I forgot to retrieve my bank card at an ATM at the Mexico City airport. A woman behind me in line walked up to the ATM and chose not let me know about my card. Instead, within 30 minutes there were three fraudulent transactions on my card for items purchased at convenience stores near the airport. The amount charged was $120.
My trust in others was diminished a bit after that incident. It got me wondering to what extent do individuals in different countries trust each other and is there a level where the trust is so low that an economy seeks to function.
Not Much Trust
I was surprised to find out how low interpersonal trust actually is. Since the early 1980s, the World Values Survey has been asking citizens around the world the following question, “In general, do you think that most people can be trusted, or can’t you be too careful?”
There are some countries such as Sweden, the Netherlands, and China in which 60% or more of respondents say that others can be trusted. In the U.S., however, only 35% of individuals said others could be trusted. 29% said so in the UK. 19% in France. In Mexico, only 12% of survey respondents thought most people could be trusted.
Those are shockingly low levels of interpersonal trust. Particularly because countries with low levels of interpersonal trust also have low levels of trust in public institutions including the government, the court system and police.
Individuals don’t even trust most of the brands from whom they purchase according to the Edelman Trust Barometer. Only 34% of consumers around the world say they trust the brands they buy and use. Yet 81% say, “Trust in brands is an important part of my purchase behavior.”
Social Capital and the Trust Economy
How is it the economy still functions with such low levels of trust?
In the absence of a trust economy, most transactions would for paid for in cash with goods or services delivered immediately. That’s not the predominant economy that exists in most areas of the world. Instead, the majority of transactions occur across space and time. Often goods are ordered online for credit and sent long distances for delivery at a later date. Corporations source inventory and build and deliver products, relying on complex logistical networks that are based on trust.
These networks are part of a trust economy’s social capital. Social capital consists of the structures, norms, and networks that motivate individuals and companies to coordinate with each other in order to produce goods and services rather than steal from each other. In other words, social capital provides incentives to generate income and increase wealth by making things rather than taking things from others.
We participate in the trust economy because the payoff for doing so (i.e., getting what we want) is greater than the uncertainty of whether the transaction will go through or not. The benefit of receiving the good or service we want is higher than the cost of protecting ourselves from getting ripped off or being harmed in some way.
Enforcement Mechanisms That Support the Trust Economy
Stephen Knack outlined three enforcement mechanisms that facilitate economic transactions based on trust.
The first is personal integrity. He writes, “We do the right thing because of our moral code and trust that others have a moral code.”
While it would be nice if we could rely on this base layer of trust, most transactions do not. Instead, there is a second party enforcement mechanism. We trust that the business or individual with which we transact wants to have a continuing relationship. That they are playing the long game and don’t want their reputation harmed.
There are also third-party enforcement mechanisms consisting of entities or structures that are not part of the immediate transaction but exist in the background to protect both parties. These third-party enforcement mechanisms consist of regulators, the court system or entities that can intervene if something goes wrong.
While in Mexico City we used Uber to travel from one part of the city to another. I did not know the individual drivers so there was a low level of interpersonal trust. Yet I was willing to get into a stranger’s car because I believed the driver wanted to maintain his or her five-star reputation on the Uber platform. I wanted to conveniently get to a new location and was willing to do so via Uber because mechanisms built into their platform reduced the cost of uncertainty.
Why the Trust Economy Thrives
Enforcement mechanisms, networks, and information technology have allowed the trust economy to thrive. An economy’s social capital allows us to enter into complex transactions with others that occur across time and space despite low levels of interpersonal trust. In most places around the world, the incentives to contribute to a maker society is greater than the incentive to steal from others.
To learn more about the trust economy please listen to this episode of the Money For the Rest of Us podcast.
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