Financial, Human, and Social Capital: Key Business Assets

“Capital” is a versatile term in business. While most people think of financial capital, human and social capital are also required.

Financial capital includes both debt and equity, which are essential for business operations.

Human and social capital are intangibles that serve vital roles in enhancing a company’s success. Investing in human capital (employees’ abilities and skills) and social capital (the benefits that people derive from each other and their social networks) can yield significant returns.

Investments to make a workforce happier and more efficient boost a company’s bottom line, for example. And “who you know” in social capital can lead to business advancement and development.

Learn more about these different types of capital and how each is a valuable asset to a company’s overall financial health.

Exploring Financial and Economic Capital

Financial capital is necessary to get a business off the ground. This comes from two sources: debt and equity. Debt capital refers to borrowed funds that must be repaid at a later date, usually with interest.

Common types of debt capital are:

Equity capital refers to funds generated by the sale of stock, either common or preferred shares. While these funds need not be repaid, investors expect a certain rate of return.

Economic capital may also take the form of cash or other assets like real estate, commodities, equipment, vehicles, and so forth, which may be disposed of for cash in the market.

How Human Capital Drives Business Success

Human capital is a much less tangible concept, but its contribution to a company’s success is no less important. Human capital refers to the skills and abilities that a company’s employees bring to the operation.

Though it’s hard to quantify human capital in dollars, most companies know that employee performance can be greatly enhanced by continuing education classes, professional development seminars, and healthy-living programs. Many businesses choose to invest in the happiness and well-being of their employees because this investment indirectly benefits the bottom line by cultivating a happier, more efficient workforce.

Leveraging Social Capital for Professional Growth

Social capital is an even more intangible asset, referring to the relationships people have with each other, and the desire they have to do things for and with others within their social networks. People tend to do things to help and encourage those in their same social network, creating a cycle of mutually beneficial reciprocity.

In an individual’s social network, social capital is the value of the content of the relational ties between people and not a product of the members of the network in and of itself. For instance, if you have a wealthy uncle in your network, knowing he could lend you money in a pinch would be to leverage that relationship’s social capital.

In business, a person with high social capital knows many influential people within their industry and may have more opportunities for advancement and development than someone whose social circle is small. People with high social capital may also have an easier time accomplishing things, both personally and professionally, because they can draw on the strengths and resources of others within their networks.

Related to social capital are other types that have been identified by sociologists and anthropologists, such as:

• Symbolic capital—for instance, the honor and status earned through credentialing or promotion
• Cultural capital—for instance, the capacity to recognize and appreciate high-class items like art or fine food and distinguish them from more middle-brow consumption

Capital’s Function in the Capitalist Economic System

While we have listed several general forms of capital here, it says very little about what the economic system of capitalism actually is. In its most basic form, capitalism requires the separation of capital from the labor that uses it in the production process.

For instance, a business owner and their investors (which constitute the capitalists) jointly own the entirety of the company—its assets, property, equipment, raw materials, and final product for sale. As such, capitalists are also entitled to 100% of the profits that accrue from selling goods in the market.

Capitalists take their capital (factories, money, tools, vehicles, etc.) and hire workers, known generally as labor, to use those tools and raw materials to assemble and finish a final product, in return for a wage. Labor does not own any of the tools they use to make the equipment, none of the raw materials that go into it, and none of the final product—meaning they are also not entitled to any of the profits from the sale of the goods they make. All they get is their wage.

In reality, a modern business is assembled from not only owners and investors, but also a layer of managers (who are well-paid labor) and the workers they supervise. All along the way, economic capital, human capital, and social capital are leveraged to increase profits and productivity.

The Bottom Line

Financial capital is essential for business operations and can be obtained through debt or equity. Human capital involves employee skills and contributions, which can be enhanced through education and development programs. Social capital includes the relationships and networks that can provide opportunities and resources in business. Capitalism involves the separation of capital and labor, with capitalists owning assets and profits, whereas labor receives wages.

Leveraging different types of capital (economic, human, or social) can enhance profits and productivity within a business.