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Material Capital, Social Capital and Spiritual Capital

 Date:2007/4/12 16:27:00         Source:BiMBA         

By Prof. John Zhuang Yang

U.S. Dean of BiMBA, CCER, Peking University


Current Chinese society has experienced the most important social, cultural and economic transformations since the fall of the Qing Dynasty in 1911. The economic reforms initiated by Deng Xiaoping started in the countryside in 1978, dissolving the communes and replacing it with rural household responsibility system. Lands were rented to individual households to cultivate and grow, resulting in rapidly increased farm productivity and peasant incentives. In a short period of time the problem of feeding the population was basically solved in main areas in China. By 1984, 99% of Chinese rural population became part of the rural household responsibility system.

Since 1984, urban reforms got under way, in which State Owned Enterprises (SOEs) were being re-structured, with the emphasis on reforming management practices, providing incentives to workers in business firms, developing a dual pricing system and introducing contract labor practices to improve labor productivity and efficiency. Many inefficient SOEs were being gradually replaced by collective entities and private firms.

1992 and beyond were important years in Chinese history as a result of Deng’s southern trip in which he strongly encouraged further economic reforms in China. Special economic zones were introduced in China’s coastal cities, followed by ownership reforms of many large SOEs. Chinese financial firms such as large state banks were being restructured to get prepared later to be listed in overseas and domestic stock markets. Huge injections of foreign capital followed, drastically increasing the contribution of MNC involvement in China’s economic growth. These have made it possible for China to speed up its economic growth and open the doors for Chinese people to rapidly accumulate material capital.  

China’s acceptance into WTO earlier this century further accelerated the pace of economic growth and speeded up China’s integration into the world economy. These and other economic activities have made it possible for China to sustain about 9% economic growth rates for the past 15 years[1]. In the context of this stage of rapid economic growth in China, we have witnessed three different forms of capital accumulation across China,  namely: material capital, social capital and spiritual capital.


Material Capital

The most important effect of China’s economic reforms was that it has enabled hundreds of millions of Chinese to plunge themselves into the process of building up wealth and material capital at an astonishing speed, compared to the history of wealth building in other nations. The core of material capital is money and the honor, wealth, reputation, status and influence it brings, which includes financial capital, material resources, physical assets and human capital[2].

I include human capital as part of the material capital not so much because it has a financial return on those who make the investment in education, as it draws special attention in China at this historical period of digital age as one of the most important forms of accumulating material wealth. According to Gary Becker who was one of the two authors developing the human capital theory:

“Schooling, a computer training course, expenditures of medical care, and lectures on the virtues of punctuality and honesty also are capital. That is because they raise earnings, improve health, or add to a person's good habits over much of his lifetime. Therefore, economists regard expenditures on education, training, medical care, and so on as investments in human capital. They are called human capital because people cannot be separated from their knowledge, skills, health, or values in the way they can be separated from their financial and physical assets.”[3]

Rapid accumulation of human capital has become an important phenomenon in China as a result of the progress of economic reforms. Hundreds of thousands of people from different age groups have entered or re-entered colleges and schools to seek further education, knowledge, training, skill, competences and other forms of learning experience. In a very short period of time, human capital effect has been recognized by the market and fully utilized by corporations across China. Those who have gained more education and training have been rewarded with better pay and benefits, as well as better job opportunities and more recognized by business firms and social institutions in terms of increased salary and compensation, as well as other forms of material wealth.

According to the two authors of Spiritual Capital, the quality of human capital is a reflection of people’s IQ level. An IQ score measures certain basic and largely inherited spatial, numerical, and linguistic abilities, but because it was the only measurable intelligence indicator available, it was taken as a mark of a person’s full intelligence, focusing on rational, logical and linear intelligence. In order to improve the quality of human capital, to many Chinese students and their parents, it is absolutely necessary to accentuate the IQ score.

Throughout China these days, human capital accumulates rapidly and dramatically among the young people. It mainly embodies an improvement of IQ level. Extensive training and basic education across colleges and universities in China guarantees a stable accumulation of knowledge for the younger generation; Hundreds of thousands of Chinese students have gone abroad in the past 20 years or so for further learning, obtaining the most advanced technologies and knowledge, further increasing their personal and financial worth in the market. In the professional realm, MBA and EMBA education has swept across China, and many business organizations including SOEs and MNCs have began to intensify specific job training among their employees in order to improve the capability and skill of their staffs and their worth in the firms.


Social Capital

While material capital and human capital have enhanced the wealth of many Chinese at the individual level, sustained economic growth from developing countries shows that social capital accumulation is also absolutely necessary and essential for sustained economic growth. Social capital is the wealth that makes communities and organizations function effectively for the common good.

Many socialists deem that social capital is an indispensable societal resource for the development of an organization, which enables individuals to trust and rely on each other and firms to collaborate one another for the organizational goal.[4] From the typical classic economic view, this common goal is simply the maximization of profit or accumulation of shareholder wealth. Sociologist, on the other hand, feels strongly that the profit maximization or shareholder wealth goal cannot be accomplished in the absence of social capital that enhances internal ability to cooperate and harmonize. This ability is based on mutual trust, common beliefs, shared rules, shared culture, and shared experience, which ensure a positive business atmosphere and culture for achieving firm objectives.

Unfortunately, however, due to historical and contemporary reasons, Chinese firms and institutions are severely lack of social capital accumulation in terms of individuals abilities to work in teams harmoniously for common organization goals. In the book TRUST, Fukuyama points to an essential difference between the formation of human capital and social capital. The former can be easily developed through systematic education and training, whereas the latter, which determines the trust degree among people, is largely attributable to national culture, historical legacies, social customs, religious tradition and social factors. There is a lack of social capital in some nations, according to Fukuyama, due to historical, political and cultural legacies. These make it difficult for individuals to trust one another without close family or blood connections.

This theory, although somewhat controversial, provides some explanations on the lack of trust among people in business firms and difficulties of businessmen to increase the scales of their firm due to lack of trust of outside professional managers. If you look at the number of large and branding firms internationally in the world today, Chinese firms are pale by comparison, Hong Kong and Taiwanese firms included. One reason is that Chinese don’t know how to develop firms into professional organizations, leaving many Chinese firms family entities because leaders of these firms pass their assets only to their sons.

There are three main reasons that explain why social capital is lacking in China. The first one is cultural and the second and third ones are political.

As one of the most civilized nations, China owns its unique social tradition and social legacy. Family was the nuclear fabric and basic social structural unit in ancient China, reinforced by the rule of man ideology, an agricultural economy, huge rural population and a strong Confucian doctrine that clearly defined the hierarchy of the family. For thousands of years, there had been a very strong emphasis on family kinship, extended family network, blood relationships among people in China. Most social network in China historically had been derived from the extension of blood related relationships, and to a lesser extent, common folks from the same villages[5].

The second factor was political. For many years after 1949, political movements were initiated by Mao one after another, with strong emphasis on political ideology and class struggle ideology. The 10 year old cultural revolution from 1966-1976 has left a negative cultural, mental and political legacy on people in organizations, especially those in SOEs, who tend to view simple career and personal issues as pure political issues, reducing the level of trust among staffs.

A third factor is region and political. For years, China has no official religion and foreign missionaries found it hard to convert Chinese into believing their values. In the absence of religious beliefs, it has been hard for many Chinese individuals in the highly competitive economy to be tolerant of anything or anyone that is different from themselves—blood, experience, education, etc.

As the world is becoming flat and China has been incorporated into the world family, Chinese need to engage in critical reflections of our cultural legacy and completely get rid of the negative impacts of political-minded ideologies. These efforts will help Chinese develop social capital and increase internal trust.

The material capital has much to do with individuals’ IQ, likewise, the social capital mirrors the meaning of an EQ largely. EQ is an intelligence associated with how well we as human beings are related to one another and how we  understand other peoples and different situation with whom we interact[6]. For example, empathy, one embodiment of high EQ scores, reflects the ability to understand the emotional and psychological makeup of the other people and treat them according to their emotional reactions. With this ability, organizational members can understand each other better and establish a congenial and pleasant work atmosphere. Social skill is another aspect of high EQ, with which people can manage relationships and build networks proficiently and naturally. A high EQ person is likely to engage in harmonious relationships with others, thus contributing to quicker accumulation of social capital


Spiritual capital

The question is: how can we smoothly combine the accumulation of material capital, human capital and social capital? How can intelligent Chinese people be motivated to develop good team work and social relations with those different from themselves, if he or she does not believe it brings them benefits? What is the internal driving force for human’s behaviors in today’s highly competitive market conditions? How do we establish a base on which mutual trust and communication in the organization are built? In other words, what are main factors that strongly influence the accumulation of social capital? 

Here comes the concept of spiritual capital, which I believe is what the Chinese society mostly lacking now and what we should strive to accumulate quickly, steadily and consistently.

Unlike social capital, spiritual capital is different from religion or with theological belief systems. The word spiritual comes originally from the Latin spiritus, which meansthat which gives life or vitality to a system[7]. It serves as the spiritual base to enhance the meaning and beauty of life in the world.

“Spiritual capital adds the dimension of our shared meanings and values and ultimate purposes. It addresses those concerns about what it means to be human and the ultimate meaning and purpose of human life.” (Zohar and Marshall, p 5)

In summary, spiritual capital reflects the core values, the person’s value systems and the internal driving force of human beings. Genuine social capital must include these spiritual and mental dimensions, adding the main purposes of building up lasting relationships among people of different background.

Spiritual capital is built, according to the two authors, by using spiritual intelligence (SQ). SQ is an intelligence with which people have access to deep meaning, fundamental values, and a genuine sense of life purposes in our lives, and the role that this meaning, values, and purposes play in our lives, strategies and thinking processes. SQ makes people ask why we are doing, what we are doing and makes us seek some fundamentally better way of doing it.

SQ is no less important than IQ and EQ. They are a new paradigm-making and paradigm-breaking intelligence that is badly needed in market economies. It allows people of different background to understand each other in friendly terms and to “play with the boundaries”. It allows people to think creatively and change the rules according to new situations. It allows people to think about all kinds of possibilities in life that enable us to create wonders. SQ has the ability to dissolve old way of thinking of putting too much emphasis on material capital, while neglecting important mental and spiritual part of human beings. According to the two authors, SQ includes the following aspects of qualities:


·        Self lf awareness

·        Spontaneity (natural as a child)

·        Vision and value led

·        Holistic (large picture, see the forest)

·        Compassion (sensitive to others)

·        Celebration of diversity (willing to share with differ…)

·        Field independent (stand against the crowd)

·        Asking why (always, as a habit)

·        Reframe (think out of the box!)

·        Positive us of adversity (hire stronger colleagues)

·        Humility (modesty and team player)

·        Sense of vocation (sense of gratitude and giving back)


Final words

China has been engaging in a social and economic transformations that have never been seen in history. The market-based economy has introduced the incentives into the old Chinese systems and led to a thorough transformation of the SOE sector, the agricultural sector and the educational systems. Hundreds of millions of Chinese have enriched their lives in the past decade through the accumulation of material capital and human capital. Hundreds of thousands of Chinese individuals have turned into millionaires and billionaires.

In the midst of these rapid economic development, we have witnessed a severe lack of accumulation of social capital and spiritual capital. Competitive threats make people behave irrationally by not working with one another and there comes forth a serious crisis in value and spiritual life among young people in organizations, colleges and institutions. Many people are now psychologically bogged down in dilemmas due to conflicts between personal career goals and family objectives; between competitive business practices and ethical standards; between material life enhancement and a rich spiritual life. While many Chinese still stick to old ways of thinking, they are faced with modern ways of competition in the market place. Many individuals as a result become highly stressful and confused, although they have accumulated lots of material capital.

This paper argues that in a rapidly developing country like China, in the digital and information age, it is highly critical for people in the nation to formulate social capital and spiritual capital, in addition to accumulation of material capital and human capital. Economic growth and globalization require not only drastic change of human’s material wealth and individuals’ human capital, but also enhance people’s interactions smoothly and harmoniously in society at large and in business and social institutions, and to enrich people’s mental values, psychological comfort and spiritual beliefs. Nations and society can never be developing smoothly if individuals cannot work amiably and happily with one another in firms, resulting in societies with individuals long on material accumulation, while short on social and spiritual capital formation.  

[1] Information on recent history of reforms in China was mostly gotten from books and speeches by Dr. Lin Yifu, Dr Wen Hai and other economists from the China Center for Economic Research at PKU.

[2] The main ideas on material and spiritual capital were obtained from the two books by Danah Zohar and Ian Marshall. The first book is “Spiritual Intelligence”, published by Bloomsbury, New York and London, 2000. The second book is “Spiritual Capital”, published by BK, San Francisco, 2004.

[3] Becker, Gary, 1975: Human Capital. 

[4] The idea of social capital in this context comes from many different sources in China and the U.S.. But the most important book that I often used to discuss the concept of social capital is “Trust” written by Francis Fukuyama in 1995, and published by Free Press in New York

[5] This section on Chinese family history was based on many interesting Chinese history books. One of which is written by the famous Chinese author Lin Yutang nearly 80 years ago. The title of the book in English is “My country and my People”, translated as “Zhong Guo Ren ” in Chinese..

[6] “Emotional Intelligence, why it can matter more than IQ”, by Daniel Goldman, 1995

[7] “Spiritual Capital”, Danah Zohar and Ian Marshall, BK, San Francisco, 2004

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