Blog: “‘Tis the season to be trustworthy” – Charlie Woods, SUII
As this is the season of goodwill and gift giving it might be an appropriate time to look at the role that trust plays in economic development.
The chart below from an article in ‘Our World in Data’ shows a strong relationship between levels of trust in society and output per head. As with any correlation questions can be asked about the direction of causality, but there seems to be something going on.
Trust and economic performance would appear to be related at both a macro and a micro level.
In the individual workplace cultures of trust have for some time been seen to promote significantly better performance – up to 50% higher productivity being reported in some cases. As an article in the Harvard Business Review, looking at the neuroscience of trust, summarised:
“Employees in high-trust organizations are more productive, have more energy at work, collaborate better with their colleagues, and stay with their employers longer than people working at low-trust companies. They also suffer less chronic stress and are happier with their lives, and these factors fuel stronger performance.”
The article sets out a number of ways in which leaders can help build a high trust, high performance company. These include:
- Recognise good performance
- Set meaningful, achievable challenges
- Give discretion in work organisation
- Share information broadly
- Build social relationships
- Show vulnerability
“Ultimately, you cultivate trust by setting a clear direction, giving people what they need to see it through, and getting out of their way.”
Trust also plays a vital role at a more macro level. In a short book published in 2014 Gert Tinggaard Svendsen of Aarhus University is in no doubt about the contribution that high levels of social trust play in the economic performance of Scandinavian countries, “Trust is Denmark’s invisible fuel”.
High trust societies are more co-operative and have to spend much less time, money and effort checking up on each other, writing and monitoring complex contracts and policing free riding. To put it another way, their transaction costs are much lower and more effort can go into productive activity. A greater sense of security and mutual support also allows more scope for innovation, experimentation and learning as the costs of failure are less drastic.
A recent paper by Diane Coyle and others looks in more detail at the relationships between trust, social capital and productivity. In conclusion they note that the shock induced by the Covid pandemic is likely to impact on social capital. This is perhaps to be expected in a world of social distancing, with more working from home and growing online transactions. Quite how and in which direction this impact is likely to happen is something that policy makers and economic practitioners will have to keep a careful eye on.
It also looks like levels of trust can make a direct contribution to overall wellbeing of society. Again the World Happiness Report highlights the strong performance of Scandinavian countries over the years and notes the link to trust. “Nordic citizens experience a high sense of autonomy and freedom, as well as high levels of social trust towards each other, which play an important role in determining life satisfaction.”
The report also notes the relationship between inequality and trust when trying to understand the reasons for the high ranking of Nordic countries. “One potential root cause for the Nordic model thus could be the fact that the Nordic countries didn’t have the deep class divides and economic inequality of most other countries at the beginning of the twentieth century. Research tends to show that inequality has a strong effect on generalized trust.”
Trust is not something that can be built overnight, it is a mutually reinforcing, circular and cumulative process that takes time. It can also be damaged and broken very quickly. The behaviour of individuals, social norms and the trustworthiness and transparency of institutions have an important role to play.
Leaders of public, private and third sector organisation have a key role to play in initiating and nurturing this virtuous circle. Societies that do invest in building trust and strengthening relationships are likely to see significant returns over time in business and macro-economic performance along with improvements in overall wellbeing.
Best wishes for the festive period – let’s hope 2021 sees the start of an inclusive and sustainable recovery from Covid, built on growing levels of trust and co-operation, as we move towards CoP in Glasgow at the end of the year.