Saturday, February 6, 2010

The Value of Trust: Should we be reactive or proactive?

One recurring sentiment among business and government leaders in Davos, Switzerland this past weekend involved the need to build mutual trust among business entities and nations:

“Between Chinese people and American and Western people, we lack mutual understanding,” said Cheng Siwei, a former Chinese politician and a co-chairman of the International Finance Forum, a Beijing-based think tank. The only way to “keep this relationship stable,” he said, is “to build mutual trust.”

Participants proposed that this lack of trust could be addressed via regulations towards the financial sector, which is seen as the main cause of the disintegration of trust. However, this too is not an ideal way to establish trust. Perhaps the billionaire investor and philanthropist George Soros summed up the ambivalence most succinctly:

You want to keep regulation to a minimum, because it is worse than markets. But you can’t do without it.

Our previous blog post mentioned the value of hyper-public goods such as love, trust, etc. and their role in strengthening economic systems. Our inclination to emphasize the importance of trust seems to be confirmed by the concerns expressed by the leaders at Davos. We often hear this same concern voiced at the international level with the term ‘accountability’. For example: how do we make one government accountable to another, or to its citizens? Or in other words, how do we know we can trust them to fulfill their promises? A host of ‘solutions’ are provided, from providing the right incentives, to creating watchdogs, from protests and strikes to tying a future relationship to conditions.

What is lacking in this approach is a distinct difference between reactive suggestions for trust-building ( represented in Davos by regulation-driven suggestions), and proactive ones. Our sense is that everybody wants trust, but there is no agreeable manner in which to build it. What further exacerbates the problem is that most business leaders function within a system of intense competition, and most Governments prioritize the defence of their national interests. By definition, ‘competition’ has forces inherent in its structure that strive to tear at any trust that has been or can potentially be built among collaborators.

Our next challenge: find communities whose guiding principles emphasize the creation of virtue-based hyper-public goods and elaborate on how they change the economic climate.

What about the Community?

Economic Assumptions and the Role of Hyper Public Goods

In a world that presupposes that individuals are like atoms, orbiting within their own sphere of self, the community is, arguably, irrelevant to economics. In this conception of the world (commonplace, though far from ideal), economics would merely become an exercise in maximizing profit and individual gain at the expense of…everything else (think Darwin’s survival of the fittest.) Such is the show playing out before us on the world stage today, as we watch the gap between the rich and poor forever widen, the environment increasingly degrade, and an excess materialism continue to cast its dark cloud over moral and spiritual values.

And yet, in these times of financial uncertainty and moral questioning, more and more people are standing up and shouting out in defense of a more meaningful rewrite of reality. A world in which the individual is part of an organic, interconnected whole. A world where economic systems cannot be divorced from the lives of the real people using them.

One of these people is Professor Stephen A. Marglin. His current research, including that published in his book The Dismal Science: How Thinking Like an Economist Undermines Community, brings the notion of the community back into the spotlight as fundamental to understanding how economic systems ought to function. He questions the foundations of mainstream economic thought and asserts that they distort our understanding of humanity’s true nature and the purpose of human relationships in a way that renders the ‘community’ irrelevant:

Economics substitutes a mantra of market freedom based on assumptions of dubious merit, whether considered as facts about people or ethical norms.In adopting a particularly extreme form of individualism, in abstracting knowledge from context, in limiting the community to the nation and in positing boundless consumption as the goal of life, economics offers us no way of thinking about human relationships that are the heart and soul of community other than as instrumental to the individual pursuit of happiness.

So perhaps before we think about human relationships, we ought to rethink: who are the ‘individuals’ forming them, if not isolated ‘atoms’? One could compare individuals to the cells of the human body, which are interconnected yet diverse in their functions. The cells within a human body both depend on and fortify one another. They must work together accordingly to form more complex vital organs. Much like humanity itself, the body relies on this diversity to meet its various needs, as well as a certain harmony and coordination. The interconnectedness of the system is even more apparent when something is amiss. If one part of the body is suffering, the rest of the body must work harder, and may also suffer as a result.

So we could evince this from current global trends in climate change, the world economy, natural disasters and health pandemics. But on a more profound level, this analogy of the human body implies a deeper thread between individuals, who share more than just a planet, but also a common purpose and responsibility to fulfill the destiny that a shared Creator has set for humanity. A somewhat daunting task. But then, if we think about the human body, it is not just the sum of individual cells that makes it work, but rather the unity among them.

If the above-mentioned assumptions beneath mainstream economics render it incompatible with a more profound exposition of human nature and human relationships, the relevance of economics to an investigation of reality disappears. Marglin argues precisely that, pointing out that mainstream economics is getting the focus wrong. Particularly, he addresses the use of market models in economics, which economists oftentimes use as a tool to propagate assumptions associated with self-interested individuals devoid of community. He doesn’t purport that markets are inherently bad, but claims that mainstream economists use market-modeling as an end in itself. Furthermore, he claims that economists are driven to persuade the world that market-based models thoroughly describe reality as it is and create models to justify their inherent value rather than trying to understand how markets work and the insights they provide into reality:
The problem with the idea that economics is purely, or even primarily, a descriptive undertaking is that the apparatus of economics has been shaped by an agenda focused on showing that markets are good for people rather than on discovering how markets actually work.
Rather than helping the world to function and advance, the economy is simply reinforcing a definition of the self-interested individual that contributes to the break-down of human relationships and consequently the increase of injustice – both economic and social – in the world.

A shift in focus, towards understanding how markets work, may just reveal profound insights about the dynamics of community life and the human relationships that define it. And it may very well change our assumptions about how the economic system ought to function in the world.

Marglin suggests that one of the ingredients of an ideal community would be love. Faithful to an integrated, holistic vision of the economy, he calls love a “hyper public good” that “increases by being used and indeed may shrink to nothing if left unused for any length of time.” He then goes on: “The sensible thing to do is to create institutions to draw out and develop the stock of love.”

A great start – though one can’t help but feel it’s just the tip of the iceberg. What is this love that bonds individuals of a community together and how is it linked to a greater shared destiny for humanity? What implications would this have on forming a new paradigm for economic thought?

If we really are intent on keeping the economic system integrated in the world, we could ask: once all the cells of the body are functioning healthily, what does the human body do? The body’s functioning is not an end in itself but rather a means for that individual to engage with the world, to participate in a two-fold process of individual and societal transformation. What would the purpose of this new community be? How would a new economic system work naturally to help advance this purpose?

We would argue that a ‘healthy body’ version of the community is still in the making, though there are certainly many models in existence today that would be worth studying. That being said, an interesting next step could be to closely study communities that are built on values such as love, and to identify other ‘hyper public goods’, such as trust, unity, or a desire for justice. As these individuals are empowered to promote the interests and well-being of all, connected by bonds of love, fortified by a collective undertaking to work together for the well-being and advancement of humanity, we could perhaps start to set the new foundations to a just, fruitful economic system. That could be a start.