Trust: Human Nature and the Reconstitution of Social Order is a substantially different kind of book on trust than those I’ve read before. (See my reviews for Trust & Betrayal in the Workplace, Building Trust: In Business, Politics, Relationships and Life, and Trust Me: Four Steps to Authenticity and Charisma.) The primary difference is that those books focused on individual and small group trust. It’s on this basis that I wrote Trust => Vulnerability => Intimacy and Building Trust: Make, Renegotiate, Meet. It’s this small group trust that I had focused on until I stumbled on a need to validate a belief – the belief that trust lubricates an economy. So I back-tracked through Building Trust: In Business, Politics, Relationships and Life to find Francis Fukuyama’s work in Trust: Human Nature and the Reconstitution of Social Order referenced for discussing the impact of trust on economies.
The central thrust of the book is on economies and the socioeconomic impact of trust. It’s fascinating because it’s not just one single kind of trust that matters. As it turns out, trust does lubricate the economy, but only when trust is placed in the right places and when the trust of one group is in the right relationship with trust of other groups.
My first economy course was in high school. It was one semester and we created a business as a part of the course. I was the treasurer of the business – for what reason I don’t remember. In the middle of the course, our teacher, Mr. Ryan, had a heart attack and was off work for the rest of the semester. (I have no idea why I still remember his name.) We covered the rest of the course material, but it wasn’t as rich and exciting as when Mr. Ryan taught it. The impact was felt, not just in the classroom but in the business as well. The business didn’t end up selling enough of the T-Shirts that we created to make money. It taught me a very important lesson about sales and how it’s critical to success. At the same time, it made me feel as if economies were somehow disconnected from individual businesses.
I’ve tended, over the years, to think the gap between entrepreneurship and economies was as far apart as Pluto is from the sun. I never thought what we were learning in economics had anything to do with the success of our little business. However, Trust makes me believe that there is much less distance between the economy and entrepreneurship than I initially suspected. It turns out that there are a set of large factors that create the conditions for individual businesses to flourish or fail, and these conditions in aggregate tend to drive the economy up – or down.
While not discounting that businesses can flourish or fail because of market factors unrelated to the economic factors, businesses are spurred on by favorable availability of talent and financial resources. Businesses grow more readily when provided with skilled workforces with high degrees of trust in large markets. If the government or unions make it hard to have beneficial labor relations or restricts access to funding, it’s harder for the organization to succeed.
These larger factors have an impact in each business, and in aggregate will be the final straw to cause the business to fail, driving failure rates up overall. (See The Black Swan for how individual differences factor out when you aggregate a large number of items.) These larger factors are the bigger system in which the individual businesses operate and, as Thinking in Systems and Diffusion of Innovations indicate, it’s difficult to predict the outcome of a sufficiently complex system – particularly human ones.
Economics is not the study of money – that is, finance. Economics is how people react to money. People are bounded-rational beings who create massively complex systems both internal to themselves and in their relations with others. All of this leads to situations where it’s effectively impossible to evaluate all the possible outcomes or to see all of the components of the operating system. In short, it’s a wicked problem. (See Dialogue Mapping and The Heretic’s Guide to Best Practices for more on what a wicked problem is.)
It is little wonder then that Trust is filled with examples where governments misread the cues and intervened in ways which were detrimental in the long run, despite well-meaning policies that may have been effective in the short term. Some of those relate directly to the development and maintenance of family values.
No one would have questioned that owning a family home was beneficial to the economy. It was an economic fact that home ownership was positively correlated with economic stability. When a society tended to own its own homes, it also tended to be more stable. However, the mistake was made to think that home ownership caused economic stability. And so, we began aggressively encouraging home ownership – even when it wasn’t financially appropriate – and the financial crisis of the late 2000s emerged as the result. (See my review of The Halo Effect for more on the community reinvestment act and the aggressive adherence that created the conditions for the financial meltdown.)
So too we associate “basic” family values with greater prosperity and social stability. The breakdown of the family has concerned scholars and politicians for a long time. In the United States, the rise of no-fault divorce laws released the pressure that had existed, and caused many marriages to end in divorce (see Divorce: Causes and Consequences for more). The result was that, in the 1990s, single-parent homes of white families had risen to 30 percent. Tragically in the 1960s the number of single-parent families in inner city, predominantly black, neighborhoods was over 70 percent. (See Our Kids for more socioeconomic evidence about the challenges of single-parent homes.)
Why Crime Falls
While there are multiple theories proposed for the fall in crime in inner city neighborhoods, we don’t know the precise cause. Malcolm Gladwell reaches the conclusion in The Tipping Point that the problem was caused by “broken windows” – that is, small acts of civil disobedience left unresolved created larger acts of civil disobedience; thus, by resolving the small acts you resolve the larger ones. Simple things like fixing broken windows and painting over graffiti matter a great deal. There’s a great deal of support for this point of view.
The alternative point of view put forward in Freakonomics is that the rise in crime was due to unwanted pregnancies. The Roe vs. Wade decision legalizing abortions reduced the number of unwanted pregnancies, thus the number of children growing up unwanted – and therefore socially disobedient. Malcom Gladwell addressed his view about Freakonomics, reaching a different view on his blog.
It turns out that, when it comes to determining causes when we’re operating in a wicked problem, complex system environment isn’t easy. While few doubt that the assault on family values in the new century is concerning, the benefits of family values can impede some economic growth by reducing societal trust and businesses employing professional, rather than familial, managers. (For the impact of technology on sociability and family values see Alone Together.)
Margin to Give Back
The Dalai Lama and Daniel Goleman (who wrote Emotional Intelligence) sat down in a discussion, which led to the book titled Destructive Emotions. In the discussion, they talk about whether humans are fundamentally compassionate and only pushed to selfishness out of need, or whether we are rational egoists who realize that looking out for others is good for our own survival. Whether you subscribe to the first or second view, there’s little doubt that having a margin between what one has and what one needs leads people to be more willing and, particularly, able to help others.
In some cases, like China, where farmers and families lives on basic subsistence plots, it’s hard to be sociable because you have no spare capacity for time to spend with others; nor do you have resources that you can lend to your community for the development of projects or investment in social capital. It’s little wonder that, under these conditions, it’s difficult to give back to the community.
However, in many parts of the world, the problem isn’t basic subsistence. The problem is that our desires outstrip our capacity to produce, thereby reducing the apparent excess that many of us – particularly in the United States – live in.
The “Have tos”
If you head into a low-income neighborhood in the United States, you’re likely to find that the people walking around all have smart phones. These phones are more than just voice communication devices. They’re the kind of mobile communication that costs $50/month instead of $20/month. Even though many of the households that you walk by are struggling financially, they “have to” have a smart phone. As a smart phone owner myself, it’s not that I blame them. However, the question becomes, if your budget is that tight, is the $50/month smart phone the right answer? For many, it seems the answer is yes.
As you move into more affluent neighborhoods, the object of desire isn’t a smart phone, it might be a “new” car. That is, it’s one that’s within two or perhaps three model years from new. This creates a huge cost burden on the family on the order of a few thousand dollars per year. But it’s a “have to” for many suburban families – particularly those who have a need to be seen as successful. (See The Anatomy of Peace for more on “must-be-seen-as”.) I did know someone who had traded in more than one car a year every year at great personal expense – which he acknowledged, but it knew it fed his need to have a new car.
When you’re developing the “must haves” or the “have tos”, there’s a demand on income that people often find hard to maintain. Too many things end up in this list, and consumer debt slowly creeps in. This reduces the margin between what is made and what is needed – sometimes to the point of a reversal. When you “have to” spend more than you earn, you’ll never be able to develop the social capital necessary to break out of independence or tight family dependence, and into helping others and building broader social capital.
Nepotism and Professional Managers
For most Americans, the idea of nepotism – favoring your relatives – isn’t seen in a positive light. In America, we expect a meritocracy, where people are promoted and advanced based on the merits of their skills. In China and other family-first countries, nepotism is the expected practice. Trust within your family unit is so high that trust in outsiders – even well-performing, trustworthy outsiders – seems smaller in comparison.
The result of this is that organizational growth – in aggregate – is slowed. Because you can’t grow beyond the people in your family, the organization can’t grow. Admittedly, the Chinese families tend to be larger, but the family-first approach still becomes limiting at some point. Some organizations may never need to grow beyond the bounds of a single family, but others may be unnecessarily constrained by the need to engage only family in the management.
In countries where their trust of family isn’t quite so differentiated between trust for other members of society, larger organizations grow. It’s not that familial trust is bad – it’s not. It seems to be when familial trust exists but a trust in community doesn’t exist. The problem is the lack of spontaneous sociability.
America has always been crisscrossed by a network of social groups. Our protestant Christian basis has created civic groups that have brought together people for recreation as well as social causes. These groups have done well to establish a fabric of civic community that has held together America’s trust. However, this fabric has been unraveling for a long time, as Robert Putnam clearly points out in his book Bowling Alone. We’ve not joining these civic community groups at the rates we once were.
The major technological advances in the second half of the 20th century served to help to isolate us and remove the need for us to actively seek out the other human contact that we so desperately need. We consume hours of television instead of playing cards with our friends. We surf the internet instead of going surfing with buddies. We’ve walled ourselves off from others in our own little fortresses. (See Alone Together for more on how technology is making us less connected.) Spontaneous sociability creates trust amongst the members. This trust radiates throughout the economy along lines of associations. (See my post The Deep Water of Affinity Groups for more.)
The need for sociability – for connectedness – is wired into our beings. It operates at different levels, from the intimacy of marriage to the familiarity with others in our city. We’re wired to need connections.
Created for Connections
We are social creatures. Robin Dunbar has a formula to calculate just how social we are. (See High Orbit – Respecting Grieving for more.) Emotional Intelligence quoted a 1987 Science article as saying that isolation “is as significant to mortality rates as smoking, high blood pressure, high cholesterol, obesity, and lack of physical exercise.” Harriet Lerner spent a whole book on The Dance of Connection and its impacts on us. I spent a great deal of time explaining why I believe intimacy – an intimate connection with another human being – is the most important thing for us in my blog post Trust => Vulnerability => Intimacy.
Even though we are created with an innate need to connect with other humans in real and intimate ways, we still must find a way to support ourselves. In the modern world, supporting ourselves isn’t about running a self-sufficient farm. In the modern world, we’re necessarily interdependent upon one another, and that means most of us have “jobs.”
Organization Size and Jobs
In Japan, there’s a prestige with working for a large firm. It’s an honor. In the United States, entrepreneurship and small businesses have had their own respect. While there are those who take pride in working for a large firm, the layoffs and restructurings of the past few decades have taken their toll on loyalty at the country’s largest organizations.
In the United States, 74% of organizations have less than 10 employees (U.S. Bureau of Labor Statistics, 2005). However, when considered by the number of employees, organizations with less than 100 employees represent only 38% of the workforce. Organizations with 100 to 1,000 employees represent 25% of the workforce, and organizations with greater than 1,000 employees employ 37% of the overall work force. These statistics surprise most folks because they’re unaware of the sheer number of small businesses. Similarly, it’s odd to realize how there’s no one particularly dominant size of organization in the US.
While Japan’s workers have maintained relative trust in their employers, US workers are largely skeptical of the organization’s commitment to its workers. This plays out into a set of generational differences, as Gen Xers and Millennials share a strong skepticism for organized institutions. (See America’s Generations for more about generational differences.)
Organizations are a network of trust between the members of the organization and the entity which is the organization. Fernando Flores wrote a book called Understanding Computers and Cognition, in which he described an organization as a network of commitments. This is ultimately why I picked up Building Trust – which led me back to this book, Trust.
Network of Commitments
The idea that an organization is nothing more than a network of commitments is a bit odd on the surface. Surely, there’s something more to an organization than just the mutual commitments of the employees. There’s got to be more to the organization than the relationships between customers and suppliers. However, the fundamental function of an organization is to allow people to work together. Organizations aren’t created for their own designs. Organizations were born out of the necessity to organize our work – thus the word “organization”.
Whenever people work together there is a commitment. It might be formalized into a contract or simply understood with a handshake, but the commitment is there. The commitment may be codified into a contract because of a lack of trust. Contracts take time and create a sort of friction to the execution of business. Do we need contracts to clarify the mutual benefits of the relationship and the commitments that are being made? Certainly. However, trust reduces the effort and scope of the process. I’ve executed large deals on a one-page agreement indicating what both parties should do. Even today I’m doing what is an email-based agreement for a large partnership with someone I’ve known and respected for years.
Conversely, I’ve had clients argue on contractual points for sales that were less than $1,000. The lack of trust that they had with me – or perhaps people in general – created friction between what they needed and what they were able to get.
The reason for a lack of trust is because trust was and will be violated. It’s a necessary fact that we’ll have some number of folks who break our trust. They may miss a deadline they’ve committed to. They might completely forget. They might even maliciously try to cause us to break our commitments to others out of spite. Our trust is a belief that the other person will do what they say they’ll do. None of us meet our commitments all the time, and therefore with trust we must accept the reality of betrayal.
When trust is working properly, we extract more value from trusting others than from the occasional betrayal.
Rights and Obligations
When founded, the United States was a grand experiment. It was founded with the idea that man (including women) was created with “certain inalienable rights.” The first ten amendments to our constitution are called the Bill of Rights. America was founded on the bedrock of rights. This deeply contradicted the prevailing thinking of the time, which said that man had moral obligations to his fellow man and to his society.
Where Americans have been washed in the language of things that are owed to us – they are “our” rights – our brethren in other parts of the world were washed in their obligation towards their fellow man. This fundamental change has had the kind of unexpected impacts you would expect from a wicked problem.
The lack of a single, state-sponsored – and therefore expected – church led to greater church attendance and more commitment to those churches. Those churches in turn gave to charitable causes to greater degrees than the state-sanctioned churches.
It has infused in Americans a sense of rugged individualism, and at the same time seems to have driven the spontaneous sociability that created the clubs and groups that our parents and grandparents invested their lives into. At one level, these rights say that you have the choice to do things – and on another, it makes you more aware that you need other people. There’s no resentment that you must rely on others, and there arises an awareness that you need others.
It seems like this rights vs. obligations social norm has woven itself into the culture of teenage rebellion. The kind of rebellion present in America would be unthinkable in China. It’s not just mainstream American culture that struggles with teenage rebellion. The Amish have a practice of allowing (or accepting) rebellion in their children, called rumspringa. Even as culturally-isolated as the Amish communities are, they’ve inherited a set of beliefs about their rights. The good news is that it turns out that roughly 90% of Amish children stay in their communities and join their churches after rumspringa.
Values in Conflict
Trust undergirds many of the values people might have. It undergirds loyalty and family. In some cultures, like China, the family value is paramount; while loyalty to the state is a value, it is held in a lower position than the family. In Japan, historically, loyalty to the emperor has been paramount, and even today, loyalty to one’s business can be more important than family – though family is still valued. Knowing that both cultures value family doesn’t tell you what a son might do if he knew his father had committed a crime.
What tells you how a son might behave is the relative weight of the differing values. In China, it would be relatively rare for a son to turn his father into authorities. In Japan, it’s a relative certainty that a son would turn his father into the authorities, because in Japan the commitment to the state is higher than the commitment to family.
I’ve been keenly aware of the impact of values in conflict. I’ve written about it in my reviews of The Normal Personality, The Advantage, Who Am I? and others, because I see it as the most pervasive reason why people become confused by someone else’s unexpected, but actually predictable, response.
Under and Over Bounded
The impact of trust on the economy is mitigated by the relative importance of values. Higher weight of family values drives more inward trust capable of springing up small organizations. Importance of larger state or society drives larger organizations. In Collaborative Intelligence, Richard Hackman wrote of the importance of teams and identified the work of Clayton Alderfer, who spoke of underbounded and overbounded social systems.
In underbounded social systems, people flow in and out constantly. This limited the ability for the group to form deep levels of trust. Conversely, overbounded systems have rigid membership and deep trust for the members of the group, but have trouble developing trust with outsiders. From an economic point of view, underbounded groups don’t increase trust to a level where transaction costs are reduced substantially. Overbounded groups are unable to grow past the level based on the members of the group.
Hackman argues for sufficient permeability and acceptance of outsiders without giving up the structure of the group and the culture that it develops.
In the market, a key challenge to get past is the credibility challenge. That is, how do you demonstrate that you’re credible enough to deliver the services that the prospect needs? This is done through credibility markers. For me, I have credibility markers of having spoken at international events to groups of more than 500 people. I’ve got author credit on 25 books and 14 years as a Microsoft MVP. I’ve got 11 years in business. These are markers that prospective clients use to assess whether they can trust my ability to solve problems for them.
I also hold numerous certifications from Novell, CompTIA, and Microsoft. While the certifications I have from Novell hold very little value in the market, my CompTIA and Microsoft certifications are markers that prospects can use to assess whether I can help them. The credibility that I develop in the mind of the prospect is a result of their trust in the credibility markers through the brands that issued them. (See The Deep Water of Affinity Groups for more on how brands impact perception.)
The technology industry uses vendor and association certifications to create trust in individual processionals. The objective is to help prospective employers trust that the person that is applying is able to adequately perform the functions that are required.
Professions were created through a set of membership criteria that are designed to create this trust as well. Most people would trust a certified public accountant or an attorney based primarily on the credentials that they present through their membership in their groups.
Economic Impact of Education
The professions are built on education and apprenticeship. Many of the higher educational institutions in America (and other countries) were started by the Jesuits. They recognized the need to educate the world to improve it – economically and socially. (See Heroic Leadership for more.)
Education is another important factor in the overall economic capacity of a nation or group. It represents the knowledge resources that a person can acquire to improve the efficiency of their efforts and to improve their capacity to leverage other resources.
A focus on restricting higher education or a focus of higher education on non-scientifically-based curriculum has been shown to depress economies. Societies where there is a fear that there might be a collapse – such as the concern of the communist party in China – causes parents to send their children to the best schools that they can afford to mitigate the economic risk of their way of life disappearing.
Trust for the Community
Spontaneous sociability isn’t sufficient for the creation of economic advantage or trust. In places where there aren’t morally-based groups to engage in, there develops an underworld of gangs which provide the social connections that young people long for but can’t find in other ways. The development of these gangs, who are often but not exclusively lawless, generally detracts from the economy. The groups meet the criteria of being spontaneously social, at least to get in. They don’t, however, have the continuity with the prevailing society values and laws, and their disruptive influence is often felt in very negative ways. Sociability, then, isn’t exclusively what is necessary to drive economies forward. It also requires a shared moral code, and trust that the members of the group will adhere to that code.
One of the quirks within our brain and the way that we process information is that we expect the size of the solution to match the size of the problem, and for some communities, gangs are very large problems. However, in many ways, the humblest solution of creating a safe space for people to go to – like a community center – can have a profound impact on the problem, if not completely resolving it. In the case of gangs, they’re able to operate by “refamilying” the abandoned teen. By creating an alternative socialization like a family, it’s possible to rob the gang of the new members that it needs. People don’t generally join gangs when they’re deeply connected to other groups from which they can get their needs – particularly their need for connection and inclusion – met.
Us vs. Them
A quirk of looking at so many different economies and the different ways that people trust naturally, through social convention, and through government intervention, is that in the end you realize that we’re all the same. Whatever differences there are between people melt away when you realize that we’re all hoping to trust to take advantage of the benefits while reluctantly accepting betrayal as a natural consequence. The more we can take risks and accept betrayal as natural and ultimately not going to kill us, the more we can take advantage of the power of Trust.