From Governments to Business, Trust is Key to Success

Summary of working paper 5864

...firms built upon a broader sense of trust perform better than firms where trust is focused within the family

"Trust" -- the ability of people to cooperate with one another even if they're strangers -- is a measurable societal trait that can be linked to everything from the efficiency of the judiciary to the performance of large corporations; it can even affect the infant mortality rate, according to an NBER study by Rafael La Porta, Florencio Lopez-de-Silanes, Andrei Shleifer, and Robert Vishny. In Trust in Large Organizations (NBER Working Paper No. 5864), the authors find that "the effects of trust on performance are both statistically significant and quantitatively large."

The higher the level of trust, the authors conclude, the better a society functions in a number of areas. They find that increasing levels of trust are correlated with less corruption, better bureaucracies, and greater tax compliance. They also note that trust has a relatively small but significant effect on the quality and adequacy of the infrastructure, a significant effect on infant mortality, and a large effect on measures of educational achievement. Countries with the highest level of trust, it turns out, are in Scandinavia. Many of the "lowest trust countries" are in Latin America.

In contrast to the benefits of trust in strangers, strong trust in the family is correlated with poor societal performance. The authors note, for example, that firms built upon a broader sense of trust perform better than firms where trust is focused within the family. They conclude that "strong family ties are bad for the development of large firms."

A possible factor responsible for low trust is the dominance in a country of hierarchical religions, which the study defines as Catholic, Moslem, or Orthodox. The authors cite previous research arguing that "the Catholic church, by imposing a hierarchical structure of the society, often in symbiosis with the state, has discouraged the formation of trust." "Holding per capita income constant," the authors continue, "countries with more dominant hierarchical religions have less efficient judiciary, greater corruption, lower quality of the bureaucracy, higher tax evasion, lower participation in civic activities and professional associations, less important large firms, inferior infrastructure, and higher inflation."

The authors take their measure of trust from the World Values Survey, which in the early 1980s, and again in the early 1990s, asked a selected group of people in 40 countries questions such as "Generally speaking, would you say that most people can be trusted or that you can't be too careful in dealing with people?" It also asks respondents if they trust their families.