Social capital’s effects on different policy areas

Having established what social capital is in the last post, this post provides a brief summary of some interesting findings when it comes to social capital’s causal effect on a range of policy areas, specifically: economic performance, health and wellbeing, and education.

Though the information below is a bit disjointed and brief, it’s shared in order to demonstrate the very useful contribution that social capital makes in different areas and why.

Economic performance

Social capital, as measured by social trust, is a significant indicator of GDP growth.

What partly underpins this is how social capital can aid how markets work. The efficient functioning of markets requires a good flow of information to connect buyers and sellers together. These flows of information are strongly affected by the size and character of social networks, as are the transaction costs between buyers and sellers, particularly when it comes to the norms and sanctions found within groups.

So, social capital can reduce transaction costs in any buying-selling arrangement by:

  • Altering the terms of trade – that is, their level of formality
  • Eliminating, or greatly reducing, the need for expensive contractual arrangements
  • Generating decision flexibility
  • Saving time.

When it comes to different types of social capital, it is thought that successful firms and regional economies are successful because they invest in different types of social capital.

Thus, they have a balance of investing between:

  • Bonding social capital, i.e. in relationships inside the company
  • Bridging social capital, i.e. in relationships between the company and other (sometimes competitor) companies
  • Linking social capital, i.e. between a company and its regulators

And when it comes to government, it is proposed (albeit with some academic controversy about the veracity of the claim) that less hierarchical, more horizontal or egalitarian forms of social capital would seem to be particularly conducive to good government. In the case of New Zealand, for example, it has been mooted that a dramatic shift to formal contracts has led to a deterioration in government performance.

Thinking of economic performance at the micro-level of the individual, it is known that a given individual can be more productive when surrounded by others who are skilled and able – an effect made possible by bonding social capital.

Furthermore, in tougher times for example, those who have been made redundant but have more extensive social networks – especially to those still in employment – are significantly more likely to gain new employment. This said, it is most often “weak ties” – connections through loose associates, distant relatives and friends – that are of most benefit in the labour market, suggesting forms of bridging and linking capital are the most effective.

Health and wellbeing

It is not so much that social capital – in the form of social networks – can stop you getting sick, but rather that they help you to recover when you do get sick.

For example, evidence suggests (albeit from a very medical model perspective) that those who have chronic illness appear to have fewer intimate relationships and friends. People suffering illnesses also tend to report a lower quality of support, regardless of the number of persons in their social network. Conversely, people who are less socially isolated and more involved in social and civic activities tend to have better health.

As a result, it is generally accepted that intimate, confiding relationships act as a “buffer” to protect individuals from the “adversities” of life. It is a robust finding that people who are isolated and lack intimate social support are more likely to have depression when under stress, and to remain depressed for longer, than those who have such support.

A corollary of this is that supportive social relationships are able to modify or counteract the stress reaction in humans. It is thought that this happens in at least four ways:

  1. The presence of supportive relationships generally implies that the individual is likely to be exposed to less stress in the first place
  2. The presence of social support is known to modify the consequences of stress
  3. Social support may shape people’s behavioural reactions to stress.
  4. More subtly, an individual’s basic reactivity to stress is affected by the quality of their supportive relationships early in life.


When it comes to explaining the variance in the educational success of a child, a significant amount – separate to the main factors such as parental education and financial resource – is explained by social capital. Social capital also helps to explain the impact of parents’ human and financial resources as well.

For example, interactions with attentive adults are the key channel through which the child develops emotional and social control, and becomes an attentive and effective self-learner. Similarly, if people believe in someone’s abilities and give them positive feedback, their aspirations are increased and they are encouraged to aim high to achieve.

Mentoring is a well-established and common way of attempting to boost the social capital of people, typically those from a disadvantaged background. Generally (and this is across US and UK literature) evidence suggests that this being done one-to-one isn’t very successful, perhaps because it leads to labeling and stigmatization of the person involved. But those mentoring interventions that happen with a whole peer group at one time, rather than singling out individuals, work well. Mentoring interventions also appear to be more effective if offered relatively early in a young person’s educational career.

Evidence indicates that there are clear effects of community-level (meso) social capital on educational performance, and these operate over and above the impact of family-level (micro) social capital. These relate to the ways in which teachers within schools network with each other, sharing learning and techniques and having support when it comes to norms and sanctions relating to, for example, behavior.


Fully recognising the slightly disjointed nature of this post, its aim has been to provide a summary of some of the most interesting causal effects social capital has on a range of policy areas.

By far the most interesting area to me is in how social capital can affect the effectiveness of communities – the subject of my next post.


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Man of letters & numbers; also occasionally of action. Husband to NTW. Dad of three. Friendly geek.

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