Trust: The Social Virtues and The Creation of Prosperity

Rating:
Summary: The book gives a rational and somewhat oriental approach.
Review: If you are a post-modern liberal-minded type, swear by the perfectibility of democratic capitalism and put your faith in the healing powers arational phenomena like culture and religion have on our over-busy life then you would like this book. Moreover, if you are a sociologist then you would appreciate the lucidity of thought and tenacity of argument that the author shows when he examines different societies. Even then if you are a leading American political scientist and a best-seller author then you must be Francis Fukuyama himself.

Francis Fukuyama's book comes as a sequel to his magnum opus 'The End of History and The Last Man' which made waves in academic circles. In this book he claimed that after the demise of communism, history had virtually come to a halt - income the free market concepts like de-regulation, liberalization and free competition and all others exeunt.

In his latest book, he adds another ingredient for the making of a successful society - social capital. The author gives the idea of trust. According to him trust is the expectation that arises within a community of regular, honest, and cooperative behaviour, based on commonly shared norms, on part of other members of that community.

He divides societies on the basis of the quantum of trust that exists therein. China, France, Korea and Italy are low-trust societies whereas Japan, Germany, America are high-trust.

He starts from social set-up and correlates it with the industrial structure a society may evolve for itself, and tells how the former determines the position of a country in the global diversion of labour. Though people may interact through contract lams but if they trust each other the cost may be effectively reduced. Similarly if an economic turmoil hits a country, a socially well knit society may cope with it more hard-nosily. Also a high-trust society is more capable to form large organizations. For instance, the Japanese keiretsu networks help each other out when in distress.

As such he does not make a case for 'cultural determinism' that certain societies are bound to succeed while others to fail and falter. In his own words "there is no necessary trade-off between community and efficiency but those who pay attention to community may indeed become the most efficient of all."

With minor exceptions the book makes an interesting reading, intelligent in content and thought-provocative, indeed a marvelous piece of value-added research.

Rating:
Summary: Thought-provoking
Review: In this challenging book, author Francis Fukuyama examines the role of "trust" in economics. He proposes that it is the social capital of a given country (or even area within a country) that defines how its economy functions. In a high-trust society, individuals have a propensity to join voluntary organizations, and as such there are likely to be many organizations (including business organizations), of all sizes. In a low-trust society, where individuals are only able to organize within their own clan or family, organizations are likely to be either small, or very large (and state-operated). Along the way, he examines countries around the globe, but focusing primarily on China and the Confusion countries, Italy, France and Korea (as low-trust societies), and Japan, Germany and the United States (as high-trust societies).

I found this book to be quite fascinating. I must admit that I am not an expert on economics, but I found the author's arguments quite convincing. His examination of various countries explained a lot of things that I have noticed before, but he succeeds in putting it all into a whole new paradigm. I highly enjoyed this though-provoking book, and recommend it to everyone!

Rating:
Summary: Trust!
Review: Summary:

The author claims in his chapter, Friction-Free Economies, that it is necessary to turn to a cultural characteristic like spontaneous sociability to explain the existence of large-scale corporations in an economy, or prosperity more generally. The question of spontaneous sociability is particularly important because we cannot take the older ethical habits for granted. A rich and complex civil society does not arise inevitably out of the logic of the advance of industrialization. On the contrary, Japan, Germany, and the United States became the world¡¯s leading industrial leaders in large part because they had healthy endowments of social capital and spontaneous sociability, and not vice versa. Also, the author emphasizes on the economic function of trust and spontaneous sociability. If we presume that if legal institutions exist, the presence of a high degree of trust as an additional condition of economic relations can increase economic efficiency by reducing what economists call transaction costs, incurred by activities like finding the appropriate buyer or seller, negotiating a contract, complying with government regulations and enforcing contracts.

In conclusion, traditional sociability can be said to be loyalty to older, long-established social groups. By contrast, spontaneous sociability is the ability to come together and cohere in new groups, and to thrive in innovative organizational settings. Spontaneous sociability is likely to be helpful from an economic standpoint only if it is used to build wealth-creating economic organization. Traditional sociability, on the other hand, can frequently be an obstacle to growth.

Critique 1:

In the article, the writer talks about the free rider problem. It is said that when a country which has communal solidarity, people will get resources without contributing to society as much as others. The solution, suggested by the writer, is to designate the work in unit base. And, the writer cited a successful example of Mao¡¯s policy, a famous Chinese leader, towards peasants. However, nowadays, it seems that it is more difficult to prevent such problems as the relationship between people become more and more indispensable. It is difficult to delimit the job by unit clearly as what was done in agricultural society in the past.

Moreover, there is no perfect government policy in the world as it is impossible to balance all the interests equally among people. For example, the free rider phenomenon is serious in some countries. In some cases in Hong Kong, the free riders are getting the government¡¯s subsidy without contributing to the society. Especially, during the economic depression, people are in hard time and the government tries to help them by providing subsidy to the public. However, in some cases, the subsidy fund for a family provided by the government is similar to the salary during an economic depression. Therefore, many people select not to work which can be said to be a kind of free rider. Even through it is known by the government, it is unpreventable. Therefore, nowadays, the free rider problem is not easy to combat with.

Critique 2:

In this article, author mentions about the economic function of trust and spontaneous sociability. It is right that a high degree of trust can increase economic efficiency and reduce transaction costs comparatively. But, in my point of view, it doesn¡¯t mean the companies can get great benefit and guarantee from the high degree of trust, their gains are very limited. In economic activities, we should take a minimal level of trust and honesty for every economic partner, even the companies which have good relation and cooperative experience with us. Business is business. When you choose high trust in appearance, actually, you are also taking high risk in disappearance stealthily. Because all the economic activities only focus on one goal-benefits.

As the author mentions, societies manifesting a high degree of communal solidarity and shared moral value should be more economically efficient than their more individualistic counterparts. This is due to the ¡°free riders¡± problem. This kind of problems cannot be avoided. The greater organizations become, the greater the tendency of ¡°free rider¡± is. Why it happens? One reason is those organizations¡¯ benefits or efforts are most influence or control, and in the organizations, his or her individual benefits or efforts are ignored. We can see, in a small group, because the group members are highly dependent on one another, and, also when a single partner slack off, which will be noticed immediately by colleagues. So, I think, it needs kinds of high degree of trust and solidarity in a group. Moreover, it would be helpful to put the organization and an individual interest together, create member¡¯s self-motive, and enact proper roles are also good methods to limit free rider in the group.

Rating:
Summary: Argues that trust (or its absence) shapes economies.
Review: The author divides societies into two classes: high trust and low trust. High-trust societies form volunteer and meritocratic organizations that expand in scope and efficiency to reach optimum economies of scale. These commercial and non-profit organizations (which are not dependent on family ties) create a network of efficiencies that benefit commerce, media communication and social change.

Low-trust societies, in contrast, rely on the extended family to build commercial, social and political networks. The trouble with the extended-family approach to economic development is that all families will soon run out of blood-line managerial, scientific, literary or artistic talent. The Latin Catholic and Chinese cultures are described as low-trust societies.

One conclusion to this analysis is that it is the lack of trust in society that forces developing countries to have large government organizations. In countries such as Mexico, the lack of trust in the players and in the notion of market efficiency itself leads to the creation and perpetuation of state monopolies.

The author wonders if trust in the American society is declining, to judge, at least, by the rising number of guarded residential compounds. The Clinton impeachment trial, from one lens, is about the threat to trust in public life. According to the model, if trust declines, so too will economic prosperity.

Rating:
Summary: Good neo classical economics from a non economist
Review: This book argues that economic development is 80% good economics and 20% good culture. This is not a new concept, as many other authors, such as Lawrence Harrison, have grappled with the issue of culture in economic development.

Fukuyama slices culture and focuses particularly on the issue of trust, as the bond that reduces transactions costs. The literature on transactions costs is also vast, initiated by Coase in the 1930s.

The main contribution of this book is to establish an empirical link between trust and the reduction of transactions costs which consequently account for a more friction-less economy. However, as a non-economist, Fukuyama writes to the international relations and political science professional, as a respected scholar mainly in these circles. As such, he does a good job of bringing somewhat theoretical economic concepts to the forefront of policy makers.