Connections: Why Human Capital needs Social Capital

Social Capital – which requires a broader and longer view – is actually indispensable to prudent “Human Capital” management.

We may as a collective of humans be ready to learn something important and useful… that more is not always better. In fact less, may truly, be more!

I want to offer reflections on two recent books as evidence.  The #1 is from the free markets-side, from a review of The Quants: How a New Breed of Math Whizzes Conquered Wall Street and Nearly Destroyed It:

Unfortunately, most of the players generate little empathy; their wonkish preoccupations seem to allow scant space for community and societal concerns. It doesn’t help, of course, that they have also made pots of money at the expense of the average investor and taxpayer. Sometime in the future, we may look back and marvel at a society that so richly rewarded some of its best minds to labor with such powerful means toward such narrow ends.

Example #2 is from the  well known David (and Wendy) Ulrich and their book, The Why of Work – the people-side. The reviewer offers views like this:

There’s something in the ether as business author after business author seeks to replace investor capitalism and the US business model with something new – or else rescue it through a more benign “enlightened shareholder value” model of corporate governance.

This commentary aims to remove the myopic corporate concern with only economic value to also encompass social and moral obligations.

There is a dire need to include such a sociological perspective in serious HR work.  Human beings must be seen as individuals and ‘collectives’ to fully understand what makes us tick and prosper (in the widest sense of that term).  Viewing employees only as “Human Capital” is shortsighted.

Peter Capelli of the Wharton business school writes books that self-respecting “human capital” leaders would readily buy and read.  His book Talent on Demand is usefully outlined in his own words in a 2008 interview:

Talent management is a simple issue. We’re trying to anticipate what the needs and the demand will be for people, for human capital, into the future, and then set up some sort of plan for meeting it. It is pretty simple. It’s the same problem that you see in lots of different parts of business: What do we think we are going to need? How are we going to go about meeting that?

Capelli’s “simple” views are not seen as problematic by most “human capital” professionals I have met.  These  sentiments could have been related at any HR-related conference I have personally attended and it would not have elicited a lively debate.

But what are the risks of such myopic behaviour by HR and other organisational leaders?

Harvard Business Review made a clarion call for restoring the US’ industrial “commonweal”.  The authors lament the evisceration of America’s manufacturing capabilities and that the US is losing (has lost?) its ability to develop and manufacture high-tech products. In summary:

To address this crisis, government and business must work together to rebuild the country’s industrial commons – the collective R&D, engineering, and manufacturing capabilities that sustain innovation. Both must step up their funding of research and encourage collaborative R&D initiatives to tackle society’s big problems. And companies must overhaul the management practices and governance structures that have caused them to make destructive outsourcing decisions.

It seems the professors at Wharton and Harvard are not in agreement! The former (Capelli) seemingly advocates expediency in stewarding human capital in the face of considerable uncertainties about the future. The latter two scholars remind us how such self-serving behaviours have cost America its leadership position in the realm of industrial prowess. Unfortunately, for the USA, they will probably not be able to reverse the consequences of these previous short-term, enterprise-centric decisions!

My take on this misadventure is that US enterprises were only trying to optimise the human capital side of equation, and also looking inside their own organisations only.  By remaining blind to the social capital side – including what happens outside their walls – they have allowed this precious store of capital to be squandered away (that someone else had helped to build up). Their continued use of the benefits of this “commons” was not budgeted and paid for; economists of course label this “externalising one’s costs”.  In other words, nobody cared about maintaining and stewarding this national asset.

But what is the origin of this “myopia”?

The US psyche greatly values self-reliance.  Others also point to the multi-billion dollar industries that spring up around and sustain a dizzying array of  global celebrities.  This is the land of the rags-to-riches dream!

This profound focus on individual agency can be a problem, however.  By refusing to acknowledge the critical importance of relational “assets”, it effectively ascribes too little value to them.

Social Capital’s pivotal role in creating Human Capital

Stephen M. R. Covey (son of the late icon), wrote a punchy book called The Speed of Trust.  I also bought it and read it and I won’t be tossing it out of my collection.  What I found amazing though is the comments made about the book.  Here is one from a Covey company marketing e-mail I received in 2007:

Covey’s breakthrough insight that trust is a competency is both revolutionary and immediately practical.  CEOs and Chief Learning Officers will embrace The Speed of Trust as an authentic and actionable strategy – a roadmap – for increasing the effectiveness of their organizations and leaders.

Breakthrough…?? Someone seemingly forgot about Fukuyama’s 1995 book, Trust: The Social Virtues and the Creation of Prosperity.  And also it seems they overlooked, Robert Putnam’s classic 1995 essay Bowling Alone: America’s Declining Social Capital which powerfully leverages the concept of social capital, and gives us an enticing glimpse of this most intangible of assets:

For a variety of reasons, life is easier in a community blessed with a substantial stock of social capital. In the first place, networks of civic engagement foster sturdy norms of generalized reciprocity and encourage the emergence of social trust.  Such networks facilitate coordination and communication, amplify reputations, and thus allow dilemmas of collective action to be resolved.

Both of the previous writers however acknowledge the seminal role played by James Coleman.  Although Coleman was not the first to use the term “social capital” he deserves much credit for developing the social capital theoretical framework.  His classic paper is sublimely titled: Social Capital in the Creation of Human Capital.  In it he defines the concept of social capital by contrasting it to its better-known forms:

If physical capital is wholly tangible, being embodied in observable material form, and human capital is less tangible, being embodied in the skills and knowledge acquired by an individual, social capital is less tangible yet, for it exists in the relations among persons.

Putnam’s Bowling Alone unpacks this interactional dynamic further:

When economic and political negotiation is embedded in dense networks of social interaction, incentives for opportunism are reduced. At the same time, networks of civic engagement embody past success at collaboration, which can serve as a cultural template for future collaboration. Finally, dense networks of interaction probably broaden the participants’ sense of self, developing the “I” into the “we,” or (in the language of rational-choice theorists) enhancing the participants’ “taste” for collective benefits.

We all probably agree with the saying “united we stand, divided we fall”.  The wonderful attraction of these social capital writings is that their detailed line of inquiry reveals the mechanics of how this principle works.

That is very valuable indeed.

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