13 September 2020

Prosperity Depends on Trust

"As a personal attribute, trust is not inherently good or bad. If I am living in a neighborhood full of thieves and swindlers, being a trusting person will get me into trouble. Trust becomes a valuable commodity only when it exists as the by-product of a society whose members practice social virtues like honesty, reliability, and openness. Trust makes no sense unless it reflects a general condition of trustworthy behavior; under these conditions, it becomes the marker and facilitator of cooperation. Of course, an opportunist could try to take advantage of other people’s trust and try to cheat them. But if one wants to live in the community, this will quickly lead to ostracism and shunning."
- Fukuyama, Francis. Political Order and Political Decay (p. 123). Farrar, Straus and Giroux. Kindle Edition.

2008 was a financial catastrophe because of a credit market crisis. Per Wikipedia, credit came "from Middle French crédit (15c.) 'belief, trust,' from Italian credito, from Latin creditum 'a loan, thing entrusted to another,' from past participle of credere 'to trust, entrust, believe'." A lack of trust creates a crisis - whether within a company, a relationship, or in credit markets more broadly.

Fukyama writes of Greece and Southern Italy's economies in this context of trust. People in these places generally don't trust folks outside of their family. The result? You can't create a business of any size and government is dysfunctional. This creates poverty. Per capita income in the south of Italy is about half what it is in the north; in Greece it is 55% of what it is in Germany.

The key to success is making yourself part of such a big us that one can specialize. If you are in a group of five or ten, you have to be a generalist, you have to do everything. Your productivity will be so much lower than if you are in a large group where you can specialize. The key to becoming part of a bigger group, to making us larger, is to create institutions bigger than family or tribe, institutions like church, state, banks, and publicly traded corporations, and even the less obvious civic organizations.

Where you find communities where people have learned to be distrustful, you will find poverty. Success - whether within a family, friendship, company or country - depends on you creating a culture where trust is inherently good and isn't something easily or often betrayed.

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