At the petrol station I’m always asked by someone who works there: “check the meter is at zero.” This is mildly irritating, but of no consequence. But it is interesting that he assumes I wouldn’t trust him to do his job properly. However, if you’re going to get your car repaired, matters become a bit more serious. Unless you know something about cars, you generally have to trust the mechanics are doing a professional job and not trying to cheat you. When you think about it, trust-or the lack of trust-is crucial for all sorts of transactions and interactions between people.
At the most fundamental level, children trust that parents will make decisions that take into consideration their well-being. Couples trust each other and citizens trust that politicians will not embezzle funds or think only in terms of their own interests. When you send your child to school you trust the teachers will be fair, open-minded, and true to the internal norms of their profession. When you go a hospital or a court of law you trust those making choices and decisions on your behalf will do so in the best possible way, and that they’re not motivated by their own selfish interests. Similarly, you trust bankers will invest your money wisely (something we’re not so sure about now, after the financial crisis) and that soldiers will do their job and not be bought off by the highest bidder.
So, we trust lots of people with things that are valuable to us, like our savings, the quality of our healthcare and the education of our children. There’s an implicit vulnerability in doing so and we all know that things can go horribly wrong if we place too much trust in other people when it’s not justified. But there’s no denying that the quality of our social fabric is enhanced by trust, or what economists call ‘social capital’. A smooth-running society needs a certain level of trust amongst its people and in its institutions.
Trust can be an important factor in the working of the economy as well. Think about the petrol station example again. What’s to stop the person fixing the meter for his own benefit? What’s to stop me from driving the car off without paying him? Would a society without trust lead to anarchy? Also, think about a lot of transactions that occur over time, like borrowing and repaying a loan. If you can’t trust someone to pay back the loan you might be less inclined to lend to that person or anyone else, and that might lead to less overall productive investments and lower growth in the economy. Or you might think: why should I pay my taxes if the government cannot be trusted to use the resources wisely? Trust matters to the economy.
At this point you might wonder if we can get along without trust. After all, there are other ways in which societies can ensure exchanges between people take place. If the police and the courts of law are functioning then people who betray the trust put in them can be caught and punished (of course, assuming we can trust those officials to act honestly). Or you might think things like reputation or competition prevent people from cheating since if they go back on their word eventually no-one will trust them and they’ll lose out as people take their ‘business’ elsewhere. Also, if the government provides information and establishes standards of quality then it’s less likely that people will erroneously (blindly) trust someone else.
However, that can never be the whole of the solution to the problem because there are lots of decisions that we make very infrequently and about which we can only have imperfect knowledge: which school to send your child to, which doctor to see, which politician to vote for and so on. Reputation and better information might help, but we’d still end up having to trust strangers. Societies without these good formal institutions and without a developed sense of ‘generalised trust’ either, end up trusting only people they know-which is why personal networks are so important in our country.
In short, it would be too costly for any society to monitor and enforce each and every transaction, or to design complete contracts. Even if it wasn’t that costly, would we want to live in a police state where every action of ours was monitored and could we trust those officials anyway to be good enforcers? Since we can’t do everything ourselves, we have to sometimes take the short-cut and trust people. Societies with high levels of general trust, it turns out, do much better economically and socially than those with low levels.
The writer is a professor of economics at LUMS
