Social Entrepreneurship And Why Capital Is Not Only Money

Would it surprise you the act of marriage (or a similar commitment) is an act of forming capital?  That developing strong personal relationships–say, with a neighbor–is also forming capital?  Most of us misunderstand capital.  Capital is three things: trust, value, and sharing.  Capital can–and often does–involve profit, but contrary to popular belief this isn’t necassary for capital formation.

Money Capital

Let’s look at the example of money.  Monetary capital is created with the act of saving; when you deposit money in a bank or a mutual fund you trust the financial instution (or perhaps irrationally, the stock market) to return this money on demand.  You trust it will be shared with trustworthy people who will give it back (or, in the case of stocks, earn enough profits to maintain the stock value).

All three elements–trust, value and sharing–are present in the system

Non-Monetary Capital

Strong personal relationship are another form of capital formation.  For example, if you trust your neighbor to help you out and he trusts you in turn, all the elements of capital can be found: trust, value and sharing–the value being the act of sharing your time and resources.  This is called social capital.

Marriage/cohabitation capital is much the same way, though dedicated towards others (your children or spouse) more then yourself.   You and your spouse/partner work together to build a future for your children.  This leads to community capital.

Community capital is when all members of a community are dedicated to its prosperity and collective happiness.  This is greatly enhance by marriage–or a strong tradition of longer-term cohabitation–creating incentives for community members to cooperate and avoid conflict, so children can grow up in safety.

Open Source

Open source software (and the Internet it spawned) is a perfect example of non-profit capital formation.  Open source software–like the software running this website, and very likely the software running that software–involves trust, value and sharing, without any profit.  The same can be said of many non-profit health insurance companies.

Open source proves social entrepreneurship is both possible and viable, under the right conditions of transparency, freedom to innovate, and competition.  Unfortunately, compared to the total amount spent on social work too little is spent on true social enterprise, and too much on nonfunctional government-run bureaucracies.  This has begun to change; the United Kingdom, for example, is experimenting with state-funded but locally-run healthcare trusts; their goal is for the U.K. to have the largest social enterprise sector in the world.

The Social Enterprise Sector And Healthcare

The Netherlands has a fully privatized, functional health insurance market–where insurers share reserves and cannot make a profit off of basic services.  Sweden has a similar model, as does Utah (making profit is allowed, though Utah’s healthcare market is dominated by nonprofits).

(For those interested, sharing reserves–risk adjustment–is done with an advanced insurance-for-insurers scheme that is necassary for a free market; without it there are structural problems that force insurance companies behave unethically.  In short, if too many customers become unhealthy an insurer can go bankrupt; risk adjustment is an advanced–and highly complex–insurance scheme to cover that risk).

See Also

http://en.wikipedia.org/wiki/Capital_(economics)#Capital_in_narrow_and_broad_uses

http://www.wisegeek.com/what-is-human-capital.htm

http://en.wikipedia.org/wiki/Social_entrepreneurship

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