Capitalizing on social capital

We usually don’t think of economics as a warm and fuzzy discipline dealing with human intangibles such as feelings and relationships.

December 18, 2013

by Christine Meyer

We usually don’t think of economics as a warm and fuzzy discipline dealing with human intangibles such as feelings and relationships.

But after three decades of studying the production, distribution and consumption of wealth, Department of Agricultural, Food, and Resource Economics (AFRE) professor Lindon Robison can state with confidence that our humanity – for better or worse – informs nearly every economic decision we make, whether it’s selling a used car, getting a haircut or making a charitable donation.

This may seem obvious to the non-economist, but back in 1984, when Robison was trying to explain how his Christian principles meshed with traditional, me-first economic theories, he found it couldn’t be done.

Robison points out that just about every major religion in the world has some form of the Golden Rule, but there’s no such consideration for others in economics.

Still, he says, “Relationships do alter the terms and level of trade, so I set out to ask, ‘Do I act differently with people for whom I have sympathy and care about, as opposed to strangers?’”

Robison says he and now-retired Michigan State University (MSU) professor Al Schmid designed the first survey to ask that question. They used the example of selling a used car with an asking price of $3,000. Not surprisingly, they discovered that a person was more likely to sell the car with favorable terms to someone they liked or possibly even give it away to someone who really needed it.

“We came back saying, this is pretty significant and in contrast to the classic economic model. We were creating an alternative view of exchanges,” Robison says.

Thus, the term “social capital” was introduced into the world of economics, although it wasn’t widely accepted at first, he says.

Not long after, Robison learned that scholars in disciplines such as sociology and political science were asking the same sorts of questions about the influence of human relationships on transactions, so he and MSU colleagues organized the first international conference on the topic.

Robison’s research into social capital culminated with the 2010 publication of his book with former MSU colleague Bryan Ritchie titled “Relationship Economics: The Social Capital Paradigm and its Application to Business, Politics and Other Transactions.” The book explores how social capital affects a wide array of human undertakings and has the power to mitigate ills such as poverty and corruption, and to address modern dilemmas such as emerging democracy, income inequality and globalization.

In recent surveys, Robison and his colleagues have tested the role of social capital in everyday transactions. Some behaviors, such as recycling, are loaded with the influence of social capital. We recycle, even though there’s little private economic incentive for doing so. Other activities, such as buying gasoline, have little social capital attached, so the transaction conforms to the stereotype of selfish economic behavior.

“We’re trying to explain how sympathetic relationships (social capital) affect the terms and level of exchange of both economic and socio-emotional goods,” Robison says. “What we want to build is a more general theory of exchange that depends on physical and socio-emotional needs, motives and relationships.”

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