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.

In what ways does trust among organizations differ from personal 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. In repeat business exchanges among firms (suppliers & customers), contracts may be more costly to negotiate and to enforce than relying on interorg’l trust. Interorganizational Trust

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. Which forms of corporate trust forge the strongest ties? How does interorg’l cooperation evolve new governance structures? “Familiarity breeds trust” observed in research on New York better-dress industry, where handshake deals trumped formal contracts (Uzzi 1996). Two Forms of Corporate Trust

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  “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) What conceptualizations do these diverse definitions of social capital have in common?

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 gaudens ” )

A C B James Robert Modified after Burt (2001:33) Who Has Greater Information & Control Benefits? S-hole is the mechanism underlying Granovetter’s claim that weak ties are more useful because they give actors access to nonredundant information

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: 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 SC i = ego i’s social capital from the J alters in its ego-network p ji = ego’s perceived probability of access to use alter j’s resources R j = total resources controlled by alter j that could be useful to ego i

How much SocCap could EGO mobilize? R 2 =7 p 1 =.8 EGO R 1 =4 R 3 =5 R 5 =3 p 1 =.5 p 1 =.2 R 4 =6 p 4 =.5 p 4 =.8 p 1 =.8 R 6 =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: 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.  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)

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 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.

Burt, Ronald S Structural Holes: The Social Structure of Competition. Cambridge, MA: Harvard University Press. Burt, Ronald S “Structural Holes versus Network Closure as Social Capital.” Pp 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 “Social Capital.” Pp in Foundations of Social Theory. Cambridge, MA: Harvard University Press. Gargiulo, Martin and Mario Benassi “The Dark Side of Social Capital.” Pp in Corporate Social Capital and Liability, edited by Roger Leenders and Shaul Gabbay. Boston: Kluwer. Granovetter, Mark “The Strength of Weak Ties.” American Journal of Sociology 78: Johnson, LuAnne R. and David Knoke “‘Skonk Works Here’: Activating Network Social Capital in Complex Collaborations.” Advances in Interdisciplinary Studies of Work Teams 10: Knoke, David Changing Organizations: Business Networks in the New Political Economy. Boulder, CO: Westview. Leenders, Roger Th. A. J. and Shaul M. Gabbay (eds.) Corporate Social Capital and Liability. Boston: Kluwer Academic Publishers. Lin, Nan Social Capital: A Theory of Social Structure and Action. New York: Cambridge University Press. Ring, Peter Smith and Andrew H. Van de Ven “Developmental Processes of Cooperative Interorganizational Relationships.” Academy of Management Journal 19: Uzzi, Brian “The Sources and Consequences of Embeddedness for the Economic Performance of Organizations: The Network Effect.” American Sociological Review 61: Vanhonacker, Wilfried R “Guanxi Networks in China.” China Business Review 31(3): References