April 7, 2016 Reading Time: 2 minutes

We usually think of human capital as knowledge: the education and training you need to complete a task on the job. But networks — “who you know” and how you interact with those people —  are also critical to economic wellbeing.

It’s easy to see the benefit of networks through big life events such as when you hear of a job opportunity through a friend. But there are numerous more subtle advantages to knowing a large number and variety of people, like exposure to new ideas, fresh perspectives and the psychological benefits of connection. When you connect with new people, you also indirectly connect with their networks and these connections incrementally add up to greater economic prosperity and a fuller life.

We often build networks while acquiring more traditional kinds of human capital in school. Most MBA’s will tell you that they could have learned the substance of their coursework on the job, and that the real benefits of that program came from collaborating and socializing with a diverse array of successful classmates. And while the models and techniques I learned getting a Ph.D. are essential to my work as an economist, what I learned from my community of colleagues in graduate school was at least as important.

Researchers agree that size is far from the only indicator of network strength. Ron Burt of the University of Chicago’s Booth Business School suggests that the most successful people have networks consisting of multiple “clusters,” groups bound together by career, training or life, who don’t always interact with each other. These networkers then move between clusters, connecting and recasting ideas for new audiences. This process is not always as comfortable as sticking with a single group of people like you, but can carry big rewards. Think about how often we talk about the need to “get out of a bubble.”

Strong networks also bring significant benefits to society. In his landmark 2001 book Bowling Alone, Robert Putnam demonstrated that changes in technology and a decline in civic organizations led to people being increasingly disconnected from each other. He tied this phenomenon to numerous economic and social problems we currently experience.

Perhaps one reason for perceived stagnation among our working and middle classes is this growing disconnection among people. Knowledge and skills are important for success, but connecting with others helps refine those skills and find the best places to put them to use. To foster economic and personal wellness, we might start thinking more about ways to help more people connect with each other.

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Max Gulker

Max Gulker

Max Gulker is a former Senior Research Fellow at the American Institute for Economic Research. He is currently a Senior Fellow with the Reason Foundation. At AIER his research focused on two main areas: policy and technology. On the policy side, Gulker looked at how issues like poverty and access to education can be addressed with voluntary, decentralized approaches that don’t interfere with free markets. On technology, Gulker was interested in emerging fields like blockchain and cryptocurrencies, competitive issues raised by tech giants such as Facebook and Google, and the sharing economy.

Gulker frequently appears at conferences, on podcasts, and on television. Gulker holds a PhD in economics from Stanford University and a BA in economics from the University of Michigan. Prior to AIER, Max spent time in the private sector, consulting with large technology and financial firms on antitrust and other litigation. Follow @maxg_econ.

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