SOCIAL CAPITAL, TRUST,
& SOCIAL EMBEDDEDNESS
What do we mean by a trust relationship? Does trustworthiness
differ under varying social, political, & economic conditions? How?
• How important is risk-taking in any trust relation?
• Are some cultures more trusting or more suspicious?
• Which soliciting charities would you trust to use your
Hurricane Katrina relief-check properly?
• Why don’t right-wing Republicans trust Pres. Bush’s
nomination of Harriet Miers to the Supreme Court?
• Do you agree with Pres. Reagan: “Trust but verify”?
Let’s examine trust as an alternative to power forms of social
control in relations among economic orgs & their employees.
Trust relations are embedded within exchange networks,
comprising an important component of social capital formation.
Interorganizational Trust
In what ways does trust among organizations differ from personal trust?
In repeat business exchanges among
firms (suppliers & customers), contracts
may be more costly to negotiate and to
enforce than relying on interorg’l trust.
In transaction cost theory, organizations are constantly tempted by
opportunism (Williamson’s “self-interest seeking with guile”)
• Exchange partners could turn out to be incompetent or deceitful and
fraudulent (Problem: How to safeguard against Internet rip-offs?)
• But, impossibility to screen every option, write iron-clad contracts, buy
insurance to cover all possible risks (Unavoidable moral hazards issues)
• Orgs desire the flexibility to adjust their contractual agreements if an
unforeseen catastrophic event should occur (“Act of God”)
By building corporate trust into their long-term relations, orgs can cut
risk of partners taking advantage & can reap benefits of cooperation.
Two Forms of Corporate Trust
Which forms of corporate trust forge the strongest ties? How
does interorg’l cooperation evolve new governance structures?
Peter Ring and Andy Van de Ven (1994) identified two
types of interorganizational trust:
Business risk: objective confidence in a partner’s
predictable behavior; how dependable is the deal?
Psychological trust: subjective confidence in the
partner’s goodwill (moral integrity) to one’s interests
In negotiations, potential partners develop joint expectations about
risks and trust of their collaboration, assessed in terms of efficient &
equitable/fair outcomes (see next slide).
P4: Informal psychological contracts increasingly substitute for formal
contractual safeguards as reliance on trust among parties increases.
“Familiarity breeds trust” observed in research on New York better-dress
industry, where handshake deals trumped formal contracts (Uzzi 1996).
SOURCE: Ring & Van de Ven (1994)
The Strength of Weak Ties
Mark Granovetter’s (1973) classic article on finding a job
argued that weak-tie relations (casual, indirect) give actors
better access to new information and opportunities. But,
strong ties (emotionally intense, frequent, direct) restrict
the flow of new information from diverse, distant sources.
► Intimates (kin, close friends) widely share same knowledge, norms, beliefs
► Although strong ties offer beneficial social support (“haven in a heartless
world”), they also result in impacted information & coercive conformity to the
social circle’s expectations (folkish society)
► Weak relations (acquaintances, coworkers) serve as bridges to other social
groupings having information & resources unavailable within one’s intimate
social circle; provide opportunities of individual autonomy via unique structural
location [Simmelian cross-cutting]
► Persons with many weak ties can gain speedy advantages in learning about –
and cashing in on – new entrepreneurial opportunities
► Irony that weak ties actually provide stronger form of social capital
for career advancement, financial dealings, conference invitations
Social Capital
Social Capital Resources accruing to an ego actor
through direct & indirect relations with its alters that facilitate
ego’s attainment of its expressive or instrumental goals
What conceptualizations do these diverse definitions
of social capital have in common?
“inheres in the structure of relations between persons
and among persons” (Coleman 1990:302)
“at once the resources contacts hold and the structure
of contacts in the network” (Burt 1992:12)
 “resources embedded in a social structure
which are accessed and/or mobilized in
purposive action” (Lin 2001:12)
Closure vs. Structural Holes
James Coleman: High trust in communities with
full closure networks (i.e., a graph “strong
component”), whose strong ties foster mutual
assistance obligations and social control of
deviant behaviors (neighborhood children)
Ronald Burt: Ego gains numerous competitive
advantages and higher investment returns if
ego’s weak, direct-tie relations span structural
holes, thus serving as bridge between its alters
Holes create social capital via brokerage opportunities
► Ego actor gains earlier access to flows of valuable information
► Ego fills structural holes by forging new ties linking its
unconnected alters, extract “commission” or “fee” for providing
brokerage services
► Low network constraints result in high performance rewards
► Ego maximizes its self-interests by controlling & exploiting
information, playing one actor against another (“tertius
Who Has Greater Information & Control Benefits?
B
1
A
3
2
7
C
6
James
Robert
5
S-hole is the mechanism underlying
Granovetter’s claim that weak ties are
more useful because they give actors
access to nonredundant information
4
Modified after Burt (2001:33)
Mobilizing Social Capital
Job-seekers, entrepreneurs, work teams try to deploy their network ties
to acquire the use of resources held by their alters. But, they may not
always succeed in gaining access. Johnson & Knoke (2005) argued
that volume of social capital to which ego actually has access is the
aggregate of resources that ego could probably mobilize from its alters:
J
SCi   R j p ji
j 1
SCi = ego i’s social capital from the J alters in its ego-network
pji = ego’s perceived probability of access to use alter j’s resources
Rj = total resources controlled by alter j that could be useful to ego i
• Find a simultaneous equation solution for all J actors in the system
• Create plausible quantitative measures of the two variables
• Identify network and environmental conditions that change the
probabilities of resources flowing across the links from alters to ego
How much SocCap could EGO mobilize?
p1=.8
EGO
p1=.5
R1=4
p4=.5
R4=6
p4=.8
R2=7
p1=.2
p1=.2
R5=3
R3=5
p1=.8
R6=9
Corporate Social Capital
Corporate Social Capital (CSC) Social relations
embedded in work-related organizational roles (e.g., workers,
teams, executives, owners), not in their personal networks.
“Corporate social capital, then, refers to: The set of resources,
tangible or virtual, that accrue to a corporate player through
the player’s social relationships, facilitating the attainment of
goals.” (Leenders & Gabbay 1999:3)
Social liability incurred as transaction-cost opportunism
“[A manager’s] ‘dark side’ of social capital …might also limit his ability
to change the composition of this network as required by his task
environment” (Gargiulo & Benassi 1999:299).
-
You’re obliged to reciprocate a sponsor’s assistance and advice
Your friendship with an inept team leader blocks your promotion
Your mentor insists that you build & paint his boat dock
Attending the boss’ soirée thwarts your plans to watch the Big Game
CSC via Strategic Alliances
A firm’s ties to organizations in a strategic alliance network
increases its probability of accessing and using the valuable
resources held by the firm’s partners, including their:
 Financial resources, credit extensions
 Knowledge, information, technologies/patents
 Marketing expertise, country/culture penetration
 Org’l status, corporate/brand reputations
Trustworthiness and low risk (moral hazards)
Organizations aware of such CSC advantages may act strategically
in pursuing new alliances, partnering with firms that maximize its
CSC portfolio. At the field-net level, an evolving strategic alliance
network comprises a collective CSC structure which simultaneously
facilitates and constrains the opportunities for its member firms.
Guanxi Networks in China
“Guanxi networks entail reciprocity, obligations, & indebtedness
among actors, as well as the aesthetic protocol that comes
from cultivating these relationships.” (Vanhonacker 2004:49)
Guanxi networks are based on strong
ties of blood/marital loyal relations or
social identities (“classmates”).
Chinese gain “face” by knowing how
to act appropriately. Outsiders can
enter when a mutual friend vouches.
Guanxi networks facilitate economically efficient exchanges in a
fragmented, weak-rule-of-law society. They enable China’s rapid
transition from a command to a market economy since 1978.
Chinese culture views the guanxi obligation to reciprocate as
ethical behavior, not as a “using” relationship. But, guanxi’s dark
side is potential to cover-up corrupt transactions within relations.
References
Burt, Ronald S. 1992. Structural Holes: The Social Structure of Competition. Cambridge, MA: Harvard University Press.
Burt, Ronald S. 2001. “Structural Holes versus Network Closure as Social Capital.” Pp. 31-56 in Social Capital: Theory
and Research, edited by Nan Lin, Karen S. Cook, and Ronald S. Burt. New York: Aldine de Gruyter.
Coleman, James S. 1990. “Social Capital.” Pp. 300-321 in Foundations of Social Theory. Cambridge, MA: Harvard
University Press.
Gargiulo, Martin and Mario Benassi. 1999. “The Dark Side of Social Capital.” Pp. 298-322 in Corporate Social Capital
and Liability, edited by Roger Leenders and Shaul Gabbay. Boston: Kluwer.
Granovetter, Mark. 1973. “The Strength of Weak Ties.” American Journal of Sociology 78:1360-1380.
Johnson, LuAnne R. and David Knoke. 2005. “‘Skonk Works Here’: Activating Network Social Capital in Complex
Collaborations.” Advances in Interdisciplinary Studies of Work Teams 10:243-262.
Knoke, David. 2001. Changing Organizations: Business Networks in the New Political Economy. Boulder, CO:
Westview.
Leenders, Roger Th. A. J. and Shaul M. Gabbay (eds.). 1999. Corporate Social Capital and Liability. Boston: Kluwer
Academic Publishers.
Lin, Nan. 2001. Social Capital: A Theory of Social Structure and Action. New York: Cambridge University Press.
Ring, Peter Smith and Andrew H. Van de Ven. 1994. “Developmental Processes of Cooperative Interorganizational
Relationships.” Academy of Management Journal 19:90-118.
Uzzi, Brian. 1996. “The Sources and Consequences of Embeddedness for the Economic Performance of Organizations:
The Network Effect.” American Sociological Review 61:674-698.
Vanhonacker, Wilfried R. 2004. “Guanxi Networks in China.” China Business Review 31(3):48-53.