The role of social capital in financial development

Social capital is the expected collective or economic benefits derived from the preferential treatment and cooperation between individuals and groups. Although different social sciences emphasize different aspects of social capital, they tend to share the main idea "that social networks have value" .

Social capital is connected with different sciences and spheres of live such as geography, healthcare, education, politics, the Internet and so on. One of the subjects which feels the impact from social capital is finance. Social capital plays very important role in financial development.

The connection between social capital and financial development is very important.

First of all, social capital gives information to people who need it, strengthens relations between business partners with different points of view, makes an individual's reputation and mobilizes resources for community projects and charity support. That is why social capital is a valuable resource for business development, along with traditional factors of production. Business is closely connected with finance and if business improves, there is financial development.

Let’s consider an example from everyday life. A lot of people are registered in social networks such as Facebook, Twitter, Skype and VK. Some people do not know that the business expands the sphere of its influence through these social networks. Social networks help business to improve communication among producers and customers, promote famous brands, analyze the supply in the market, attract new customers and give necessary information to them.

Secondly, social capital reduces the costs of disorder in the economy, arising from the excessive costs of defense contracts, economic and personal security, lack of public goods and services, undeveloped markets and failed investment projects. If social capital is not developed, financial activities become primitive.

Moreover, participation of citizens in political life and ideas about the obligations of the state prevent the abuse of power and ensure the principles of democracy, rule of law and protection of property rights. Social capital affects not only the political incentives of officials, but also their intrinsic motivation: the political elite, being a part of society, is the carriers of prevailing norms. The better society is organized, the better its spheres function, that is why social capital is very important for financial development.

One of the most significant examples of social capital’s manifestation is the unifying of Crimea with Russia. This process could become a part of a real life due to an active social position of people and their ability to communicate and make decisions. The association of Crimea to Russia has had an important influence on financial spheres of two sides. For example, there is a new item of expenditure in the federal budget of Russia – costs to maintenance of Crimea. That is why we can say that social activities have become the reason of financial transformations.

How does social capital affect financial development?

Social capital affects financial development not only in the scales of a country or an organization. Social capital of the family contributes to the economic success through personal connections, providing access to information and vacancies, reducing transaction costs in the business. Moreover it can support individuals in difficult financial situations.

Social capital increases the efficiency of democratic institutions and the quality of public authority. People can expect a positive economic impact on public social capital which is supported by vertical communication mechanism.

In conclusion I want to say that social capital is one of the most important instruments in the modern economy which makes financial sphere develop. The main idea of democracy is security and happiness of people. We live in the world of money that is why we will try to provide dignified conditions of our life through financial sphere, developing it.