Trust: The Social Virtues and the Creation of Prosperity, by Francis Fukuyama (original) (raw)
Related papers
2009
"In general, in developing countries, unfortunately, markets do not perform well. Hernando de Soto (2003) has pointed out the "hard" conditions such as the absence of property rights and the high cost of obtaining operating permits. Amartya Sen (1999) citing Adam Smith’s Theory of Moral Sentiments (1759) has emphasized the "soft" conditions connected to behavioural and institutional obstacles, in particular the role of trust for a functioning market economy. Sen conceptualizes trust as one of the principal conditions for a functioning market economy, First, we analyzed the concept of trust in Adam Smith’s writings. He places trust as a central element in all human interactions, including production, consumption and trade. In his view, the enforcement of contracts by the state causes trust levels to rise, markets to function, and trustworthy behaviour to increase. Conversely, trust is also a necessary condition for successful functioning of markets. We know from recent advances in complexity economics, that positive feedback loops can have quite substantial effects in complex systems (Beinhocker 2006), and therefore the positive feedback of trusting and trustworthy behaviour could be quite substantial. It seems Smith had an intuitive and quite sophisticated understanding of this. Regarding the role of trust in a market economy the direction of the causality is hard to determine. Do functioning markets develop trust, or does higher trust level cause stronger development of market institutions? In order to investigate this, we carried out a classical trust experiment (Berg, Dickhaut and McCabe 1995)in Costa Rica, comparing trust level and experienced market operators and inexperienced operators, i.e. economics undergraduates (Alpízar 2004). Indeed, relatively low trust levels were found among the students, but experience market operators exhibited high trust levels. There are implications for educational policy in business education. A possible extension of this work is to measure trust levels among inexperienced market operators in developing and developed economies before and after market training. Next, we undertook an analysis of a series of trust experiments in developing countries. From this literature evidence emerges functioning markets create trust, and not the other way around. We would recommend therefore that policy focus primarily on creating the appropriate "hard" conditions for market functioning, rather than attempting to influence trust levels in “soft” ways, by promoting dialogue of business codes of good behaviour. Results from economic experiments therefore show that Amartya Sen, but not Adam Smith seem to have confused too narrowly on trust as a condition, and fails to contemplate the effects of trusting and trustworthy behaviour on the functioning of markets. 2 References Alpízar, F., Till Requate and Albert Schram (2004). "Collective versus Random Fining: An Experimental Study on Controlling Non-Point Pollution." Environmental and Resource Economics 29(2): 231-52. Beinhocker, E. D. (2006). The Origin of Wealth. Evolution, Complexity and the Radical Remaking of Economics. London, Random House. Berg, J., J. Dickhaut, et al. (1995). "Trust, Reciprocity, and Social History." Games and Economic Behavior 10: 122-42. De Soto, H. (2003). The Mystery of Capital Why Capitalism Triumphs in the West and Fails Everywhere Else. New York, Basic Books. Sen, A. (1999). Development as Freedom. New York, Oxford University Press. Smith, A. (1759). The Theory of Moral Sentiments. London, A. Millar."
Trust as an institutional factor of economic success
Ekonomski horizonti, 2012
Trust, as an important traditional informal institution of a society, has in recent decades come into focus of many social sciences and the economic science as well. Namely, trust is one of the key factors that determine the character of both human and social relations. There is a growing realization that, among other key factors of the market system eff ectiveness and effi ciency, economic impacts are also determined by the appropriate level of trust that exists between economic actors. This paper analyzes the role of trust as a facilitating factor that enables a more successful development of economic activities in such an environment where economic actors deal with the problems of information asymmetry, incomplete contracts, an underdeveloped institutional framework, uncertainty etc. It is suggested that trust, both personal and institutional one, is a signifi cant factor in economic success and development. At the same time, trust plays an important role in the successful implementation of a socioeconomic transformation, which is especially relevant in transition countries.
Identity, Trust and Altruism: Sociological Clues to Economics Development
SSRN Electronic Journal, 2000
Much of economics is built on the assumption of individuals being driven by nothing but self-interest; and economic development is viewed as an outcome of the free play of such individuals. On the few occasions that economics recognizes the role of trust, integrity, in-group cooperation and altruism, the tendency is to build up to these from the axiom of individually selfish behavior. The aim of this paper is to break away from this individualistic tradition and to treat as a primitive that individuals have hard-wired in them the 'cooperative spirit', which allows them often to work in their collective interest, even when that may not be in their selfinterest. The main objective of the paper is to track the consequences of this primitive. By using the basic structure of a Prisoner's Dilemma game and building into it assumptions of otherregardingness, the paper demonstrates how our selfish rationality interacts with our innate sense of cooperation. The model is used to outline circumstances under which cooperation will occur and circumstances where it will break down. The paper also studies how subgroups of a society can form cooperative blocks, whether to simply do better for themselves or exploit others.