Capital, Business and Society

Patrik Telleus | Morten Jacobsen | Poul Israelsen | Lennart Nørreklit

Email: lennart@learning.aau.dk

 

ABSTRACT:

This paper analyzes the concept of capital, redefines it and uses it to outline a model for analyzing principles of organizing business.

In classic economic literature concept of capital has been discussed in the forms land, labor and money; that is, physical capital. The primary focus has been on the structures of these forms of capital, the size of them and their functional contribution to the process of value creation. This concept of capital belongs to the early days of industrialism where economists were looking for basic principles of economics in a mechanistic world with rational individual decision makers.

In the modern world value creation obviously transcends setting land and hands in action. The attempts to overcome the challenges of the classical forms of capital caused by the changes in business practices implied introduction of new concepts on capital. The concept intellectual capital was introduced to recognize that a major part of the value creation in modern businesses happens through mobilizing knowledge and creativity of employees. The concept of social capital was introduced to understand the importance of the ability to connect and combine activities and resources in a more diffused business environment. All in all this lead to a modern division of capital in roughly three forms - economic and physical capital, social capital and intellectual capital - as essential to understand the value creation process of modern business.

However, as intellectual and social capital has become increasingly important the traditional structural perspective on capital becomes more and more problematic. The contribution to the value creation process from physical capital was rather mechanical making it reasonable to focus on the size of the capital. But as intellectual and social capital contributes more and more to the value creation process, the structural view comes problematic. Creation of value by utilizing intellectual and social capital is not a mechanical process. When the intellectual and social resources of the employees are mobilized, outcome cannot be designed in advance. Consequently focusing on the structures and sizes of these capital forms becomes meaningless in itself. We argue that value creation in a modern business context has to be understood in a process view. Intellectual and social capital becomes visible when they are set free, and hence it is in the process they can be grasped, and it is here intervention becomes possible.

Thus additional dimensions must be introduced and the structural approach must be abandoned in favor of a more process oriented approach. This calls for a new form of capital. Since intellectual and social capital does not contain direction, mobilizing these resources requires direction as they are in process. Thus we label this ability capital of leadership. Leadership capital generates organized direction and intentionality of the process of value creation.

In addition, the modern division in economic/physical, social and intellectual capital is in itself problematic. It appears to mix different concepts of capital – belonging to different paradigms - rather than different types of capital and is thus rather incoherent. Economic capital is not physical but social. Also, social capital and the intellectual capital are not capital in the same sense. Further, intellectual capital is not simply individual, but belongs to cultures and social settings. The concept of capital needs clarification.

Due to this confusion thee paper starts with an attempt to clarify of the concept of capital itself. Our conclusion is to define capital as an inherently social phenomenon being found on a realization axis with resources on the one side and on-going social construction on the other. In sub-dividing capital we consider intellectual capital the knowledge and skills to create and form and thus establish value-driven production. We consider economic capital as the socially organized access to the existing resources. And finally we introduce the concept leadership capital as the ability to install intentionality in human activity, i.e. to give work, the use economic and intellectual capital a specific direction.

This model enables the analysis of the working of society in terms of its mobilization not only of physical, fiscal and knowledge based capital, but by its ability to generate and utilize capital of leadership. We assume as a hypothesis that social wealth and poverty primarily is the result of the way leadership capital is managed in society because this is the dynamic element in the existing capital structure.