putnam, 2000, 1993). At an individual level, people with wider social networks are more likely to find employment (Aguilera, 2002), to progress in their career (Lin, 2001), and to earn high wages (Goldthorpe et al., 1987). World Bank efforts to estimate the “true wealth of nations” suggest that intangible capital, made up mainly of human and social capital, represents around 60-80 per cent of true wealth in most developing countries (World Bank, 2006). It is apparent that social capital is real, and valuable.
Although some researchers have tried to estimate the value of social capital assets as a proportion of total wealth (Hamilton and Liu, 2013), social capital differs from natural and human capital as it is a broad concept, based largely on interpersonal relationships. That makes it very challenging to measure. In fact without a comprehensive view of the underlying mathematics, previous attempts to quantify social capital have failed.
To accurately measure social capital, one has to understand that it is an aggregate concept addressing not only interactions with a group but also individual behavior, attitude, and predisposition. Of course, the problem of measuring or even estimating the presence of these and trust in a social network is a challenging one. Specifically, Trust, as an aspect of social capital, remains both undefined and poorly understood. If psychological attributes such as trust cannot be quantified, then the field of social science cannot benefit from the power of mathematical analysis that has proven so valuable in so many other fields of science. However, we do think it can be quantified.
First we can quantify it through current definitions. The Merriam Webster dictionary defines trust as the belief that someone or something is reliable, good, honest, effective, etc. The Online Psychology Dictionary defines trust as the confidence a person or group of people has in relying on another person or group. In a social context, trust typically refers to a situation characterized by the following relationship. One party (the “trustor”) consents to rely, in good faith, on the future actions of another party (the trustee). The trustor, then, transfers personal control to the trustee. However, since trust is based in assumptions about personal character and competence, trust always contains an associated degree of risk. Always present in ideas of trust, one finds the opposite: the possibility that the trustee could fail and bring about disappointment or harm (distrust). The trustor’s expectations can only be validated or dashed by experiencing or witnessing the results of the trustee’s completed action. This is an important aspect of the trust relationship, but adds to the challenge of quantifying it.
Furthermore, trust and confidence are two closely related terms in sociology. However, confidence is perhaps a more appropriate term than trust to indicate levels of belief in the competence of another party. A failure in trust can be forgiven more easily if it is seen as a failure in competence, not as a failure of honesty. It was Warren Buffet who said, “It takes twenty years to build a reputation and five minutes to ruin it.” The level of trust an individual is ready to commit depends upon their past experience as well as their projected expectations. These are unmeasurable, currently.
Economically, trust is defined differently. Trust is associated with reliability in transactions, financially. High levels of trust and reliability (i.e., confidence in a person’s abilities) are beneficial because it reduces emotional stress and saves time for the trustor. Without trust, each of us would complete necessary tasks ourselves, suffer emotional stress and create additional processes to ensure that others meet obligations. From another perspective, trust can be considered a heuristic rule which allows the trustor to accomplish a task with minimal effort, thanks to confident delegation. Without the aid of this heuristic, trustors would often face unrealistic levels of effort to complete basic tasks.
That is why modern democracies rely on the value of many intangible qualities, such as trust. Variables such as innovation, relationships, and trust are of intrinsic value to groups yet seem to resist quantification and thereby escape the directed attention of leadership. Unless qualitative values can be quantified, they are likely to be neglected factors in decision making. This omission relegates the essential value of qualitative elements to a latent value, and often ignored. Developing an accurate measurement of social capital would unlock this vast potential, enabling qualitative data to contribute enormously to all aspects of society. In fact, with a measurable system, the future health of democratic systems would improve, through correctly identifying and valuating intangible assets.
Trust also functions as an economic lubricant, reducing the friction associated with non-trusting relationships. The entire layers’ of trusted 3rd party brokers, notary publics, lawyers, banks and even the new cryptocurrencies primary function is to reduce the friction that slows down transactions when strangers who have no social capital between them have to transact with each other. Trusting relationships reduce overhead costs and efforts that would otherwise be necessary to support and monitor untrusted persons. Hence, trust allows transactions to flow more freely, thereby reducing the cost of transactions between parties.
Trust also enables new forms of cooperation and generally furthers business activities, employment, and prosperity. In a society of trusting individuals, economic activity will be a greater and economic welfare higher than in a society in which trustworthiness is lacking (Tisdell, 2008). From this perspective, it’s easy to see why higher social capital leads to greater economic performance, and why a metric for social capital has been long sought after. A metric that we aim to provide.
Effective social norms, developed by a robust civil society, serve to regulate behavior, lessening requirements of law enforcement and judicial punishment. Furthermore, the extent to which social capital is embedded in social structures limits the extent to which it can contribute to the public good (Narayan, 1998). Conversely, when only powerful and tightly knit groups possess and exploit social capital, society as a whole suffers. Such groups harm society by prioritizing individual gains over the common good. Abuses of this kind come from individuals who do not feel accountable to the population as a whole; their actions accelerate social inequality and instability. As we already know, elitism and the centralization of power result in corruption in government, nepotism, and cronyism (Evans, 1989; Mauro, 1995; World Bank, 1997). An effective measure for that would put this all out in the open, creating a significantly new metric as a basis for this conversation.
The full story of social capital, as a critical aspect of the social sciences, ought to inform our solutions to significant governance and policy needs. Furthermore, community leaders of all stripes must attend to the relationship between confidence and participation. Many studies of voter turnout and democratic participation find a positive correlation between beliefs about the responsiveness of political authorities, or external efficacy, and civic engagement (Rosenstone and Hansen, 1993; Brady, Verba and Schlozman, 1995). This is important, because social networks of civic engagement are at the very core of social capital (Putman, 1993) and so strong networks enable strong communities: those that can solve collective action problems through cooperation and coordination. Again, with a strong, evidence supported metric, these problems can be attacked much more effectively.
To tackle these problems, improving democracy requires enhanced trust with other citizens, politicians, those who are known, and those who are unknown to us. Furthermore, assurance facilitates cooperation, whenever one feels relatively confident about the incentives and abilities of other actors. Trust then spreads through a community, by reinforcing norms of reciprocity and self-interested cooperation (Putnam, 1993). These norms then become a part of the community’s social capital, allowing individuals to make inferences about the intentions of others, even when direct or absolute knowledge about them is unavailable. It is an incredibly useful metric.
In fact, this general atmosphere of trust creates a positive feedback effect. When we put trust in others, social capital increases. Increased social capital ultimately heightens the quality and quantity of economic transactions. In uncertain economic climates, an increase in public trust could have wide-scale impact and inspire not only increased confidence in democratic arrangements but also inspire positive structural reforms of the same.
The strongest antidote to emotional distress (caused by periods of economic turbulence or political uncertainty) is the support of long-standing trust relationships. In their paper “Individual-Level Evidence for the Causes and Consequences of Social Capital,” John Brehm and Wendy Rahn find a positive and reciprocal correlation (a “virtuous circle”) between civic engagement and social trust (Brehm & Rahn, 1997). Specifically, their study finds that civic engagement is more likely to increase trust than vice-versa. Brehm and Rahn also find that the correlation between engagement and trust is a precarious one – degrading either engagement or trust creates a “vicious circle” more easily than increased engagement or trust leads to a “virtuous circle.”
Political and business leaders should find these results troubling because confidence is the currency in which they trade. The independent effect of interpersonal trust on confidence suggests that even improved performance of government may not be sufficient to obtain substantial levels of confidence from the public. Confidence in institutions, indicated by high levels of civic engagement, has been shown to bear a strong connection with interpersonal trust in fellow citizens (Brehm & Rahn, 1997). In summary, social capital lies at the very heart of our political and social institutions, and it must be integrated into policy and decision-making at all levels of society.
Yet, without a clear accepted measure of social capital and trust, we are not going to be able to reliably include these measures in our plans. And with the tool we are developing, we believe that effectiveness of institutions will be much more measurable and modifiable.