4th International Trade Show Addis Ababa Ethiopia

Trust as an Economic Force

By Abel Merawi

Trust-EconomyJune 8, 2020 (Ezega.com) -- Most economic theories begin with the assumption that personal and selfish interests are the primary driving forces of the economy. While there is some truth in this hypothesis, it practically fails since it leaves out a major economic force – trust. As our economic life is the reflection of our social life, assuming we are only interested in gratifying our self-interest cannot explain many areas of our lives. It doesn’t explain why we help strangers or why we even support our family. Such social conduct could be explained when we include trust and other social virtues in the calculation. In the following parts, we will explore how trust is necessary for economic prosperity. Accordingly, the role of trust is seen in the relationship between producer and customer; and between employer and employee.

In the book ‘Freakonomics’, Steven D. Levitt and Stephen J. Dubner discuss how the moral responsibility of parents is threatened when we try to place a price tag on it. A study conducted on ten day-care centers in Haifa, Israel showed that on average there are eight late pickups by parents. Then, a fine was enacted on late parents to pay $3 per child, amounting to $380 per month. But after this, the number of late pickups more than doubled. This study showed that parents pick up their children on time from parental duty rather than fear of punishment. In other words, being a good parent is more important for parents. Thus, the payment made parents believe that they are paying for a service.

We started with an example of parenting because every other civil society including businesses is built on it. Francis Fukuyama, in his book ‘Trust: The Social Virtues and the Creation of Prosperity’ represent the family as, “the primary instrument by which people are socialized into their culture and given the skills that allow them to live in broader society and through which the values and knowledge of that society are transmitted across the generations.” Depending on the level of trust within the family, a person grows up to trust or distrust other forms of association. An economic transaction is no different, and a nation’s economic prosperity depends on the level of trust.

The economist and Nobel laureate Kenneth Arrow argues that trust and values such as loyalty or truthfulness are essential for social systems. He says they have practical economic values but they are not commodities to be bought. Truly, trust is something we earn and develop through our interactions.

The level of trust between producers or suppliers and customers highly depends on the culture of the country. In high trust societies such as Japan, the customer trusts the producer and even the government. This is because the culture of Japan coupled with Confucianism has developed a family-like relationship in the country. Because of this, the customer knows that the producer cares about the needs of the customer, and in turn, the customer remains loyal to the producers rather than compare price with competitors.

From personal experience, I can say that there is a low level of trust in Ethiopia. We can cite numerous examples to illustrate this point, from initial negotiations to faithfully executing contracts to timely delivery of goods and services. The producer in our country constantly increases price and the customer is forced to search for a better price than remain loyal. For instance, if a textile company in Ethiopia sets a higher price on clothes, people prefer buying imported clothes or dealing with street vendors. This has crippled the country’s economy since local producers cannot have permanent customers. In other cases, customers are only loyal to businesses on an ethnic basis. This means the success of a business depends not on quality but on the ethnic affiliation. This trend shows that Ethiopia is a low trust nation and it has a real economic impact.

The level of trust between employer and employee is also another determinant economic factor. Let us cite some real examples used by Francis Fukuyama to show a high level of trust. During the 1983-1984 recession, the steelmaking business called Nucor Corporation was heavily hit. But instead of firing employees, the company cut the salaries starting from the CEO to the low-level worker. Thus, the workers felt that everyone shared the burden and remained loyal to the company. Toyota Motor Company is another example of trusting its employees. The company has placed a cord at each of the thousands of employees’ stations that can stop the whole operation if they pull it. But they never do so because they are proud of a company that trusts them with such power. We find another example of high trust in the lifetime employment practice in Japan. Once hired, an employee has job security for life. The progress of the individual in a company depends on the development of the company, thus the employee works hard by considering the company as one’s own.   

When we compare the above examples with the experience of most companies, we find a stark difference. The trust between the employer and the employee entirely depends on formal contractual agreements. The company will not give anything more than what is put in the contract. On the other hand, the employee will not lift a finger to take more responsibility than the initial agreement demands. For this reason, the employer is considered by employees as an opponent and the company doesn’t trust its employees. Based on this, it is important to realize that trust cannot be attained through regulation but from spontaneous sociability manifested in reciprocal benevolence.

As Francis Fukuyama explains, “Spontaneous sociability, is the ability to come together and cohere in new groups, and to thrive in innovative organizational settings … to build wealth-creating economic organizations.” Trust should not be taken as blind loyalty. Building trust between producer and supplier or between employer and employee is necessary, but its foundation should be laid upon spontaneous sociability. If trust is taken as a blind loyalty to an ethnic group or such groups, it leads to division than unity. When a nation doesn’t operate in cooperation, the country’s economy will not progress.  

Though it is difficult to show the experience of various nations is a short article, the economic difference between high trust and low trust nations is a good indicator. Francis Fukuyama claims, “one of the most important lessons we can learn from an examination of economic life is that a nation’s well-being, as well as its ability to compete, is conditioned by a single, pervasive cultural characteristic: the level of trust inherent in the society.” The history of Ethiopia is, for the most part, a record of trust and plenty of social virtues. Thus, we should focus on nurturing this trust for both economic development and social harmony.

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Abel Merawi is Addis Ababa-based contributor for Ezega.com. He can be reached through this form.

Other articles by Abel Merawi:

Our Online World

Fame Mistaken for Expertise

The Heavy Burden of Healthcare Workers

A Time to Reflect

The Plague by Albert Camus: Fiction Becomes Reality!

History of Pandemics in Ethiopia

Human Struggle Against Pandemics: Historical Perspective

Crisis Profiteers

You Can Make a Difference

Rule of Law for a Free Society

Adwa

The Origins of Law

Determinants of Market Value: Part II

Determinants of Market Value: Part I

Your life Matters Too

Manifestations of Artistic Expression

Achievements vs Natural Accidents

The Grip of Sacrifice

Injustice is Never Justifiable

Education Demands of the Future

Job Security, Life and the Unpredictable Future

The Shift From Racism to Culturism

Sacrificing Meaning for Power?

Culture and Market Forces

Intersubjective Reality

Seeking Cosmic Justice

National Myths: Makers and Destroyers of Nations

Are We Truly Free?

Maturity: The Prerequisite to Freedom and Democracy

Loyalty to Truth, Not to Group

The Value of Work

The Flaws with Ethiopian Political System

Intellectuals and the People

Where Are Our Pathfinders?

The Allegory of the Cave and Its Lessons to Leaders

The Truth Behind Humanity

The Seven Virtues

The Seven Deadly Sins

What is the right thing to do?

Building National Identity

Adey Abeba and the Spirit of Change

Mob Violence

Living the Truth as a Human Being

Hubris - The Tragedy of Not Learning from Others

The Era of Group Mentality: Us vs Them

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