Social capital encompasses shared knowledge, ideas, and values, as well as social organisation and workplace relationships. These connections and mutual understandings provide the social framework essential for economic activity.
Production possibilities hinge on the ability to coordinate efforts among various individuals. Even without modifications to machinery or technology, productivity can be enhanced if coordination among workers improves or if employees become more motivated due to effective management techniques.
Social organisation pertains to the ways in which human productive activities are structured and coordinated. Additionally, social capital includes the cultural beliefs and objectives that influence which knowledge is utilised, which scientific inquiries are pursued, and which technological opportunities are explored.
For instance, an increasing public awareness and acceptance of the risks associated with global climate change can be viewed as a form of social capital, as it enhances society’s capacity to respond to a significant threat to its future well-being.
In contemporary industrialised economies, the term “social capital” commonly refers to the characteristics of a society that foster cooperation among groups of individuals (such as workers and managers) whose collaborative efforts are essential for achieving a shared objective. This form of capital is cultivated to the extent that a society exhibits robust norms of reciprocity, which facilitate trust and mutual support among its members, as well as dense networks of civic engagement that promote participation in mutually beneficial endeavours rather than merely pursuing individual gain.
Business accountants have been at the forefront of recognising a specific form of social capital—goodwill—as a significant asset that can enhance a firm’s value beyond what might be inferred from its physical assets alone. Goodwill encompasses various intangible factors, such as a company’s strong reputation among its customers and creditors, effective management, and positive labour relations. It has become standard practice to include goodwill in the asset listings of firms that are up for sale.
Social capital shares similarities with other types of capital in that it produces a service that boosts the output derived from other inputs, without being depleted during the production process. The acknowledgement of this concept by economists is relatively recent and has been bolstered by the insight that variations in social capital across different societies can help elucidate some of the disparities in their economic development.