“Revere chooses ‘information brokers’ to talk
with on his ride,” says Kellogg School Professor Brian
Uzzi, explaining that brokers occupy key nodes in a social
network, allowing information to disseminate more widely
more quickly. “Dawes, on the other hand, has redundancy
built into his networks, so the information eventually turns
in on itself instead of expanding outward as Revere’s
does.”
The episode powerfully illustrates the role
of social capital, says Uzzi, a sociologist and organization
theorist whose
award-winning research includes the study of how relationships
create unique information and leadership benefits. He has
investigated how social networks promote creativity and
financial success in banking and law, developing a framework
to explain
the dynamics of “embeddedness” — the linkage
of economic transactions and social relations that “differentially
affect the allocation and valuation of resources.”
This embeddedness, he argues, benefits firms
seeking financing by promoting “distinct governance mechanisms and the
transfer of private information.” In other words,
informal relationships can result in better distribution
of financial
capital at lower cost. And, in general, good networks enable
one to transcend personal limitations by leveraging the
talents of others to mutual benefit.
Uzzi says that Revere’s example should help dispel
what he calls the “myth of individualism” in
American social life, and reveal the importance of social
capital, which can result in more frequent promotion and
salary increases, not to mention the happy byproduct of friendships,
he says.
Both Uzzi and Kellogg School Finance Professor
Paola
Sapienza, an economist whose research has explored
the role of religion
in financial attitudes and development, regard social capital
as foundational in establishing social stability and prosperity.
“You can think of social capital as
a kind of nonlegal mechanism influencing trade and commerce
by encouraging trust,” Sapienza
says. “In all our activities, including business transactions,
we feel more obliged to cooperate with others when we are
also involved more deeply with each other’s schools,
daycare facilities, etc.”
Uzzi and Sapienza cite the work of political
scientist Robert D. Putnam who, in his 1995 text Bowling
Alone, examined the
importance of social capital in America and advanced his
thesis that this capital is waning. Using, among several
other metrics, the decline of membership in communal bowling
leagues, Putnam argued that “there is striking evidence…that
the vibrancy of American civil society” has significantly
diminished. Reasons are varied, and contested, but they
include suburban sprawl, time constraints related to employment,
and the proliferation of isolating electronic entertainment.
Higher social capital, says Sapienza, results
in people trusting each other more, which has major implications
for commerce.
Uzzi points out that network dynamics are also impacted,
because shared activities such as league bowling bring
together diverse groups of people in ways that contribute
to the more
effective “Revere” networks.
Sapienza says that other measures of social
capital, such as rates of electoral participation or blood
donation, also
serve as reliable indicators of community prosperity.
“
It’s fascinating to see the high correlation between
these social factors and the use and availability of financial
contracts,” she says. “In areas with little trust,
people keep their money in cash, not banks, so additional
investment is hampered.”
Financial transactions intrinsically need
trust, Sapienza explains. “The less educated you are, the less your
ability to read the fine print of contracts, so this trust
is especially important in communities where the legal enforcement
doesn’t work.”
Comparatively, she says, northern European
nations score highest on the social trust and capital scales,
while Latin
America scores lowest. The United States falls in between,
but above average.
Building on Max Weber’s seminal 1905 “The Protestant
Ethic and the Spirit of Capitalism,” in which Weber
argued that the religious doctrine of salvation and “good
works” influenced capitalism’s growth, Sapienza
has found evidence of religion’s role in creating prosperity.
Economic attitudes toward cooperation, government, working
women, legal rules, thriftiness and the market economy were
all variously influenced by religion, she found.
The role of religion in financial transactions
is an “informal
institution” that Sapienza says is historically understudied.
Only recently have economists — traditionally advocates
of a more rationalist social model, according to Sapienza — turned
their attention to behavioral models, including religious
beliefs, which, she says, “are not particularly rational.”
Religion’s importance as a source of social capital
illustrates one of the ways Uzzi says good networks help
to circulate valuable information and contribute to prosperous
community life. As a meaningful shared activity, religious
worship can bring people together in a way that encourages
trust — and transactions.
“
Parties are not enough,” says Uzzi. “You build
good networks and establish trust around shared activities
that people feel passionately about, but which also create
an interdependence and a sense that something’s at
stake.” Sports, professional associations and clubs
can also fill this role, he says, though it is important
to avoid the “self-similarity problem” which
can introduce too much redundancy in networks that are populated
largely by people with nearly identical traits and interests.
The Kellogg professors’ research into the importance
of social capital is illustrated in real-world ways in the
work of Greg Casagrande. The 1990 Kellogg alum is founder
and president of South
Pacific Business Development (SPBD),
a microfinance organization located in Samoa, one of the
world’s least developed countries, according to the
United Nations Development Program. Some 48 percent of Samoans
live in poverty, and the island nation has one of the world’s
worst health-care systems.
“
No jobs plus no credit equals no opportunity,” says
Casagrande, who has traveled throughout the developing world
and seen that this is the equation facing poor women.
Founded in January 2000, SPBD has distributed
more than 2,600 loans and helped finance some 2,000 small
businesses, primarily
female-owned ventures, such as bakeries and general stores.
Because SPBD works so closely within a relatively
small community — Samoa
has only approximately 200,000 citizens spread over two islands — the
organization can influence the economic lives of its clients
on a very personal level.
“
The most gratifying aspect of my work has been to witness
firsthand the significant impact we have had on the lives
of so many women and their families,” Casagrande says. “This
impact extends beyond the increased income that each woman
is able to generate. It also improves their self-esteem and
living conditions, and provides a better education and brighter
future for their children.”
Because microfinance institutions “get the poor directly
involved in alleviating their own poverty,” according
to Casagrande, the lenders can create valuable social and
financial capital. By keeping money within the community
and continually recycling loans from one microentrepreneur
to the next, SPBD is instrumental in building self-respect
among its clients, as well as creating the trust and security
that Uzzi and Sapienza’s research indicate is essential
to a prosperous community.
Without this social capital, community members
won’t
bowl strikes. They’ll strike out.
