In our latest series of posts, we’re covering the various types of capital that help a business grow and thrive. So far we have discussed internal economic capital and human capital. Today we’ll discuss two new types of capital: cultural and physical.
Cultural and physical capital could not be more distinct. Cultural capital tends to focus on intangible assets, the connections, and status of a person, whereas physical capital focuses on the tangible assets of a company. But each type of capital has its own advantages and benefits for a company’s business.
Cultural capital is the sum of an individual’s knowledge, behaviors, and skills that demonstrate cultural understanding and social status. It can also be considered “societal capital” since it tends to encompass the social merits of each worker. The term was developed by French sociologist Pierre Bourdieu in his 1973 paper, “Cultural Reproduction and Social Reproduction,” with Jean-Claude Passeron, and later in his 1979 book, “Distinction: A Social Critique of the Judgment of Taste.”
While economist-sociologist Karl Marx believed that economic capital dictated one’s position in society, Bourdieu argued that cultural capital played an equally important role. Both figures believed that more capital meant greater economic mobility.
Individual cultural capital can have a profound effect on a company’s mission. For example, Google’s mission is “to organize the world’s information and make it universally accessible and useful.” In hiring new employees, Google tends to prioritize people with significant industry experience and excellent communication and collaboration skills. These are just a few traits that become important in building (and maintaining) one’s cultural capital.
Importance of Cultural Capital
Enhanced Social and Corporate Mobility
The more cultural capital you have, the better your understanding of the politics and etiquette required to be accepted within a group, whether socially or in one’s business. Demonstrating manners at a meeting, using proper language in writing emails, and even the topics discussed in small talk can all have a profound effect on one’s ability to be promoted.
Access to Industry Knowledge
Cultural capital also dictates one’s accessibility in terms of resources and information. Executives, doctors, lawyers are all individuals with significant cultural capital, and as a result have greater networks and connections with which they can take advantage. Conversely, individuals with low cultural capital will experience more struggles in accumulating the right information about their industry, such as interns, temporary employees, or student employees.
Improved Work Performance
Greater mobility and industry knowledge equate to stronger work performance. As team members and employees develop a greater sense of ownership of the work environment and the industry trends and developments, they will feel more empowered to accomplish their tasks and projects. But feeling stuck in one’s job, lacking the proper skills and experience to advance— these can all negatively impact one’s work performance.
Physical capital refers to tangible, manmade assets that a company owns or invests in to produce more goods and services. This includes property, plants, and equipment, which are not spent up after a unit is produced.
Examples of physical capital include the printing presses and ink that a publishing company may use for books, newspapers, or magazines. It may also include the buildings owned by a retailer like Target, or the factories used by Toyota to produce vehicles.
Diversification of physical capital is relative to the business’s industry. In other words, some businesses have a higher level of physical capital diversification. An online startup may only need a computer and an office, but a restaurant will need far more supplies, ingredients, and a physical location. This can be a significant barrier to entry for new businesses.
Trends in Physical Capital
Since 2010, many businesses were in recession recovery, gradually building up lost revenues in a few years prior. But analysts noticed that fewer companies were actually investing in property, plants, and equipment.
The reason could be due to market concentration. One theory posited by former US Treasury’s chief economist Janice Eberly and associate professor of finance at Kellogg Nicolas Crouzet believes that firms are increasingly investing in intangible assets— investments in intellectual property, research, software. This is because firms with intangible assets are able to scale faster and increase their market dominance. As a result, Eberly and Crouzet believe that market concentration in an industry is higher “when that industry invests more intensely in intangibles.”
For example, the retail industry is designed to allow companies to increase economies of scale without marking up prices. Amazon is able to continually add to its stock while keeping prices relatively low. The healthcare industry on the other hand continues to be under the influence of major pharmaceutical companies, and as a result, prices continue to increase.
Cultural capital and physical capital are inescapable— no matter the business, these two elements play a significant role. But the mix and extent of each one can vary tremendously on the industry and type of business. By comprehending the meaning and purpose of cultural and physical capital, leaders can better plan and prepare operations for greater ROI. Cultural capital should be taught to all individuals looking to advance their careers. Physical capital will need to be evaluated in terms of importance and relevance to the company. But at the end of the day, both are essential capital to running a prosperous business.