Everyone knows that doing business requires production facilities and consumers who will buy wares. However, the cost of production cannot only be computed in terms of labor and materials. There is a social component to production which sociologist call social capital.
Prevalent social norms and sanctions often serve to reduced costs by creating mechanisms of trust. Such measures reduce the need for expensive contractual arrangements, facilitate decision-making and supplement formal legal contracts.
Sociologist David Halpern notes that social capital is not only the domain of small businesses and more personal trade groups. He writes: “It is noteworthy that even in the toughest and most competitive financial centres of the world, much business continues to be conducted largely on the basis of trust relations and successful traders work hard to maintain this trust.” (David Halpern, Social Capital, Cambridge, U.K.: Polity Press, 2005, p. 45)