Socialstructing: Bringing Social Back into Our Economy and Organizations

Guestblogger Marina Gorbis is executive director at Institute for the Future.

My mother knew well the value of social capital, although she probably never heard the term. In the Soviet Union where she lived and where I grew up one couldn't survive without it. She traded social capital on a daily basis. It meant that despite being a widow with very little money, despite not having a high position or a membership in the "privileged" class (the Communist Party), she was able to provide a relatively good life for her family. We never worried about having enough food, my sister and I always wore fashionable (by Soviet standards, at least) clothes, took music and dance classes, went to good schools, spent summers by the seashore, went to the symphony, and otherwise took advantage of a lifestyle that seemed much beyond our means. How was my mother able to provide all these things? She certainly couldn't afford them on her pitiful wages as a physician in a government-run clinic in Odessa, Ukraine. Social capital--networks of relationships with friends and acquaintances -- is what accounted for her ability to provide for a relatively comfortable, albeit not luxurious, lifestyle.

While there was no meat to be found in any store in the city, my mother got it regularly (along with other provisions) through the director of a supermarket, who was also a husband of a close colleague. I got into music school in exchange for my mother treating the director of the school. We could get Western medicines because my mother was friendly with the head of a large local pharmacy. Our apartment was always filled with people who my mother was counseling, diagnosing, treating, and prescribing medicines for. No money was ever exchanged. Ever mindful of Stalin's purges and his fabricated case against Jewish doctors' alleged conspiracy to poison Soviet leadership, she was too afraid to have an underground private medical practice or take money for her services. "With my luck, I would be the first to be caught," she always said. The people who could be regularly found in our home or whose homes she visited dispensing medical services were her substitutes for money. They and many other "connections" she built over a lifetime were her doors to resources -- from tangible commodities such as food, medicines, and clothes, to information, services, and emotional support.

Our story was not unique. All around us, amid empty stores, low salaries, dismal productivity numbers, and fraying infrastructure, people seemed to live normal "middle class" lives. An economist would have a hard time explaining how this was possible by looking at economic statistics or by walking around the stores and markets in Russia in the 1960's and 70's. Visitors to the Soviet Union, in fact, were always amazed at the gap between what they saw in state stores--shelves empty or filled with things no one wanted--and what they saw in people's homes--nice furnishings and tables filled with food.

What bridged the gap was the informal economy, an economy driven by social rather than financial capital. This economy was deeply rooted in the myriad relationships people like my mother used to acquire goods, services, information, education, and many other things. They did not do this consciously--no one was teaching them how to grow their network or increase their following the way many social marketers are eager to teach us today, they just did this to survive. The web of social relationships was an invisible fabric that permeated the economic life and made that particular society work.

Social capital has served a critical role in the economic life of the Soviet Union and continues to do so in many poorer countries today. Teodor Shanin, an eminent sociologist, has invented a field of study called "peasantology," which looks at how people survive in informal economies. Shanin argues that peasants inhabit an economic structure entirely different from either capitalism or socialism. The key element of the peasant economic structure is the existence of dense and vibrant social and family networks that provide members access to necessary resources. Researchers observed the phenomenon first in Africa years ago where they could not find any economic explanation for how the majority of the population survived. They didn't own land. They didn't seem to have any assets.

Marxist and market economists had always dismissed such activity as marginal. However, as Shanin argues, one is hard pressed to see something as marginal when half of mankind lives like this. In fact, social capital also plays an important role in developed economies, as many researchers such as Manuel Castells and Robert Putnam, among others, have shown. However, far too often we have pushed social capital and notions of non-monetary currencies out of our economic thinking and economic interactions. One can in fact view the whole history of economic development as a long path of taking local, familiar, personal, and social out of economic relationships and replacing them with professional, impersonal, and highly institutionalized economic interactions centered on exchanging one form of capital--money. It is hard to argue that this has brought great efficiency to our economic life and has resulted in spectacular growth rates in societies that have followed the path. In the process, we have built organizations and regulatory frameworks that allowed us to scale what previously were familiar, often familial, economic relationships to include anonymous strangers, thus allowing for aggregation of resources across geographies and social boundaries. Organizations we created and that dominate our economic landscape today, with a limited liability corporation as its crowning glory, have been great innovations in their time and enablers of much of our prosperity. They massively increased the scale of economic interactions and at the same time became institutional proxies for the kind of trust we previously reserved for our neighbors and family.

We have become successful at the art of operating at scales massively beyond the local village and beyond the boundaries of social relations. We know how to organize people and resources for the ultimate goal of maximizing monetary returns. Along the way, we developed a host of management theories and practices that have become bibles to generations of working men and women. And the corporate culture we created spread well beyond the business realm. As Doug Rushkoff points out in "Life Inc.," corporatism or corporate way of thinking has permeated our culture, language, philanthropic organizations, schools, and media. It is how we've come to think about getting things done. We almost cannot conceive of a world without hierarchical organizational charts, mission statements, departments, and clear sets of corporate rules and incentives.

All of this is about to change. Computing and communications technologies are not only linking us into a one global village, one global brain, they are also adding a new layer of sociality to our interactions and are making it possible for us to engage in new kinds of transactions with each other outside of existing organizational boundaries. They are making it possible for us to gain access and build trust that we previously outsourced to organizations. They are also taking anonymity out of many economic transactions. We can gain new levels of knowledge about strangers by following their Twitter streams, looking up their friends on Facebook, checking their reputations as buyers and sellers on E-Bay, measuring their contributions to Wikipedia, watching their Youtube videos. We can lend our money directly to people and projects we find appealing on rather than entrust the money to banks to invest anonymously and without any say from us. Even public relations is changing from relying on official public releases to increasingly whispering to the right people in one's social network (as an example see this recent article in the NYT). We are bringing a whole new level of sociality, familiarity, and connectedness to our economic interactions. In a word, we are socialstructing our organizations, i.e. reorganizing them around social connections rather than against them.

But social connections we organize around are different from face-to-face relationships our ancestors grew up with. We are witnessing a rise in what I call information-driven sociality -- sociality that derives from our ability to get direct access to strangers and remove their anonymity by giving us access to information trails they leave behind, thus providing us with knowledge about many aspects of their selves--interests, reputations, online contributions, musical tastes, even buying preferences. In the process, the raison d'etre for many types of organizations we created over the past few centuries -- organizations needed for aggregating resources and enabling transactions between anonymous strangers -- is disappearing. Amplified with the collective intelligence, access, and resources embedded in social connections with multitudes of others, we are now increasingly able to achieve the kind of scale and reach previously achievable only by large organizations.

Driven by information-driven sociality, the next decade will usher in a whole new array of organizational models, new forms of currencies, and new sets of work practices. At the same time we will need to create new regulatory frameworks suited for organizational forms based on principles of social connectivity and familiarity. Remember the old adage of "Keep social out, don't bring it into the workplace?" The new adage is "Social is business, bring it in."



  1. That’s a fascinating article. I think it’s true that the internet is rehumanizing the world, allow people to connect, work, and play on their own terms. Spontaneous networking and collaboration are undermining the overgrown, top-heavy, oppressive structures (both corporate and political) of the 20th century. Yay!

  2. This resonated with me. It made me think about how people value money more than personal connection in this day and age.

  3. I’d love to read an intro paragraph of what you are talking about and then, if interested, following a link to your full article. Your wall-of-text articles totally turn me off before I even start to read.
    Please think about it as I am sure you are a fascinating writer, otherwise why would you be a guest contributor?

  4. I see a lot of the same people who hoard fiscal capital also hoard social capital. What else are the secret societies of Yale and Harvard for?

  5. I don’t remember the source and can’t find it on Google, but I vaguely remember hearing about an economist who rhetorically asked, what does “the economy” economize? What does a theoretical free market save because it is so precious? The answer was “love.” In the theoretical free market economy, you’re supposed to have as much goodwill as you can, and consequently pay cash for your food and socks and so forth in order not to strain the hospitality of your fellow citizens.

    I took it as meaning that heavy dependence on “social capital” to run an economy leads to mafia-style corruption.

    I’ve heard before that, in the USSR, being a fully licensed physician was not only underpaid, but was widely regarded as women’s work. In photos, Soviet doctors always seemed to wear white toques like chefs. If you wanted a relatively high-power job without the requirement for a lot of education, you ran a gas station, i.e. the gatekeeper of fuel. You’d distribute gas to the folks who can pay not just in rubles, but in favors.

  6. Some folks here in the U.S.A. understand social capital, too. My wife and I had a wonderful wedding reception, much in part to valued contributions of friends. I have a special rememberance of John and Cindy, both chefs who took the modest foodstuffs I purchased and made them into a beautiful and memorable display. Our honeymoon in the northwoods of Wisconsin was made possible by other friends who let us use their cabin.

    We have gained and given to the informal economy for years. Most of my family’s dental work in recent years has been possible because I’ve been doing computer services for the dental clinic. This past weekend, we were able to borrow a trailer and three canoes so we could take a family trip in northern Minnesota. We’re always glad to let college age kids drop by and do their laundry or have a meal, in exchange for helping out a bit with the kids (e.g., playing a game with them, taking them for a walk).

    The informal economy is alive and well.

  7. The true meaning of the parable of the loaves and fishes – the synergy of cooperation with one’s fellow human beings. That guy Jesus was a smart fellow.

  8. Yeah, but then your mom joins Facebook and the whole house of cards comes tumbling down…

  9. I didn’t see it mentioned here specifically. Social lending is an online version of using this social capital in personal finance. (International Charity)

    The whole point of Kiva is that loaning money to people with a plan has more impact on the community than giving it to people. (US) (US) (UK)
    . . .and many more around the world

    I just had a conversation today with my co-worker where he told me how the early generations of Japanese-Americans would get together, pool resources, and loan money to individuals who made a case for it. This kind of social capital helped their community do so well.

    This is the only part missing from these online services. The local focus. That being said I have seen ethnic/religious groups in While people may frown on it, I think it is a great idea.

    Yes. Social capital can lead to problems, but the alternative we have now in the States where the loan application just goes through the formula is heartless. In a time when credit is frozen, there needs to be additional forms.

    >I see a lot of the same people who hoard fiscal capital also hoard social capital. What else are the secret societies of Yale and Harvard for?

    So true. But, regardless of your class, being social and having a network of friends make more resources available to you.

    >The informal economy is alive and well.

    That is great to hear. I agree.

  10. “I took it as meaning that heavy dependence on “social capital” to run an economy leads to mafia-style corruption.”

    Technically, the Soviet economy was supposed to depend on the brilliance and wisdom of the economic planners. It wasn’t designed to run on social capital.

    The social capital system the author describes is how people helped each other survive the Soviets.
    I think this was the result, not the cause, of mafia-style corruption (aka the Communist Party).

  11. Politicians also understand social capital, the only difference is their “friends” have lots and lots of money.

  12. “I see a lot of the same people who hoard fiscal capital also hoard social capital. What else are the secret societies of Yale and Harvard for?”

    I’ve noticed the same. The same people I see obsessed with increasing material wealth are also obsessed with networking and rubbing elbows with the rich and powerful, and each is seen as a means to the other.

    Marina, you talk about how the very poor use social capital, but I’m sure it’s at least as important among the rich and powerful. The former is viewed as relying on the community and the latter as elitism or nepotism of various kinds, but it’s essentially the same thing, no?

  13. I commented yesterday about growing up in a hooverville during the Great Depression. It would take a book to describe the varieties of voluntary services and interactions we and our neighbors came up with; everything from field gleaning expeditions, gardening, policing, weddings, dances, births, parties, funerals…

    I was too young to feel the strain and challenges the adults were undergoing, so what I mostly remember is the sense of family and community and shared activities. My sister remarks, ”We couldn’t get away with anything because everybody knew everything.”

    Our suburban grandchildren find it all very amusing.

  14. @ 11.

    Thanks, good points.

    As I recall, there are different definitions of “social capital.” Some writers think of it as a sort of barter system for favors. But others think of a nation’s “social capital” as including things like the rule of law and the incorruptibility of civil servants. I’m told Swedish social democracy works partly because they have a lot of the second kind of social capital.

  15. “Marina, you talk about how the very poor use social capital, but I’m sure it’s at least as important among the rich and powerful. The former is viewed as relying on the community and the latter as elitism or nepotism of various kinds, but it’s essentially the same thing, no?”

    This would be an interesting area to study and compare/contrast.

  16. @ 15

    True, definitions are slippery. You might think of various institutions as social capital as well.

    A lot of this (what the writer is discussing) seems to boil down to barter, doesn’t it? Goods and services exchanged directly, rather than using money. It only works if you can find a mutually beneficial exchange–but the internet certainly enables that, and on a global scale.

  17. @#17: I’m not sure that it’s the same thing. Barter is directly thing-for-a-thing, whereas many of the transactions the author described seem almost like “favors”.

    I also came from a poor family and we relied on trading favors with people often. I think this is more what is meant by social capital — doing something for somebody else earns you “brownie points”, which inevitably results in them eventually doing you a favor. It’s not an explicit thing; people just help each other out. In that way, it’s a lot less mechanical and critical than financial capital — acts don’t necessarily have some set price. It’s capital in so much as you can’t get something for nothing — somebody who takes advantage of the kindness of others without giving in return eventually finds themselves without willing donors. However, if people help each other out regularly, the proportions matter little — friends rarely argue over the relative worth of cooking a meal, painting a fence, or helping move furniture.

    In many ways, I find this system of favors much more balanced: people receive what they need, when they need it, accumulating favors benefits others more than the accumulator, and those who are unable to help as much are not given proportionally less help — in fact, I find it’s often the opposite.

    It also breaks down the differentiation between trade and charity — rather than having to generate shared pools of currency and direct them to charities, charitable people merely give more favors than they receive. In this respect, a charity is an entity that can’t return the favor.

    Social capital likely won’t replace financial capital, because of the organization and scale that a corporation provides, but it certainly exists and is essential to everyday life. Many of us would have to work far more than 40 hours a week if we were to provide for ourselves entirely through financial capital.

  18. Guys,

    What Ms. Gorbis and the rest of you are talking about is a Black Market. Whenever a prevailing economic system fails to provide its constituents with something they want or need, a black (or “gray”) market gets created. Call it social capital or any other politically correct name that you want, it’s still a black market, simply because it functions outside the accepted economic system.

    In spite of the name, there is nothing particularly evil about a black market. (Except to those who run the “white”/mainstream market.)

    Black markets occur because the prevailing economic system fails, in general or in a specific area.

    The “currency” of such a market will vary greatly. It can be local money, so-called “hard” currency – Dollars, Euros, etc. – well, maybe not Dollars these days. Or the exchange can be based on barter.

    Command economies, like the old Soviet Union, create artificial shortages affecting everyone except the leadership. “Free Enterprise” creates shortages by basically excluding a substantial part of the population on the basis of poverty.

    Both create black markets.

    1. Call it social capital or any other politically correct name that you want, it’s still a black market, simply because it functions outside the accepted economic system.

      ‘Social capital’ is politically correct? ‘Black market’ is a pejorative propaganda term used by capitalists to create the idea that any products or services that don’t make them a profit must be criminal. ‘Accepted economic system’? Accepted by whom? Oh yeah, the same people who created the term ‘black market’.

  19. Polanyi talked quite a bit about economies that were more socially structured than we have currently. He points out in “The Great Transformation” that in most places, at most times, the dominant organisational model has been the social one, and that market economies are a very recent innovation.

    Marcel Mauss, also has quite a lot to say on gift economies, which were the dominant form of economics in pre-feudal and primitive societies.

    For something more modern there is David Graeber’s “Towards an Anthropological Theory of Value”, which draws heavily on anthropology to present a theory of value rooted in human social experience.

  20. @19

    That’s pretty much what I thought, if i did not necessarily express effectively. My impression was that a black market is better than no market at all. But it’s still dangerous and horrible in comparison with the ideal free market. Under a command economy, under the black market, you aren’t allowed to sell what you make. Under the table, you sell a lot of homemade jam for some basic electrical parts you need to do some home repairs. So far so good. But then you’re getting paid to look the other way when somebody plays the system in a more serious, exploitative fashion. The local mucky-muck gives a little favor to an examining physician so that his cousin Sasha can have a chance to get out of the horrible rotten Russian draft on the grounds of disability. A big local player becomes known as the type of guy the police don’t mess with, even when he beats up some girl who doesn’t like him. All under the table.

  21. So far this is the best inverse argument FOR Capitalism. Your mother did not just have social capital. She was a physician and had intellectual capital. Talk to the person without intellectual capital about their position in society. Who wants them for friends?

    Black Markets inevitably emerge when command economies grow. They are merely inefficient means that allow a few well connected people to survive, but do not in general benefit a mass of society.

  22. I keep seeing people describing this as a “black market”. It’s not a black market, it’s a gift economy. A black market is trading in contraband. A gift economy is where informal custom dictates distributive forces.

  23. i would call it a black market, because it needs to be hidden from the authorities and kept secret – ie. in the dark, under the cover of night, black.

  24. If a black market is one that is opaque to authority, then the biggest black marketeers are Goldman Sachs.

  25. Wow, 4 hours on the plane and 26 comments! Thanks y’all.

    1. It is not surprising that in poorer countries where people have less money and fewer assets, people rely on social relations to fill many functions we pay for. Think babysitting, medical advice, meal preparations, housecleaning, even counseling. These are functions performed by grandparents, friends and relatives. And yes, these exchanges include many forms–barter, gifts, obligations. Here we outsource such services to professionals and pay money for them.

    2. Black market is not at all the same as social capital. In fact, black markets often arise in places where social connections are weak. Black markets are based on someone making money. Social capital is a part of everyday human connections and relations.

    3. Finally, I agree that organizational forms based on social rather than financial currencies are not panacea to all of our problems. Social networks can be exclusionary (secret societies, clubs, cliques), they have their own rich and poor, and can lead to huge inequalities. I think it is important to recognize that we are transitioning to new types of organizations and that our current management practices and regulatory frameworks are not suited to this new reality. We need to recognize this and adjust them accordingly.

  26. Interesting notions about corruption, black markets, social capital. Definitions need defining.
    But in this discussion, if not totally in real life, I am on the side of real money. It seems that part of the original notion of the “American Dream” (sorry ’bout the quotes) is that money would cleanse you of all the baggage of your past, of your class, and that a stevedore with the cash was every bit as good as a doctor with the same amount. But not in this world of “social capital.” He would not have the same call on the same class of “friends.” Maybe this is the witnessing of the birth of a new class system.
    Cheers, Tedsy

  27. Even within existing hierarchical corporations, it has been known for quite some time that the ‘underlying’ networks are where the true value is created – not necessarily the network as illustrated in a formal org chart.

    Our business is actually called ‘SocialStruct’ and we do just what you describe in the article: help organizations realize the value of social capital.

    Great to see such an insightful, intellectual analysis on the topic and looking forward to more guest posts.

  28. A reliance on social capital is one of the worse things about ancient society. This is what medieval Europe and Rome were based on – they had NO market economy, it was all social capital (Okay, they had a small market economy, but if you participated in any large way everyone would look down on you.). Its how buildings got built, how armies were gathered, how money was raised for the government.

    It leads to corruption, cronyism, and a rigid class system.

    While it has its place in personal relationships and the like, and it has its benefits, the drawbacks of social capital are nothing to scoff at.

  29. I’m with #28, and #30.
    How in the heck is this sort of corruption and favouritism a good thing?
    Because that’s what it is.

    Look at the example in the article: No one had meat, but you did, because your mother knew the grocer–well, guess what? Nobody had any meat because the grocer was stealing all their portions to distribute to his contacts. Otherwise everyone would have gottne a (small) ration. This, to me, seems enormously unfair.

    I’m sure it does look great, if you are on the recieving end, but the key to this sort of favouratism is that someone else is always disadvantaged. Did they do anything to deserve being disadvantaged? No, nothing at all.
    You can be completely unprejudiced when it comes to race, or class, or gender, but it’s almost garunteed that you will along all three lines, because you’ll be descriminating against who you do not know.
    #30 is right, it very easily can lead to a class system.
    The laws on the books in the Soviet Union were very egalitarian, I recall– only reason that Party members were so tremendously favoured, in practice, is because they were in power. Because they had the social capital.
    Is that really a system you want to emulate?

  30. @30
    In ancient societies like Rome non-people (slaves) performed all levels of economic services — sweat labor, skilled trades, and intellectual — for the citizens of the city-state.

    In medieval Europe non-people (commoners) performed all levels of economic services — sweat labor, skilled trades, and intellectual — for their sovereign, easiest defined as the man with the authority and means to end their life.

    Those are examples of what warrior capital brings, and not evidence of social capital…

  31. People do things for others for monetary reasons, or they for social reasons. The 2 don’t mix (Dan Ariely gives the example of offering your mother-in-law money for a Thanksgiving dinner).

    The OP is describing the 2nd type of environment: mutual aid and solidarity. It baffles me that people see it through a financial paradigm, but I guess that’s another reason why “social capital” sucks as a name. The 2 things are opposites.

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