generaltrust-wvs

The wages of distrust

Tackling a Mahatma Grade Problem

In a discussion at Takshashila’s Bangalore centre several months ago on what might be India’s biggest problems, I nominated “lack of social trust” as one of the fundamental ones. In today’s new column in Business Standard—the old monthly column on geopolitics continues as usual—I argue that lack of trust is undermining India’s economic growth.

“Widespread distrust in a society,” according to Francis Fukuyama, “imposes a kind of tax on all forms of economic activity, a tax that high-trust societies do not have to pay.” In a 2001 study of 41 countries, economists Paul J Zak and Stephen Knack conclude that “growth rises by nearly a percentage point on average for each 15 percentage point increase in trust.”

According to the World Values Survey, social trust plunged almost 18 percentage points in the first half of the last decade. This suggests India might have lost an entire percentage point of economic growth due to the loss of social trust. So while economists and “policymakers have been sensitive to slowing growth, growing inflation and widening fiscal and current account deficits, few account for the impact of the fall in social trust.” Read the column for what role public policy might have in addressing this problem.

How did other countries fare? Scandinavian countries score very high. Brazil, surprisingly, scores very low. Here’s a chart that compares India, China, Japan and the United States.

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Even if social trust in China appears to be declining gradually, the Chinese enjoy much higher levels of trust than the others being compared. The United States seems to be recovering gradually from a plunge in the 1990s. For a country that is relatively homogenous, Japanese trust levels are lower than Chinese, and are comparable to the much more diverse United States. Note, also, that other than the Chinese, a majority in the other countries does not trust other people.

Restoring trust is a Mahatma Grade Problem (MGP) — we can be reasonably sure that public policy alone cannot solve it: the solution has to emerge from society itself. As I write in today’s piece, “even if we somehow found a way to make us trust each other, only one out five is likely to trust the persons advocating the solution. A democracy with high levels of distrust will, thus, find policies hard to implement, especially if they are non-intuitive.”

Addendum: What causes some countries to have greater social trust?

Jan Delhey and Kenneth Newton analysed social trust levels in 60 countries and arrive at the following conclusion:

The highest levels of generalised social trust across the globe are closely associated with a tight syndrome of religious/cultural, social, economic, and political characteristics.

Protestantism, but no other religion, is strongly associated with trust, probably because the Protestant ethic has left an historical imprint on cultures of equality and the importance of consistently trustworthy behaviour.

An absence of ethnic cleavages is also important, presumably because people of the same ethnic background find it easier to trust one another.

Wealthy and egalitarian societies are trusting societies, although wealth seems to matter more than equality.

Last, good government is an essential structural basis of trust. Corruption free and democratic government seems to create an institutional structure in which individuals are able to act in a trustworthy manner and can reasonably expect that others will generally do the same. [Delhey & Newton, Predicting Cross-National Levels of Social Trust: Global Pattern or Nordic Exceptionalism?]

One thought on “The wages of distrust”

  1. Quote: “According to the World Values Survey, social trust plunged almost 18 percentage points in the first half of the last decade. This suggests India might have lost an entire percentage point of economic growth due to the loss of social trust”.

    1) Isn’t this the infamous OMIPP being repeated here? If you trust the data, it merely shows a correlation. It does not “suggest” that lost economic growth is “due to loss of social trust”. A motivated leftist might even mischievously attribute the fall in trust to economic growth achieved in the 2000s.

    2) Secondly, I very much doubt the validity of data quantifying things such as “trust”. I am reminded of a recent survey where they measured “racism” and in it, Pakistan fared as one of the least racist countries! Intuitively, I would imagine that things such as “trust” etc must be slowly varying quantities and there is no explanation for why the levels of trust declined sharply in India the 2000s.

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