Investing in social capital

18 March 2022

reading time:  minutes

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Before we were able to store food properly, the best place to store extra food was in the stomachs of our friends, family members, and neighbours. When they had surplus food, they’d reciprocate.

Through most of our evolution, before the agricultural revolution, refrigeration, and the ability to store, refrigerate, and move large amounts of food, this has been the optimal way of investing.

Not in capital, but in people.

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My children have a lot of advantages in life. But of all the advantages they have, one of the most important is the fact they’re embedded into a strong familial and social network. They have plenty of people to learn from, and who look out for them. This gives me a lot of peace of mind.

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What I’m really talking about is social capital.

At the end of the day, social capital is one of the most important aspects of wealth.

This is both intrinsic: to love and to be loved are some of the greatest parts of life. Our ultimate happiness and despair is often found in our most intimate relationships.

But it’s also instrumental: being part of a strong, complex network makes you more resilient and less vulnerable, providing you with, and allowing you to pursue, more opportunities.

If you have solid relationships with people who are willing and able to look out for you, you can usually be confident that you’ll have a roof over your head, food on your plate, and someone to have your back, no matter what.

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For all of these reasons, it makes sense to invest in relationships with other people. I don’t mean paying people to be your friend. I mean, spending time and energy, and being prepared to spend resources (which sometimes means money), on cultivating relationships.

If you’re working so hard that you’re not able to dedicate time and energy into your relationships (or your health), please consider whether your actions are aligned with your values and priorities.

Maybe they are. We’re all different. It’s also worth remembering that work-life balance can sometimes be temporal in nature: for some people, it makes sense to focus on one, then the other, and cycle back and forth. (Hey, it worked for Bill Gates; although he was born into a rich network of family and social ties.)

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Some food for thought…

An article by four psychologists, including none other than Daniel Kahneman and Ed Diener – “Zeroing in on the Dark Side of the American Dream: A Closer Look at the Negative Consequences of the Goal for Financial Success”:

  • “Recent research has demonstrated that aspiring to… financial success has negative consequences for various aspects of psychological well-being.”
  • “The negative consequences of the goal for financial success seemed to [relate] to those specific life domains that either concerned relationships with other people or involved income-producing activities, such as one’s job” – “satisfactions with two of those life domains… were among the strongest predictors of overall life satisfaction”
  • Although “the negative impact of the goal for financial success on overall life satisfaction diminished as household income increased”, “the stronger the goal for financial success, the lower the satisfaction with family life, regardless of household income”.

For whatever reason, I’m reminded of a podcast from season 5 of Malcolm Gladwell’s Revisionist History podcast: Dragon Psychology 101. In it, Gladwell suggests that many prestigious art museums practice dragon psychology: hoarding treasure, deep in their lairs, not showing it off to anyone. It sometimes seems like individuals are doing the same.

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Personal social capital

For me, it’s easiest to think of social capital and relationships in a strictly personal sense.

My wife and I have a spare bedroom. It’s open to any of our close friends or family members who need a roof over their heads. It’s nice to know that there are other people who’d have space for us as well.

One of my favourite celebrity stories is how George Clooney gave 14 of his closest friends a designer suitcase filled with $1 million in cash. Those guys (and girls?) were already tight with him before that. But no matter what, he and his children will always have the support of at least some of those friends.

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Professional social capital

I’ve been trying to think of this in a professional sense as well.

Professional connections and networks are valuable, for all sorts of reasons. It’s not just about generating business or opportunities in the “contacts make contracts” sense.

It’s also about having sources of information, people to bounce ideas off, and having people you can send clients to, confident that you’ll know they’ll be treated well and won’t make you look bad.

It’s nice to be able to go to industry events and know that you’ll bump into people you know and like, and to read about the successes of acquaintances.

Again, there’s value in a purely instrumental sense: some clients and peers are huge advocates for my services and are not unlike salespeople for my business. But I’m thinking beyond this.

I have a number of clients with whom I really enjoy chatting. They are a source of great knowledge and challenge me to think through things. I like them as people. Some of them have become good friends.

Not only can social capital — personal or professional — be extremely valuable. It’s also very difficult to take away from you.

  • A lawyer can sue you for money, but not for your friends.
  • An insolvency practitioner can’t take away the affections of your loved ones to help repay your debts.
  • Social capital can’t be taxed!

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A definitional point: “social capital” is arguably different to “reputational capital”.

Then there are parasocial relationships, which are largely one-sided. There are lots of people I have a kind of relationship with, but who don’t know I exist — authors, podcast hosts, Noel Gallagher, etc. I know a lot about them but they know little about me.

Similarly, you might know a fair amount of me, but I don’t know you.

Is that a form of social capital? Reputational capital? Something else? I’m not sure. Luckily this isn’t a dissertation so I can be fuzzy, point to the ambiguity,, and not have to resolve it!

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Another good thing about social capital is that you can benefit others.

There are a few people that I’ve put together who have benefited immensely. It feels amazing.

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Experiments in social capital

In this spirit, I’ve consciously been making experiments in social capital.

Before I share them, a caveat: what works for me won’t necessarily work for you. (And vice versa.)

This blog and the newsletter

This blog has helped me meet lots of people I wouldn’t otherwise have met.

Every time I send my monthly newsletter (if you don’t get it, subscribe!), I look at a list I’ve made of a couple of dozen thoughtful people who I know read it. It keeps the door open to the relationship, and is like an invitation for them to touch base.

Curiosity conversations

A couple of years ago I offered “curiosity conversations” for people who were interested in scheduling a time to chat about… anything. It resulted in meeting quite a few cool people.

I’m now offering curiosity conversations again.

Stealth Wealth

I made, and strengthened, some great relationships through this course. It was a dumpster fire in some other respects, but the relationships made it worthwhile. For that reason alone, I’ll do it again at some point in the near future.

Unusual events

For my last birthday, I didn’t have anything organised. I decided, at 10am, that I would invite a bunch of people over for lunch in two hours’ time. I invited them to a “lunch for losers” (ie, people who didn’t already have plans). A few people turned up, and it was great. (The year before, I had a 13-hour lunch, with people rolling up at whatever time was convenient over the course of the day.)

I am having a “portrait afternoon” in a couple of weekends’ time, where me and another friend/enthusiast are going to invite some people around to my house and take portraits. I have no idea how it will go,

My wife and I have traditionally had a mid-year ugly jersey Christmas party, and the turnout is always random. (Covid has disrupted this event for the last couple of years.)

I plan on having a 2-hour-long party (no shorter, no longer) at some point in the near future.

Investing in younger people (TBC…)

I often think about the message in Tyler Cowen’s article The high-return activity of raising others’ aspirations.

If you can touch a younger person’s life in the right way at the right time, you can unlock a huge amount potential. It’s hard to run counter-factuals, but I imagine the economic consequences would be significant. The positive social consequences could be even larger.

I wish I had had the benefit of the right type of guidance in my earlier years. I think I’d have benefited a lot from it, if I’d been open enough to listen.

This one is a work in progress. But I am convinced that a lot of young people would benefit from assistance in one shape or another, even though they can’t afford to pay the same sort of fees that people with more professional or financial runs on the board can.

I suspect that if and when I crack that egg, the benefit will come less through financial capital than through social capital.

If I can add value to their lives, and improve the trajectory of their lives, they can remember me and provide benefits that they think might be suitable.

  • If they have a bach, maybe offer me and my family the use of it every now and then.
  • If they have tickets to an event that are difficult to get, they can ask if I want them.
  • If they get a supercar, they might take me for a drive.
  • If they have an investment opportunity that they think I would be interested, they can let me know.
  • If they read a great book, they can let me know (or buy a copy for me).
  • They can let me know about their successes and I can get a vicarious thrill from knowing that I played a small part.
  • If and when my children want to consider their professional opportunities, they might be prepared to provide some guidance or a breadcrumb in the right direction.
  • Etc.

It’s also an investment in relationships. If and when I’m in my 60s and beyond, I don’t want to just have friends in my age group. I want people who are older than me and I want people who are younger than me. They’ll keep me young, And I won’t outsurvive them.

(That’s called long-term planning!)

Maybe this is an insane idea. It’s unlikely to be a good idea from a cash flow perspective. Time upfront, for no tangible reward, and no certain outcome at the end.

But I can take the risk.

And I can speculate about the utility of this type of experiment all I like. But ultimately, this is an empirical question, not a theoretical one. I can only know if I test the hypothesis.

So why not give it a go?

Are you investing enough in social capital?

Could you run some social experiments as well?

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Tags

friendship, relationships, social capital


About the author 

Sonnie Bailey

Sonnie likes telling people that he’s a former Olympic power walker, a lion tamer, or a popular author of erotic, supernatural, mystery novellas. Sometimes he says he was in a band that opened for Robbie Williams. None of these are true.

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