Trust is essential for success

By Tom O'Neill

In his 1995 book "Trust: The Social Virtues and the Creation of Prosperity," economist Francis Fukuyama argues that “social capital,” the ability of partners in an economic transaction to trust each other, is the overriding element in the prosperity of civilizations.  Perhaps part of West Virginia’s economic problems stem from the fact that we occasionally resemble some of the planet’s low trust cultures; one of the objectives of the West Virginia Republican Party should be to demand integrity and transparency in state government as a key to attracting outside investment and reducing transactional costs for participants in the state’s economy.

The absence of trust between partners in an economic transaction raises the costs of doing business.  For example, If I hire a contractor to perform work on my home or business, and we rely on a good-faith handshake to seal the deal, what happens if one of us decides to cheat the other?  The cheated party suffers a direct economic loss, as well as whatever indirect losses will come from trying to recover what is rightfully his.  The cheat may temporarily come out ahead, but could later be faced with criminal fines, civil damage awards, and the possibility of paying the cheated party’s attorney fees. These costs of dishonesty are easy to understand, but are not the end of the story.

What happens when it comes time for the next transaction?  If he has learned his lesson, the cheated party will undertake considerable expense to try and limit his risk of being cheated again; he will require a detailed written agreement, a performance bond, and regular checks on progress.  The cheat may spend time and expense limiting his liability; purchasing insurance, erecting dummy companies, making carefully considered political donations, paying attorneys, and taking other steps to evade responsibility.  All of these steps, by both the cheat and the cheated, are costs which are not directly applied to the economic transaction itself.  Within a moderate or large economy, and on the margins, these additional costs result in a great deal of economic activity that simply ends up not taking place.

Fukuyama uses the example of police showing up at a home where the father was guilty of a serious crime.  Would a family member hide the wanted man, or turn him over to the police?  He noted that individuals in “low-trust” societies would be more likely to hide their family member, even if guilty, reasoning that the duty to protect a family member was more important than the duty to uphold the law.  Conversely, in “high-trust”, prosperous cultures, upholding the demands of justice and the law would ordinarily be seen as the greater duty, and the family member would be surrendered.

Thinking as an employer, in the midst of which culture would you rather allocate precious financial and human capital: a culture where employees must be constantly monitored to protect against theft or lawsuits and to ensure productivity, or one where employees can be trusted with less stringent oversight and greater responsibility over the manufacturing process?  The answer is clear.  When partners in an economy can deal with one another in good faith and in a relationship of trust, everyone can win more than if we have to keep one eye on each other.

What does this mean for us, as a state Republican Party?  Fukuyama notes that one of the characteristics of healthy “high-trust” societies is a large occurrence of participation in voluntary organizations, such as fraternals, Rotary, and the Boy Scouts.  Our party must return to its place as watchdog of public corruption, and our people must be models of integrity.  We should stand for traditional values of honesty and civic responsibility, and that includes holding our own people responsible for acting contrary to the public interest.  Further, participation in these good groups should become a part of our identity. 

As our party reevaluates itself and plans for the future, debate may include whether to address “social issues” or “economic issues” primarily.  A focus on social issues vs. economic issues, seen in this light, is a false choice.  If we, through example and practice, can grow the level of trust in our environment we will enjoy a more virtuous public square and a greater degree of economic prosperity.

Tom O'Neill is a Morgantown attorney and a Vice Chairman of the West Virginia Republican Party.