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Monday, 27 June 2011

de Tocqueville: Trust in Self-Interest

And I assure you that all the peoples and populations who are subject to his rule are perfectly willing to accept these papers in payment, since wherever they go they pay in the same currency, whether for goods or for pearls or precious stones or gold or silver. With these pieces of paper they can buy anything and pay for anything.


A Culture of Trust


When thirteenth century Western travellers reached the Chinese border they were forced to exchange their precious bags of gold and silver for apparently worthless paper notes. This created a certain amount of angst amongst the traders which was relieved only when, as Marco Polo recounted, they discovered that their paper was happily accepted by merchants within China, was backed by hard currency redeemable on request, was easily exchanged, easily transported and thus promoted commerce.

These exchanges encapsulate the nature and importance of trust, and the difficulties of establishing trust between different cultures. Why would you trust paper money if you’d never seen it before? Underlying this, though, is a deeper question: how can trust thrive if we’re all self-interested egotists, as modern economics expects?

de Tocqueville’s Trust

Trust is fundamental to nearly all human activities yet it seems implicit that we’re built to be untrustworthy. We’re self-interested, motivated by personal considerations and armed with language, an invention almost guaranteed to promote deception. Yet somehow, we manage to navigate treacherous waters everyday: we mostly trust that drivers will stop at red lights, that checks will be honoured and that partners will be faithful. Mostly.

Yet it seems that there’s evidence that the most self-interested of societies is also the most trusting. As far back as 1832 the French traveller Alexis de Tocqueville remarked of this nation's people:
“[They], on the other hand, are fond of explaining almost all the actions of their lives by the principle of self-interest rightly understood; they show with complacency how an enlightened regard for themselves constantly prompts them to assist one another and inclines them willingly to sacrifice a portion of their time and property to the welfare of the state.”
The country, of course, was America. The principle here is an important one, as it strikes at the heart of the nature of modern economics, but also a salutary one, because of the finding that this behaviour was almost unique to the USA: not a general principle, but a very unique one arising from a unique experiment in participatory democracy. de Tocqueville was making the point that this was how people should live, not how most did live.

Civic Engagement

At the heart of this enlightened self-interest was the fundamental principle of trust, the concept that there was a common set of ideas that bound people together. What research has shown, consistently, is that social trust is heavily correlated with civic engagement. The more people engage with their society the more likely they are to trust others, and the benefits that flow from this are those that de Tocqueville noted in America nearly two hundred years ago: a society in which democracy and civic engagement went hand in hand.

Intuitively this makes sense: people who engage with their fellow citizens are more likely to share common experiences, to have common understandings and to have a common world view. When it comes to trusting people there’s nothing more important than having stuff in common. In Bowling Alone: America’s Declining Social Capital Robert Putnam explains:
“For a variety of reasons, life is easier in a community blessed with a substantial stock of social capital. In the first place, works of civic engagement foster sturdy norms of generalized reciprocity and encourage the emergence of social trust. Such networks facilitate coordination and communication, amplify regulations, and thus allow dilemmas of collective action to be resolved.”
Trust Groups

That trust is fostered by having stuff in common is true in virtually all societies but in those where there isn’t a generalised level of co-operation the trust group is smaller – in some countries it’s reduced to the family group and when this happens corruption is more likely, because the family will be favoured over the society.

In the very worst cases the trust group is reduced to the individual. The old East Germany was probably the worst case of this, when no one knew who was an informer for the Stasi, the secret police. As it turned out nearly everyone was, so lying and deceit were very useful strategies if you wanted to avoid incarceration – or worse.

Behind these behaviours is a tendency to evaluate people within one’s own group more favourably than those outside of it: known as intergroup bias. As Hewstone, Rubin and Willis express this in their review of Intergroup Bias:
“Trust is extended to fellow in-group, but not out-group, members, based on group living as a fundamental survival strategy. The extension of trust, positive regard, cooperation, and empathy to in-group, but not out-group, members is an initial form of discrimination.”
So, the definition of your “group” matters, when it comes to who you trust.

Commercial Trust

Trust, or the lack of it, certainly matters when it comes to commerce. Knack and Keefer, for instance, showed that for a 10% rise in “trust”, as they define it, a country showed a near 1% increase in annual per capital growth, and that civic co-operation was also positively correlated with economic growth. There are multiple possible reasons for this, but if trust is generally reciprocated then the need for all sorts of costly protection mechanisms to defend against being cheated – everything from contracts to security guards and from burglar alarms to prenups – go away.

When Buchan and colleagues looked at this issue they also found that the degree of trust people exhibited between each other increased with the amount of personal communication between them, no matter how irrelevant. What it seems is that simply getting to know someone is sufficient to promote trust and, with it, reciprocity: we find it harder to cheat people we have a personal relationship with.

Civic Engagement, Again

This is why levels of civic engagement seem to be predictive of general trust in a society, and are linked to economic success: trust is greatest between people who are most similar and weakest between people who are most different. A society that engages within itself with social associations and civic duties is more likely to have more similar members than a society that doesn’t.

Putnam’s research, however, has shown that the levels of civic engagement in America have fallen dramatically in the latter part of the twentieth century. The reasons for this are unclear – greater female participation in the workforce, greater social mobility, fewer marriages and too much time in solitary leisure, watching television have all been suggested. The result, though, is likely to be very clear: a transformation in the way that we behave and do business.

Self-Interest is Best

So, perhaps Adam Smith and Alexis de Tocqueville were correct: self-interest, properly done, promotes moral sympathy, a regard for others and an instinctive understanding that what is good for others is also good for ourselves. In this sense it’s disquieting that de Tocqueville’s test-bed America, the home of self-interested democracy, is increasingly less trusting and its people increasingly less involved in civic, social behaviour. This, more than anything else, would predict slower growth in the years ahead, regardless of global economic trends and technology driven productivity gains. Distrust creates friction and friction increases costs, although lawyers will doubtless be very happy.

In fact, without some level of trust, commerce is fundamentally impossible. The thirteenth century Chinese government eventually found it impossible not to yield to the temptation to print more money, leaving it unbacked by the silver and bronze it was supposed to represent. Eventually the Chinese people decided the paper wasn’t worth the money that was printed on it and summarily devalued, resulting in rampant inflation and an eventual reversion to the more bulky, less flexible – and therefore less commerce friendly – coinage.

It’s a lesson many leaders have learned since, it’s one we must hope ours don’t have to relearn. In the meantime sponsoring policies to promote civic engagement would be a good start in rebuilding our mildly broken economies.


Related articles: Adam Smith's Monkey Business, Trust is in the Eye of the Beholder, Is Self-Interest Self Fulfilling

Related books:

The Travels of Marco Polo (Wordsworth Classics of World Literature) (Wadsworth Classics of World Literature) Democracy in America (Penguin Classics)Bowling Alone: The Collapse and Revival of American CommunityTrust: Self-Interest and the Common Good

2 comments:

Anonymous said...

"This, more than anything else, would predict slower growth in the years ahead, regardless of global economic trends and technology driven productivity gains."

Now we just need a chartable metric...

Anonymous said...

My mother bowled. She had practically no involvement in my schooling. Nor did any parents of my friends have much involvement in their schooling. I had close involvement in my children's education, and my 'bowling' hours were spent with their schooling, extra-curricular and athletic activities. As a consequence, the parent group in their high school years was more like a cousins club. I knew the faculties of their schools on a first name basis. Putnam taps into the endless 'woe is us' market, but he misses. Interestingly, several grandfathers of my children's schoolmates would observe that their fathers, at the same age, would be playing golf, but here they were watching their grandchildren play sports. Thus, as Barron's has reported, rounds of golf have declined in the last two decades. NOT because we as a society are losing trust or community activities, but because we have better ways of expressing them than bowling.