Network structure of social capital

Slide 1: The Network Structure of Social Capital Ronald Burt 2000 A presentation by Mikhail Dubov  Ruconomics.com

Slide 2: Social capital metaphor  Derived from the presumption that social context matters for individual beliefs and behavior.  Complement to human capital.  Broad agreement: a kind of capital that can create for certain individuals or groups a competitive advantage in pursuing their ends .

Slide 3: Network models of markets  How do networks affect competition?  Information is problematic.  Typically circulates within groups before it will circulate between groups.  Diffusion of information may take time.  Networks affect the markets through providing competitive advantage in information exchange.

Slide 4: Social capital of structural holes  Structural holes are the weak connections between different groups.  Holes create competitive advantage for individuals whose relationships span the holes.  Information benefit: Holes are gaps between nonredundant sources of information. Nonredundant contacts offer information that is more additive than overlapping.  Control benefit: Better-connected people benefit disproportionately from the holes by having control over third- party relationships.

Slide 5: Hole hypothesis  Structural holes affect the degree of economic success of the society.  Encourage entrepreneurship.  Improve the coordination.  Reduce costs relative to bureaucratic alternative.  Speed the adjustment to equilibrium.  Overall, structural holes allow to increase returns to human capital.

Slide 6: Empirical evidence  Empirical evidence supports the hypothesis.  Lab experiments: resources accumulate in people with exclusive connections.  Census data: producer profit margins increase with structural holes in network of transactions.  Archival and survey data : career advantages of having a contact network rich in structural holes.  Holes encourage learning and creativity. Still unclear on entrepreneurship.

Slide 7: Closure argument  Evidence from Chicago State University:

Slide 8: Integration with network closure argument  Empirical evidence suggests that dense networks do not affect performance.  Consistent with hole hypothesis.  Contradiction with Coleman’s theory that dense networks are the source of social capital (closure argument).  Rather than rejecting closure altogether we can try to integrate it into the theory.  Brokerage is the source of added value but closures help realize this value.

Slide 9: Integration: profits  Burt (1992); Burt et al. (1999) study census data on industry profits.  Profit margins decrease with network constraint within the industry (internal constraint is measured as the extent to which output is spread among different producers)  Profit margins also decrease with constraint beyond industry (external constraint measured as the extent to which producers have few independent suppliers and customers)

Slide 10: Empirical evidence of integration  Social capital matters more for managers with fewer peers.

Slide 11: Integration: team performance  External constraint – aggregate network constraint in member networks beyond the team. (brokerage)  Internal constraint – network constraint of structural wholes within the team. (closure)  Managers with a network rich in social capital (low external constraint) are promoted very early, while those with mostly redundant contacts are promoted very late.  However, when there is poor communication and coordination within a team, the team can be expected to perform poorly .

Slide 12: Conclusions  The closure argument describes how dense or hierarchical networks lower the risk associated with transaction and trust, which is associated with performance.  The hole argument describes how brokerage creates opportunities to add value, which determined performance.  The evidence (by Burt) justifies expanding the whole argument to include closure as an aspect of social capital enabling a group to act to benefit from the structural holes to which group members have access.  Otherwise the evidence entirely supports holes over closure.