Social Capital: How Social Relations Matter

Introduction The most general definition of social capital is that “relationships matter”. If this were the only insight from the burgeoning literature on the topic, it would not be news to social economists. On the contrary, the insight that social relationships matter to the economy has been the very foundation of social economics for more than half a century – long before the discovery of the social capital concept by economists. Indeed, what has been portrayed as “the missing link” by mainstream economists, is common knowledge among social economists. True as this may be, such a self-congratulating view about social capital is likely to ignore recent developments analysing in what specific ways social relationships appear to affect economic decisions and processes, and how social economic processes influence the accumulation, distribution, and effectiveness of social capital. Rather than regarding social capital as just another variant of capital and reducing it to a variable in a regression analysis, a small but innovative body of research has developed that is actually unpacking the black box of the connections between social relationships and economic outcomes. Such studies have particularly emerged in the area of development economics. This is probably due, at least in part, to the fact that the World Bank has taken on board the concept a decade ago, which was quickly followed by an ambitious research initiative by the Bank . Another reason why it is particularly in development studies that social capital has received relatively much attention is given by Durlauf and Fafchamps (2004), who state that it has been found useful to address the complex, society-wide problems of poverty in developing countries.