The paradox of trust

John Plender reviews favourably¬†[amazon_link id=”0198712383″ target=”_blank” ]Trust: A History[/amazon_link] by Geoffrey Hosking. The review says: “He argues, convincingly, that there is a tendency to give too much attention to power and the law relative to trust. The workings of trust are nonetheless complex….In the complex modern world, what increases trust in one group can intensify distrust in another.”

This seems to me one of the most difficult questions in the trust/social capital literature: what is the scope of the relevant group for trust to be a positive rather than a negative influence on the economy? Criminal gangs can be high trust organisations yet decrease trust in the society of which they form a part, and so on. Divisions into inside and outsider groups rarely end well.

[amazon_image id=”0198712383″ link=”true” target=”_blank” size=”medium” ]Trust: A History[/amazon_image]

Last year I wrote a short essay for the OECD Forum on the economic cost of diminishing trust in many of the institutions in OECD societies, including trust in big business. It highlights the paradox that the complicated, interlinked modern economy could not work without high levels of trust and yet so many indicators show that trust in established institutions is declining. More questions than answers here too, I’m afraid. But one can’t help but feel that we’re in a very corrosive downward spiral in trust at present.

5 thoughts on “The paradox of trust

  1. Pingback: Trains, planes and no automobiles | The Enlightened Economist

  2. Perhaps you’re well aware of it, but Francis Fukuyama published a book in 1996 about trust (Trust: The Social Virtues & the Creation of Prosperity) that I read a long time ago. I believe he comes to very similar conclusions to this book & what you’ve written.

    • Yes you’re right. I read it at the time and even have it on the shelf but forgot to mention it. My memory is that it’s more theoretical but I’d have to look at it again.

  3. I remember Professor Keith Pavitt addressing his doctoral students in 1998, when Fukuyama was in vogue. Keith told us, very simply, “Don’t trust trust”.

    It was Kenneth Arrow, in the early sixties, who observed what an enormous difference trust can make to co-ordination costs, but he also understood what all the internet peer-to-peer advocates miss: “If you have to buy [trust], you already have some doubts about what you have bought. ”

    Trust is infrastructure. It reduces transaction costs by taking trust out of the transaction, and putting in the background. We don’t have to trust strangers, we just make them pay cash. So if Tony Soprano says something has been taken care of, you can rely on him, not because he’s a particularly honest man, but because he’s embedded in a social network with strict norms.

    Traditional trust to do with having a dense network of weak ties, so that our obligations are reciprocal in the second or third degree, if not in the first. Diminishing trust in institutions is very dangerous because if we can’t rely on them, (the BBC, or the police, say, or the currency) we have to double check everything. If we can’t trust cash, we can’t trade with strangers or our friends. .

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