Distrust and its detrimental economic impact

30th January 2012

Carried out by the University of Essex, the portrait of a nation relaxed about ‘low-level dishonesty' launches Britain's first Centre for the Study of Integrity.

Scandals such as phone hacking, MPs' expenses and the banking crisis are surely at the heart of Britons' distrust in institutions. The Edelman Trust Barometer, a periodic survey of public opinion about institutions and business sectors, shows that there is a deepening sense of distrust in both government and business.

Just 29% of people expressed confidence that government is doing the right thing, with only slightly more people (38%) trusting in business. This comes alongside news that the IMF has slashed the global growth forecast for this year, reducing its forecast to 3.3% from 4%.

Meanwhile, the Daily Telegraph reports that Sir Mervyn King believes that while the economy faces an "arduous, long and uneven" path to recovery but that once it does it will be on a "more sustainable footing than at any point in the past 15 years". But does anyone believe him?

There are numerous measures of trust – even on the social media stratosphere. Users on the likes of Twitter, for example, are ranked in terms of influence and trust on TweetLevel. The New York Times scores highly – but then so does Justin Bieber.

And anyway, how can we define ‘trust'? Francis Fukuyama wrote Trust: The Social Virtues and The Creation of Prosperity, and defines trust and the importance of this within a community for economic success.

He writes: "Although it involves an exchange of information, trust is not reducible to information.

"The greatest economic efficiency was not necessarily achieved by rational self-interested individuals but rather by groups of individuals who, because of a pre-existing moral community, are able to work together effectively.

"One of the most important lessons we can learn from an examination of economic life is that a nation's well-being, as well as its ability to compete, is conditioned by a single pervasive cultural characteristic: the level of trust inherent in the society."

Fukuyama highlights high trust societies like Holland, Sweden, and Switzerland-small countries without classical economic scale, which nonetheless host major global corporations.

 "There is no necessary trade-off, in other words between community and efficiency; those who pay attention to community may indeed become the most efficient of all," writes Fukuyama.

Ken Eisold, Mindful Money blogger, and an internationally respected authority on the psychodynamics of organisations, agrees on its importance for economic success.

He writes on his blog: "Most of us view trust as valuable and desirable, something that improves the quality of our personal lives.  We seldom take the next step and view it as indispensable, a vital ingredient in society – and in the economy. But all credit is based on trust, and the fundamental problem in a credit crisis is not just the lack of "liquidity" but also the absence of trust, the trust that is essential to all financial transactions."

British Historian Geoffrey Hosking points out:  "The 2000s were bad years for social trust, at least in the UK and USA. They were the culmination of several decades during which generalized social trust had been declining. Surveys in the UK suggest that, when asked in 1959 ‘Would you say that most people can be trusted?' 56 per cent replied ‘Yes'; in 1998 the equivalent figure was 30 per cent. In the USA, when asked the same question in 1964, 55 per cent answered ‘Yes', but in 1995 only 35 per cent."

The exposure of the greed, carelessness and fraud that permeated the financial industry leading up to that crisis eroded even further the public's trust, says Eisold. He writes on his blog: "With distrust pervading the population, all the social services that government traditionally provide become more difficult to administer and more expensive: As a result, there are today more overworked teachers and demoralized social workers, there is more litigation, greater reluctance to help the police, greater recourse to private health care and the like."

"The essential point is not that people need to be encouraged to trust.  Most of us want to trust and have the basic capacity to trust. We need institutions that are trustworthy."

Developing trust requires new, mindful solutions – How do you think institutions should evolve to establish trust, and shift the economy in a positive direction?


More from Mindful Money:

Do investors place too much faith in boardroom leaders?

The social pressure of conformity

Disentangling market messages – which indicators should we believe?

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