The term "social capital" was popularized by a sociologist called Robert Putnam. He has written extensively about community life, and how it can lead to higher levels of good outcomes like health, education etc. The problem with social capital (and I'm lifting extensively from J.Sobel's nice article summarizing the recent work on it), is that it is too vague. No-one knows what exactly it refers to, and whether and how it can be built. So I wanted to provide my laundry list of what I believe should be the essential ingredients of social capital:
1. It should refer to "informal" ways of transacting, e.g. relational contracts vs legal contracts.
2. It should be decentralized
3. It should be continuous with respect to individuals (i.e. a single individual cannot shift it by a large amount)
4. It should be "local".
5. It can come as endowment (e.g. you may inherit your parents networks), or may be built by investing in networking.
6. Success in building social capital should depend on a combination of ability, endowment and investment.
7. Governments can facilitate the building of social capital by subsidizing community centres, local newspapers, etc but ultimately
whether it succeeds depends on the alternative ways available to accomplish various transactions.
8. Friendship or social networks are highly related to the main activity of an individual, e.g for students it is their classmates, for adults it is often work related. Usually building these is a low cost activity done for direct consumption benefits but may lead to other types of benefits..
9. Within the narrow space an individual occupies both at home and school/work, I think physical distance matters: neighbours at home and at work matter a lot more than non-neighbours: so investment costs increase in distance - both social and physical.
10. Social capital is associated with an aggregative unit, e.g. a country, a region, a workplace. Even though built by individuals, only the aggregate version is social capital.
11. It can potentially be bad as well: a close knit community is often more tradition bound being based on sanctions for un-cooperative behaviour.
12. An important function of social capital is to facilitate information flows and prevent opportunistic behavior through punishments.
Economists already look at the effects of "salient" social capital for a particular issue: they may not call it that, but peer effects in health and education are an example, other examples are how political affiliations are affected by affiliations of close relatives and friends and workplace..
At the end can we say which region/workplace/country is high in social capital? Scandinavian countries maybe? But immigration may change that...possible things that are important: level of development, levels of inequality (tax system), geography- openness to inward migration, communication systems. Can we say Bhutan is high in social capital?
