Academic journal article Management : Journal of Contemporary Management Issues

Understanding Social Capital within the Framework of Economic Theory of Organization: A Theoretical Approach

Academic journal article Management : Journal of Contemporary Management Issues

Understanding Social Capital within the Framework of Economic Theory of Organization: A Theoretical Approach

Article excerpt

The paper looks into the (deficiencies in) understanding of relations within the economic theory of organization. The analysis is based on a three-level definition of social capital which is, due to a growing interdependence in the world of business, increasingly becoming an important source of competitive advantage. By employing the concept of social capital as the lowest common denominator in the economic organization theory, the author presents a new understanding of economic organization theory's evolution.

1. INTRODUCTION

Every research requires a certain organizational form. Taking a viewpoint of business, the choice of organization seems sensible as it involves numerous activities that are closely related to social capital which is becoming an increasingly important aspect of competitive advantage in the markets at the break of the millennium. From an epistemological viewpoint, the choice of economic theory is sensible, as the author is quite convinced that the divisions in the scientific-research community and consequently narrow-mindedness of academic approaches impede a productive understanding of relations2. Therefore, the paper seeks to analyze the understanding of social capital within economic theory of organization, as well as to point out that social capital may be understood as the lowest common denominator and one of the key factors of evolutionary change within the economic theory of organization. By summarizing the evolution of the economic organization theory, the author wishes to argue that the more contemporary and modern the theory, the more advanced is its understanding of social capital. To corroborate these hypotheses, the comparative analysis will be used.

2. DEFINITION OF SOCIAL CAPITAL ON AN ORGANIZATIONAL LEVEL

The concept of social capital is hardly a novelty. In sociology, it has constantly been present as a concept that stresses the importance of relations. What is new about the approach is the emphasis on the word "capital", indicating that relations comprise a value component that can become a source of competitive advantage. Social capital generates economic effects for its proprietors, whereby it is, unlike other types of capital, not embodied in respective individuals, but rather in relations between them; thus, it cannot be appropriated by any one individual. Consequently, it does not benefit solely those who generate it, but also brings utility to those that do not take part in the process of its creation; thus, the "free-rider" problem arises, with certain individuals avoiding responsibility for the social capital's reproduction (Coleman, 2000). Social capital is a public good and is thus subject to externalities. According to many authors, social capital prevents opportunism, encourages cooperation, decreases transaction costs3, lowers the possibility of disputes, drives transfer of knowledge and increases solidarity (Fukuyama, 1995; Collier, 1998). On the other hand, it may impede the flow of information and curb individual freedom (Adler, Kwon, 2000; Portes, 2000).

Social capital lacks a general agreement upon a unified definition. The differences between multiple definitions and measurement methods stem from various sources, levels and approaches. With regard to the sources of social capital, the scientific literature most commonly refers to networks (Coleman 2000; Burt, 1992; Putnam, 1995; Granoveteer 1973), norms (Portes, 2000; Putnam, 1995), social beliefs (Nahapiet, Ghoshal, 2000) and rules (Adler, Kwon, 2000). The authors differ not only in the significance that they ascribe to respective sources, but also in the level at which the analysis is conducted, and may either be the level of an individual (e.g. Coleman, 2000), an enterprise (e.g. Baker, 1990), a geographic region (e.g. Putnam, 1995), a nation (e.g. Fukuyama, 1995) or a network (e.g. Burt, 1992).

Two approaches predominate in the analyses. The egocentric (external) approach focuses on the benefits of each subject when entering a set of interpersonal relations; conversely, the sociocentric (internal) approach emphasizes on the broader community (Adler, Kwon, 2000; Adam et al. …

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