Organizational Capital

Social and Organizational Capital

The essence of capital, as defined by economists, is lasting productive capacity that is produced and, subsequently, used by economic entities to achieve their purposes. Until recently, almost everyone simply took this to mean tangible assets (factories, equipment, etc.) possessed by enterprise owners seeking profit. In the light of the increased recognition of the role that intangibles play in determining productive capacity, the term capital has been extended more and more to intangible factors such as human capital, in which the productive capacity is embodied in individuals due to education, training and so on. During the last decade or so, analyses focusing on the concepts of social and organizational capital have continued this trend.

Both terms refer to the features of social relationships that enable economic entities to accomplish their purposes. Organizational capital, which can be considered a type of social capital, is a concept that has been used primarily by economists to denote the productive capacity that derives from the qualities of an organization’s “people relationships.” Social capital, on the other hand, has been used, typically by economic sociologists, not simply to refer to productive capacity but more generally to denote a social resource that enables actors to attain their ends.

Organizational Capital 

The concept of organizational capital was developed by John Tomer in his 1973 Ph.D. thesis and later as an article and book (1981, 1987). Working separately, Edward Prescott and Michael Visscher (1980) also wrote about “organization capital.”

Investment in organizational capital uses up resources in order to bring about lasting improvement in productivity, worker well- being, or social performance through changes in the functioning of the organization (Tomer 1987: 24). It involves (a) changing the formal and informal social relationships and patterns of activity within the enterprise, or (b) changing the individual attributes important to organizational functioning, or (c) accumulating information useful in matching workers with organizational situations. This third aspect is the one on which Prescott and Visscher focus.

Organizational capital is embodied either in organizational relationships, particular members of organizations, the organization’s repositories of information, or some combination of the above. Pure organizational capital provides the best contrast with human capital because it is vested entirely in the relationships among workers, not in the workers themselves. It is these relationships, for example, particular organizational structures, that enable desired worker behavior to be evoked or fostered.

Organizational capital and productivity 
The organizational capital concept has great value in that it links organizational behavior insights regarding the contribution of organizational structure, culture, climate, patterns of interaction, socialization, etc. to the economic concepts of capital and productivity. The organizational capital concept has found useful application as (a) an explanation of the rate of economic growth, (b) a factor explaining increases in worker effort levels and cooperation and thus X-efficiency, and (c) a factor in understanding the high productivity of Japanese manufacturing companies as well as other high performance companies (Tomer 1987). Organizational capital has important implications for industrial policy, that is, for understanding when government ought to act to foster industry investment in critical types of organizations. Investment in organizational capital can also contribute to increasing an organization’s socially responsible behavior, the rationality of its decision-making, and the citizenship behavior of its members.

Social capital
In contrast to organizational capital, social capital is a broader term that has been developed largely by sociologists, most notably, James Coleman. Social capital refers to the social-structural resources that are embodied in families, institutions, civic communities, and the larger society. The capacity provided by social capital inheres in social relationships, not in individuals (Coleman 1990: 304). Because of the social capital available to them, economic entities such as individuals, social groups, businesses, and governments, as well as the national or regional economies of which they are a part, are able to accomplish more than would be possible in the absence of these capital endowments (Coleman 1988: 98). In some cases, social capital is created intentionally by persons who view it as an investment from which they hope to profit. However, it is more often created as a by-product of activities engaged in for other reasons (Coleman 1990: 312, 317).

In contrast to the main intellectual currents in economics and sociology, “revisionist” socioeconomics views economic actors as being partially embedded in society. Orthodox economists, on the one hand, have tended to view the actor as behaving independently, rationally and entirely self-interestedly. Sociologists, on the other hand, have tended to see the actor as behaving in accord with social norms, rules and obligations. However, with partial embeddedness, economic actors, who are rationally striving to achieve their ends, respond in part to economic incentives and in part to social influences. The concept of social capital is particularly important in this context as a theoretical tool that explains both how social relationships influence actors and how actors can utilize social organization to attain their ends.

Regardless of the intentionality involved in its creation, social capital can be a resource of great value when its functioning enables actors to realize their interests. Among the social features that can serve as social capital are (a) obligations and expectations, (b) norms and effective sanctions, (c) authority relations, (d) family and friendship bonds and (e) voluntary social organizations (Coleman 1990). Social scientists’ use of the social capital concept provides explicit recognition of the inherently social nature of economic processes. With regard to the productivity of a nation or an industry, it is useful to conceive of a capital system comprised of the tangible, human, social/organizational and other forms of capital required for production. This perspective enables us to understand better, first, how the different types of resources combine to produce system-wide outcomes, and second, how these different resources can either substitute for or complement each other.