The term social capital is thrown around with great ease without really understanding what the word “capital” implies. Capital is money used to earn more money; that means that social capital must somehow be related to, or derived from money. There is no shortage of blog posts asking the timeless question “Where’s the money in all this social stuff?”
If social capital is money, it needs to behave like money. So for our litmus test today, let’s talk about financial derivatives – the same ones that got us into the mortgage crisis mess. A derivative is something whose value is derived from something else. The price of an SUV is often derived from the current price of fuel. Not so obvious are collateralized debt obligations – but they are kind of similar.
So where is the money in all this social network stuff, what on Earth is a social capital derivative, and how can it be “capitalized”?
Suppose I start a social network for my neighborhood. The objective of this social network is to make certain all of the data collected by, and posted on Zillow.com (a real estate valuation site) is accurate. After all, it is not in anyone’s best interest for an overpriced house to stay on the market too long because it raises questions about the value of the other houses. Nor it is in the best interest for a house to be undervalued – that too brings down the value of the other houses. It is in everyone’s best interest that all the houses are correctly priced. If this could be accomplished, then a discount real estate broker can be used saving 2-6 percent on the transaction. That sounds like real money to me.
Meanwhile, it is in the best interest of all of the neighbors to help all of the other neighbors to improve those things on everyone’s homes that increase correct market value by the most; kitchen, bath remodels and a little landscaping, etc. Again, this supports the value of everyone’s house and improves people’s decisions on how to invest their home improvement money. Wow, that sounds like real money too.
A sample of persons living in a community would surely reveal a whole range of specialized knowledge useful to others in the neighborhood. Neighborhood watch organizations are better crime deterrents than police patrols. Further, local contractors, banks, stores, and businesses would love to target such an organized and focused group of people. They may even pay the community for advertising on the site… cha ching! Nobody would dare provide poor service since reputations would be quickly damaged on the community forum; likewise, disputes are handled quickly and equitably since it is everyone’s best interest to do so…
Now for the derivative:
The number one attribute for increasing the value of a home is a good neighborhood.
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