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The Economics of Social Capital: Common goals, transformative ideas and yield significant social value

Posted by Devin Cole  October 6, 2011 02:56 PM

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In today’s global economy, businesses in knowledge and innovation sectors must provide more than efficient transportation for people and products. Their infrastructure must also support the flow of transformative ideas. Economies with rich human capital thrive when fostered by a robust and cooperative social framework.

Sociologists call this social capital, or the intrinsic worth of social networks and their potential to bring about action.

Social capital places high value on the collaboration between entities working towards a common goal. It stands for solidarity among like-minded groups and underpins the sense of mutual trust that is critical to any healthy business relationship. The hallmark of effective social capital in business is when the open and equal exchange of ideas yields significant value for companies.

Because social capital is subjective by nature, this yield can take many forms, but it will always be characterized by strong relationships.

Building a Network That Works

It has never been easier or more cost-effective to gain new information and talent by investing in your company’s social capital than it is today. On the Web, for example, social networking tools are extending communication lines and new information sharing technologies are redefining open-source idea cultivation. Even so, many independent businesses have yet to fully tap the great economic potential of social networks. It can be difficult for both public and private entities alike to see immediate and predictable returns on something as intangible as social connections. For small companies with limited resources, finding and navigating the right network can itself be a major challenge.

Luckily, there is significant momentum in knowledge economies like Boston, MA to establish a network that supports complex business ecosystems with high potential for social capital. Boston World Partnerships (BWP), established by Mayor Thomas M. Menino, is a prime example. BWP facilitates connections between businesses via a diverse set of well-connected third party professionals based in the Greater Boston area. The goal, of course, is to tighten the city’s networks. By building a go-to system of innovators, entrepreneurs, and businesses within the region, BWP is able to inform and connect by funneling organizations directly to the right resource. In the process, BWP is promoting the cross-pollination of businesses and engendering both the self and civic interests of its clients. Furthermore, by developing a global “alumni” network of people with ties to Boston’s economy, BWP can offer its benefits to outside businesses looking to expand to Boston.

Like the bridges and roads of Boston, BWP’s social infrastructure connects the city’s nodes of industry. So far, the model has worked. In one case study, BWP’s efforts retained 115 jobs in Boston and created at least 300 jobs.

However, the organization’s actual success remains entirely dependent on the participation of businesses themselves. Members of the network must serve as active connectors, resource providers, and good corporate citizens for the system to work. Ultimately, it is the give-and-take relationship of the entire information community that garners results. In other words, mutual gain requires mutual participation to create derivative benefits that implicate regional economic success for all.

The Golden Rule of Social Capital

If social capital is currency in a social network economy, then reciprocity is what dictates a healthy market. Without it, there can be no infrastructure of good faith between parties, and the propensity of either side to collaborate will evaporate. On the other hand, businesses with a reputation for giving back are the ones more likely to be remembered when it counts most.

It is important to note that the reciprocity concept is not based on an immediate return on investment. On the contrary, in a network where social capital is properly invested, members adhere to a creed of generosity over the long-term. This often tends to create a system based on trust, which is essential in maintaining a proactive and reciprocal business community. For young businesses looking to expand, solicit services, or reach a new demographic, this bottom-up approach becomes especially useful.

In business hubs such as New England, where highly nuanced human capital abounds, creating or leveraging social capital is in fact the easiest way to improve business. This model has already led to hundreds of profitable collaborations across the region, and is a reliably low-cost option in today’s recovering economy.

So, the next time you are sizing up your company’s overall profile, consider the question: How do you rank in social capital?

Yoon Lee is the Executive Director of Boston World Partnerships. Follow her on Twitter @yoonjlee. This article first appeared in the French American Chamber of Commerce’s quarterly publication, Le Courrier.

This blog is not written or edited by Boston.com or the Boston Globe.
The author is solely responsible for the content.

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