The Fabric of Economic Trust
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Economy is called the dismal science because
it pretends to be one, disguising its uncertainties and shifting fashions
with mathematical formulae. Economy describes the aggregate behaviour of
humans and, in this restricted sense, it is a branch of psychology.
People operate within a marketplace and attach
values to their goods and services and to their inputs (work, capital,
natural endowments) through the price mechanism. All this elaborate construct,
however, depends greatly on trust. If people were not to trust each other
and / or the economic framework (within which they interact) - economic
activities would have gradually ground to a halt. A clear inverse relationship
exists between the general trust level and the level of economic activity.
There are four major types of trust :
Trust related to Intent - the market players assume that
other players are (generally) rational, that they have intentions, that
these intentions conform with the maximization of benefits and that people
are likely to act on their intentions.
Trust related to Liquidity - the market players assume that
other players possess or have access, or will possess, or will have access
to the liquid means needed in order to materialize their intentions and
that - barring force majeure - this liquidity is the driving force behind
the formation of these intentions. People in possession of liquidity wish
to maximize the returns on their money and are driven to economically transact.
Trust related to knowledge and ability - the market players
assume that other players possess or have access to, or will possess, or
will have access to the know-how, technology and intellectual property
and wherewithal necessary to materialize their intention (and, by implication,
the transactions that they enter into). Another assumption is that all
the players are "enabled" : physically, mentally, legally and financially
available and capable to perform their parts as agreed between the players
in each and every particular transaction. A hidden assumption is that the
players evaluate themselves properly : that they know their strengths and
weaknesses, that they have a balanced picture of themselves and realistic
set of expectations, self esteem and self confidence to support that worldview
(including a matching track record). Some allowance is made for "game theory"
tactics : exaggeration, disinformation, even outright deception - but this
allowance should not overshadow the merits of the transaction and its inherent
Trust related to the Economic horizon and context - the market
players assume that the market will continue to exist as an inert system,
unhindered by external factors (governments, geopolitics, global crises,
changes in accounting policies, hyperinflation, new taxation - anything
that could deflect the trajectory of the market). They, therefore, have
an "investment or economic horizon" to look forward to and upon which they
can base their decisions. They also have cultural, legal, technological
and political contexts within which to operate. The underlying assumptions
of stability are very much akin to the idealized models that scientists
study in the accurate sciences (indeed, in economy as well).
When one or more of these basic building blocks
of trust is fractured that the whole edifice of the market crumbles. Fragmentation
ensues, more social and psychological than economic in nature. This is
very typical of poor countries with great social and economic polarizations.
It is also very typical of countries "in transition" (a polite way to describe
a state of total shock and confusion). People adopt several reaction patterns
to the breakdown in trust :
Avoidance and isolation - they avoid contact with other people
and adopt reclusive behaviour. The number of voluntary interactions decreases
Corruption - People prefer shortcuts to economic benefits
because of the collapse of the horizon trust (=they see no long term future
and even doubt the very continued existence of the system).
Crime - Criminal activity increases
Fantastic and Grandiose delusions to compensate for a growing
sense of uncertainty and fear and for a complex of inferiority. This nagging
feeling of inferiority is the result of the internalization of the image
of the people in their own eyes and in the eyes of others. This is a self-reinforcing
mechanism (vicious circle). The results are under-confidence and a handicapped
sense of self esteem. The latter undulates and fluctuates from overvaluation
of one's self and others to devaluation of both.
Hypermobility - People are not loyal to the economic cells
within which they function. They switch a lot of jobs, for instance, or
ignore contracts that they made. The concepts of exclusivity, the sanctity
of promises, loyalty, future, a career path - all get eroded. As a result,
there is no investment in the future (in the acquisition of skills or in
long term investments, to give but two examples).
Cognitive Dissonance - The collapse of the social and economic
systems adversely affects the individual. One of the classic defence mechanisms
is the cognitive dissonance. The person involved tells himself that he
really chose and wanted his way of life, his decrepit environment, his
low standard of living, etc. ("We are poor because we chose not to be like
the inhuman West").
The Pathological Envy - The Cognitive Dissonance is often
coupled with a pathological envy (as opposed to benign jealousy). This
is a destructive type of envy which seeks to deprive others of their successes
and possessions. It is very typical of societies with a grossly unequal
distribution of wealth.
The Mentality (or the Historical) Defences - these are defence
mechanisms which make use of an imagined mentality problem ("we are like
that, we have been like this for ages now, nothing to do, we are deformed")
- or build upon some historical pattern, or invented pattern ("we have
been enslaved and submissive for five centuries - what can you expect").
The Passive-Aggressive reaction : occurs mainly when the
market players have no access to more legitimate and aggressive venues
of reacting to their predicament or when they are predisposed to suppressing
of aggression (or when they elect to not express it). The passive-aggressive
reactions are "sabotage"-type reactions : slowing down of the work, "working
by the book", absenteeism, stealing from the workplace, fostering and maintaining
bureaucratic procedures and so on.
The inability to postpone satisfaction - The players regress
to a child-like state, demanding immediate satisfaction, unable to postpone
it and getting frustrated, aggressive and deceiving if they are required
to do so by circumstances. They engage in short term activities, some criminal,
some dubious, some legitimate : trading and speculation, gambling, short
The results are, usually, catastrophic :
A reduction in economic activity, in the number
of interactions and in the field of economic potentials (the product of
all possible economic transactions).
An erosion of the human capital, its skills
Brain drain - skilled people desert, en masse,
the fragmented economic system and move to more sustainable ones.
Resort to illegal and to extra-legal activities
Social and economic polarizations. Interethnic
tensions and tensions between the very rich and the very poor tend to erupt
and to explode.