Blog: ‘Investing in Trust’
How important is trust to economic development? The chart below from ‘Our World in Data’ would suggest that there is quite a strong relationship.
As with any correlation questions can be asked about the direction of causality, but there certainly seems to be something going on. In his recently published economic history of the long twentieth history (‘Slouching Towards Utopia’) Brad DeLong suggests lack of trust (born of centuries of slave raiding) has been a major factor in holding back the global south.
The importance of trust would appear to operate at both a macro and a micro level.
In individual workplaces 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.”
At a macro level Gert Tinggaard Svendsen’s short book 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”. In this regard it’s interesting that Francis Fukuyama’s widely adopted metaphor for aspiring state builders is “Getting to Denmark”.
High trust societies are more cooperative 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 paper by Diane Coyle and others looks in more detail at the positive relationship between trust, social capital and productivity. In their conclusion they wonder what effect of the Covid pandemic will have on social capital, with social distancing, more working from home and growing online transactions.
It also looks like levels of trust can make a direct contribution to overall wellbeing. Perhaps not surprisingly, 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, making the link back to fairness. “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 an essential building block for effective collaboration Neuroscientist Hannah Critchlow’s book ‘Joined-up Thinking – The science of collective intelligence’ makes the case that the range and complexity of the challenges that face us a species require an even greater focus on working together to harness our intelligence in its broadest sense.
Effective dialogue is key to building trust and encouraging cooperation as Paul Collier highlighted in an article – interestingly titled ‘Why we should be more like Denmark’!
“Dialogue…engages everyone, so that all members of the community can participate and co-own the outcome. It flows back and forth between equals who aim to understand each other, in contrast to instructions flowing down a hierarchy. And it presumes mutual regard between participants, not indifference or worse. Dialogues tend to build a common understanding of a situation, a common sense of identity that can co-exist with our other identities. But above all, they can create a sense of common obligation that encourages us to put these collective purposes ahead of our own individual interests.”
The economic development community is growing as more and more organisations in the public, private and third sectors recognise the role they can play in building a genuine wellbeing economy – something which no one organisation can achieve on its own. EDAS aims to be an organisation that can provide a place where this community can have a productive dialogue, which allows us to build trust among ourselves and beyond and learn from each other to develop and deploy our collective intelligence.
Charlie Woods
Scottish Universities Insight Institute and EDAS Board Member