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.


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