Trust me

What makes some nations rich and others poor? Natural resources, the Protestant Work Ethic, the Atheist Sloth Ethic and the Spirit of Collectivism, proximity to the equator? How about trust? Arnold Kling points to this Newsweek survey, which notes that trust … varies widely between societies and is strongly correlated with economic growth, says Paul Zak, an economist at Claremont Graduate University. Trust encourages savings and investment, and reduces the “transaction cost” of investigating the people you do business with. But, compared with well-studied behaviors such as aggression, relatively little is known about the biological basis for trust. Think of all the trust involved in buying a house, using a credit card or renting a car. Will we find the answer to the trust puzzle in our DNA or in our economic systems? Here’s Kling: [T]he very fact that it there are differences across societies implies that individual hormone levels are not the answer. In my view, institutional and cultural differences are likely to provide better explanations. I mean, if you want to try to do research showing that South Koreans have more trust than North Koreans, go ahead. But I think you are more likely to find that the difference between the two societies is that one uses a market system and one uses a Communist system. What happens when you take a North Korean and put him in South Korea? Chances are, he’ll become more trusting. Markets will always have scoundrels, but since reputation is so important, by and large, they punish bad behavior, reward good, and foster trust. Check out Jeremy Shearmur and Dan Klein in “Good Conduct in a Great Society: Adam Smith and the Role of Reputation.”