Tuesday, 6 January 2009

Trust and Social Capital


   Just before Christmas, I reviewed David Thompson's new book, Trust Unwrapped.  Having a bit of time over the break, and seeing the growing importance of trust at the moment, I have also been reading another book on trust that I've been meaning to read for a few years: Francis Fukuyama, Trust: the social virtues and the creation of prosperity.

The book is really about national economies and cultures, but it makes some insightful points about trust and social capital which apply to organisational performance as well.

Fukuyama defines trust as the expectation that arises within a community of regular, honest, and cooperative behaviour, based on commonly shared norms, on the part of other members of that community.  And it needs to be two-way, as explained here:

“Western managers try to appeal to their unions using the Japanese language of common interest between workers and management to convince the latter to loosen work rules or take wage concessions. But if Japanese-style reciprocal obligation is to work, the obligation and trust must flow in both directions. A Western trade unionist would argue, with considerable justification, that it would be naïve to trust management to seek the good of workers as well as management: the company would exploit any concessions made by the union while giving back as little as possible in terms of job security or other benefits.”


In Fukuyama's view, trust is the basis for social capital:

"In addition to skills and knowledge, a distinct portion of human capital has to do with people’s ability to associate with each other, that is critical not only to economic life but to virtually every other aspect of social existence as well. The ability to associate depends, in turn, on the degree to which communities share norms and values and are able to subordinate individual interests to those of larger groups. Out of such shared values comes trust, and trust has a large and measurable economic value."


He explains:

"Social capital differences from other forms of human capital in so far as it is usually created and transmitted through cultural mechanisms like religion, tradition, or historical habit… The accumulation of social capital, however, is a complicated and in many ways mysterious cultural process. While governments [and organisations!] enact policies that have the effect of depleting social capital, they have great difficulties understanding how to build it up again."


I think this is right, and is one of the reasons that it currently receives so little attention.  However, I don't think lack of focus is sustainable - the benefits of developing it are just too great,  As Fukuyama notes:

“If people who have to work together in an enterprise trust one another because they are all operating according to a common set of ethical norms, doing business costs less. By contrast, people who do not trust one another will end up cooperating only under a system of formal rules and regulations, which have to be negotiated, agreed to, litigated, and enforced, sometimes by coercive means. This legal apparatus, serving as a substitute for trust,entails what economists call ‘transaction costs'.”


Actually, I don't think this provides a particularly strong business case (it's about value for money in terms of the value triangle, whereas the real opportunities are to add or create value through social capital).

And in any case, the benefits of trust and social capital are not just economic, they're also human:

“That connectedness is not just the means to the end of earning a paycheck but an important end of human life itself… a side of human personality craves being part of larger communities. Human beings feel an acute sense of unease - what Emile Durkeim labelled anomie – in the absence of norms and rules binding them to others.”


As business starts to become more people-centric (something which will need to happen if we're going to avoid repeating the mistakes that brought on the current global recession), we will need to take account of this further benefit as well.


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