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February 3, 2015

A dangerous lack of trust


February 3, 2015


More than 2000 of the world’s top leaders in business, government, international organisations and the academia assembled at the World Economic Forum’s annual meeting on January 21-24 to debate the profound transformations taking place in the world.
Despite the criticism, mostly correct, that the participants of the WEF annual meeting are the representatives of the one percent – the elite of the world – the significance of this annual event cannot be downplayed since every year it attracts a galaxy of people whose opinions matter and who have the ability to shape and redefine the narratives in the world. Though the WEF gives a broad theme every year for this event, practically every topic under the sun comes under discussion. If you do not have money or time or for that matter, you are not smart enough to attract the attention of the WEF, you certainly miss a great opportunity of learning and sharing ideas.
But thanks to advancements in communication technology, you can now have access to the debates and discussions online. You just miss what takes place on the ‘sidelines’ of such meetings. For some analysts whatever is discussed on the ‘sidelines’ is perhaps the real part of the Davos, everything else is idealism and satiation of intellectual curiosity. However, I am as ignorant as others who were not privy to those discussions and manoeuvrings. I, however, followed the majority of the debates and found two of them, one on trust and the other on inequality, really interesting. The debate on trust, which took place under the broad topic of ‘society and security’, is the subject of this article. Inequality we will discuss later.
The discussion on trust was moderated by an economist, David E Bloom, and the discussion panel included Willy Munyoki Mutunga, chief justice of the Supreme Court of Kenya, Ahmad Irvani, director of Islamic Centre of Middle East, Ernesto Zedillo Ponce De Leon, ex-president of Mexico, Salil Sethy of Amnesty

International and Kathryn D Sullivan, US under-secretary of commerce. Some important points emerged during the discussion with regard to trust.
One, corruption in government institutions is the major reason for low trust in society. Second, trust is eroding both at the national and the international levels due to economic downturn, political instability, and loss of faith in political and economic institutions. Third, inflating expectations of the masses and false promises by the politicians for short-term popularity or gain are not going to deliver. There is need for political dialogue at the national level. Fourth, the international governance system is also not delivering due to the double standards of the developed countries.
What are the manifestations of low trust? While talking of Kenya, Justice Willy said that only five percent of the Kenyans approach the formal justice system for adjudication of their cases due to low trust in society. The majority of the people prefers ‘private adjudication’ of their disputes mainly due to two reasons. One, the judicial and governance system is corrupt and does not deliver. Second, people are divided along ethnic and linguistic lines and courts do not have legitimacy to adjudicate political cases.
The points raised by the participants were not exactly rocket-science. The very discussion on trust, however, highlights the level of attention trust is attracting in socioeconomic discourse. Trust has lately come to be recognised as one of the deeper determinants of development. About 45 years ago Kenneth Arrow, Nobel Laureate in economics, said: “It can be plausibly argued that much of the economic backwardness in the world can be explained by the lack of mutual confidence. Virtually every commercial transaction has within itself an element of trust”.
Trust is now considered a big source of competitive advantage. Several scholars have argued that trust or social capital can explain the difference between growth rates of various countries; countries with high levels of trust have grown faster than other comparable countries. Trust reduces what economists call ‘transaction costs’, generally associated with formal coordination mechanisms like contracts, hierarchies, and bureaucratic rules etc. In his study ‘The moral basis of a backward society’ Banfield attributes the underdevelopment of southern Italy (compared with northern Italy) to low trust, a condition he calls ‘amoral familism’.
Fukuyama has directly linked trust with economic development. Literature has identified several channels through which trust can impact economic development. First, in high-trust environments, people are more likely to help each other. For example, in schools students are more likely to access the human capital of adults within the family and neighbourhoods and have therefore more likelihood to succeed. Students are more inclined to work in teams and may not be much interested and motivated in solo flights. Trust is also a proxy for the strength of social solidarity and may in this way positively impact expenditures in the social sectors directly linked to promotion of human capital.
Second, trust is also linked to governance. High trust can lead to higher accountability of public office-holders; politicians are able to introduce policy innovations due to low scepticism among the voters in a high-trust society. Third, trust works as a risk-reducing factor and promotes investment, thus directly contributing to economic growth.
Fourth, trust is also connected to the size and structure of government. For example, Scandinavian countries have both a high level of trust and are also extensive welfare states. The provision of a universal welfare system requires monitoring and hence costs to the government. It is no secret that in the majority of developing countries, leakages in the provision of public goods or amount of subsidies are very high. Such programmes may not require that much monitoring in high-trust societies.
Undoubtedly, the economic and political payoffs are enormous and trust can turn out to be a big source of competitive advantage for a nation. But the most difficult part of the question is how we can build trust at the national level. Fukuyama is of the view that states do not have many obvious policy prescriptions to enhance trust in society as social capital and trust are mostly the by-products of religion, tradition, historical experience, and similar other factors beyond the control of the states. He, however, says that governments have the direct ability to generate social capital and enhance trust in the society through their educational systems.
Educational institutions do not just transmit human capital; they also pass on norms and social rules. Moreover, states can also foster creation of trust in society by efficient provision of public goods, particularly law and order and property rights. Perhaps poor security and land mafias can explain to a large extent the eroding trust in our society.
The participants of the debate on ‘society and security’ also offered some insights to the question of how trust can be promoted at the national level. Their message was: control corruption, improve governance, and initiate political dialogue. Recognise the complexity of the problems and manage expectations. Do not make false promises to the people for political point-scoring as failure to fulfil expectations further erodes trust. Be ready to pay a short-term political price which will be effective in the long-run. Lead by example, deliver, and institute structural reforms how hard they may be to ensure social and economic justice in the society. Shun double standards at the individual, national and international level as there is no substitute for moral authority of leadership.
The writer is a graduate of Columbia University.
Email: [email protected]
Twitter: @Jamilnasir1




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