The Economics Book

280

See also: Protectionism and trade 34–35 ■ Comparative advantage 80–85 ■

Economies of scale 132 ■ Market integration 226–31

T

he word “capital” is most

commonly used to refer

to the machinery used

in production: physical capital.

A broader definition includes the

skills of the labor force: human

capital. The efficient use of

physical and human capital has

long been recognized as key to

an economy, but in the 1990s US

political scientist Robert Putnam

suggested a less tangible form of

capital, made up of social

connections. He argued that social

networks are also important to

economic performance. Just as

a screwdriver (physical capital)

or a university education (human

capital) can increase productivity,

so do social contacts, because

they affect the productivity of

individuals and groups. The

interactions between people at

work, in their community, and in

their leisure time, can be

considered “social capital.”

Social networks help individuals

improve their skills, advance their

careers, and increase overall

productivity by encouraging

cooperation and information

sharing. Conversely, when these

connections dwindle, economic

performance suffers. Putnam

pointed out that since the 1960s

people in developed countries have

become more isolated, living in

urban areas with little sense of

community. He argues that this has

contributed to economic decline.

While not all economists agree with

his analysis, social capital is now

generally accepted as a significant

element of economic performance. ■

SOCIAL NETWORKS

ARE A KIND OF

CAPITAL

SOCIAL CAPITAL

IN CONTEXT

FOCUS

Society and the economy

KEY THINKER

Robert Putnam (1941– )

BEFORE

1916 The term “social capital”

appears in an article by US

educator Lyda J. Hanifan.

1988 US sociologist

James Coleman describes

social capital, applying it

to the phenomenon of

high school dropouts.

AFTER

1999 US political scientist

Francis Fukuyama argues that

social capital has not declined

in developed countries such

as the US.

2001 British Marxist

economist Ben Fine criticizes

the concept of social capital.

2003 British sociologist John

Field says social capital theory

means “relationships matter.”

A society of many virtuous

but isolated individuals

is not necessarily rich

in social capital.

Robert Putnam