The Idea of Trust
by Francis Fukuyama
Thus, economic activity represents a crucial part of social life and is knit together by a wide variety of norms, rules, moral obligations, and other habits that together shape society. As this book will show, one of the most important lessons we can learn from an examination of economic life is that a nation's well-being, as well as its ability to compete, is conditioned by a single, pervasive cultural characteristic: the level of trust inherent in the society.
Consider the following vignettes from twentieth-century economic life:
•In the Toyota Motor Company's Takaoka assembly plant, any of the thousands of assembly line workers who work there can bring the en- tire plant to a halt by pulling on a cord at his or her workstation. They seldom do. By contrast, workers at the great Ford auto plants like leghland Park or River Rouge-plants that virtually defined the na- ture of modern industrial production for three generations-were never trusted with this kind of power. Today, Ford workers, having adopted Japanese techniques, are trusted with similar powers, and have greater control over their workplace and machines.
•In Germany, shop foremen on the floor of a typical factory know how to do the jobs of those who work under them and frequently take their place if the need arises. The foreman can move workers from one job to another and evaluates them based on face-to-face dealings. There is great flexibility in promotion: a blue-collar worker can obtain creden- tials as an engineer by attending an extensive in-company training pro- gram rather than going to a university.
The common thread that runs through these apparently unrelated vignettes is that in each case, economic actors supported one another because they believed that they formed a community based on mutual trust.
The workers at the Toyota plant were given immense power to stop the entire assembly line because manage ment trusted them not to abuse that power, and they repaid this trust by using that power responsibly to Boost the line's overall productivity. Finally, the workplace in Germany is flexible and egalitarian because workers trust their managers and fellow workers to a higher degree than in other European countries.
The community in each of these cases was a cultural one, formed not on the basis of explicit rules and regulations but out of a set of ethical habits and reciprocal moral obligations internalized by each of the com- munity's members. nese rules or habits gave members of the communi- ty grounds for trusting one another. Decisions to support the community were not based on narrow economic self-interest. The Nucor manage- ment could have decided to award themselves bonuses while laying off workers, as many other American corporations did at the time, and Sum- itomo Trust and Deutsche Bank could perhaps have maximized their profits by selling off their failing assets. But the reason that these economic actors behaved as they did was not necessarily because they had calculated these economic consequences in advance; rather, solidarity within their economic community had become an end in itself. Each was motivated, in other words, by something broader than individual self-interest. As we will see, in all suc- cessful economic societies these communities are unitecl by trust.
By contrast, consider situations in which the absence of trust has led to poor economic performance and its attendant social implications:
In a small town in southern Italy during the 1950s, Edward Banfield noted that the wealthy citizens were unwilling to come together to found either a school or hospital, which the town needed badly, or to build a factory, despite an abundance of capital and labor, because they believed it was the obligation of the state to undertake such activities.
In contrast to German practice, the French shop foreman's relations with his or her workers are regulated by a thicket of rules established by a ministry in Paris. This comes about because the French tend not to trust superiors to make honest personal evaluations of their work- ers. The formal rules prevent the foreman from moving workers from one job to another, inhibiting development of a sense of workplace solidarity and making very difficult the introduction of innovations like the Japanese lean manufacturing system.
Small business in American inner cities are seldom owned by African-Americans; they tend to be controlled bv other ethnic groups. Like the Jews earlier in this century and Koreans today. One reason is an absence of strong community and mutual trust among the contemporary African- American "underclass." Korean businesses are organized around stable families and benefit from rotating credit associations within the broader ethnic community; inner-city African-American families are weak and credit associations virtually nonexistent.
These three cases reveal the absence of a proclivity for community that inhibits people from exploiting economic opportunities that are available to them. The problem is one of a deficit of what the sociologist James Coleman has called "social capital": the ability of people to work together for common purposes in groups and organizations. The concept of human capital, widely used and understood among economists, starts from the premise that capital today is embodied less in land, factories, tools, and machines than, increasingly, in the knowledge and skills of human beings. Coleman argued that in addition to skills and knowledge, a distinct portion of human capital has to do with people's ablty 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 as- sociate depends, in turn, on the degree to which conununities 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, as we wiU see, has a large and measurable economic value.
With regard to the ability to form spontaneous communities such as those detailed above, the United States has had more in common with Japan and Germany than any of these three has with Chinese societies like Hong Kong and Taiwan, on the one hand, and Italy and France on the other. The United States, like Japan and Germany, has historically been a high-trust, group-oriented society, despite the fact that Americans beheve themselves to be rugged individualists.
But the United States has been changing rather dramatically over the past couple of generations with respect to its art of association. In many ways, American society is becoming as individualistic as Americans have always believed it was: the inherent tendency of rights-based liberalism to expand and multiply those rights against the authority of virtually all existing communities has been pushed toward its logical conclusion. The decline of trust and sociablty in the United States is also evident in any number of changes in American society: the rise of violent crime and civil litigation; the breakdown of family structure; the decline of a wide range of intermediate social structures like neighborhoods, churches, unions, clubs, and charities; and the general sense among Americans of a lack of shared values and community with those around them.
This decline of sociability has important implications for American democracy, perhaps even more so than for the economy. Already the Unit- ed States pays significantly more than other industrialized countries for police protection and keeps more than 1 percent of its total population in prison. The United States also pays substantially more than does Europe or Japan to its lawyers, so that its citizens can sue one another. Both of these costs, which amount to a measurable percentage of gross domestic product annually, constitute a direct tax imposed by the breakdown of trust in the society. In the future, the economic effects may be more far- reaching; the ablty of Americans to start and work within a wide variety of new organizations may begin to deteriorate as its very diversity lowers trust and creates new barriers to cooperation. In addition to its physical capital, the United States has been living off a fund of social capital. Just as its savings rate has been too low to replace physical plant and infrastructure adequately, so its replenishment of social capital has lagged in recent decades. The accumulation of social capital, however, is a compfi- cated and in many ways mysterious cultural process. While governments can enact policies that have the effect of depleting social capital, they have great difficulties understanding how to build it up again.
The picture of the United States as a hyper individualistic society drawn in much of the competitiveness literature often reads like a caricature of this reality. It is as if all American companies showed the same lack of paternalism as Continental Airlines under Frank Lorenzo, with management ready to fire longtime employees at the drop of a hat and the employees itching to flee the moment a higher-paying job came along. The truth of the matter is that many characteristic Japanese business practices are not uniquely Japanese but have parallels across societies, including America. Noncontractual business relationships, for example, based not on a legal instrument but on an informal understanding between two businessmen who trust one another, were not uncommon. Nor are purchasing decisions always made on the basis of ruthless comparisons of price and quaty; here, too, relationships of trust between buyers and sellers have a significant impact. There are many specific sectors of the economy that have held down transaction costs through trust: most stockbrokers, for example, have traditionally executed trades on the basis of verbal agreement alone, without requiring up-front payment. Many American companies have treated their employees paternalistically, particularly smaller faniily-owned businesses that function like small communities unto themselves. But even among large corporations, many like IBM, AT&T, and Kodak practiced what amounted to lifetime employment and sought to generate worker loyalty by paying generous benefits. I noted earlier the paternalistic side of Ford's early mass production facilities. IBM abandoned lifetime employment only in the late 1980s, when it faced a grave crisis and the future of the company itself was at stake. Most of the large Japanese corporations with similar employment policies have not yet had to face problems of this magnitude.
If the United States has had a long-standing tradition oriented toward group or associational life, how is it that Americans are so convinced of their thoroughgoing individualism? Part of the problem is semantic. It is common in American political discourse to present the essential problem of a liberal society as a dichotomy in which the rights of the individual are balanced against the authority of the state. But there is no way to refer to the authority of thewelter of intermediate groups between the individual and the state other than the overly broad and rather academic term civil society. It remains true that Americans tend to be antistatist, despite the substantial growth of big government in the United States in the twenti- eth century. But those same antistatist Americans voluntarily submit to the authority of a variety of intermediate social groups, including families, churches, local communities, workplaces, unions, and professional organizations. Conservatives, who are opposed to the state's delivering certain kinds of welfare services, usually describe themselves as believers in indi- vidualism. But such people are often simultaneously in favor of the strengthening of the authority of certain social institutions like the fani@y or the church. In this respect they are not being individualistic at all; rather, they are proponents of a nonstatist form of communitarianism.
...But alhtough most Americans are embedded in families, America has never been a familistic society in the way that China and Italy are. Despite the assertions of some feminists, the patriarchal family has never had the kind of ideological support in the United States that it enjoyed in, say, China or in certain Latin Catholic societies. In the United States, family ties are frequently subordinated to the demands of larger social groups. Indeed, outside certain ethnic communities, kinship has been a relatively small factor promoting sociability in the United States, since there have been so many other bridges to community available. Children are constantly being drawn outside their households by the pull of a religious sect or church, a school or university, the army or a company. Compared to China, where each family behaves like an autonomous unit, the broader community has had substantially more authority for much of American history.
From the moment of its founding up through its rise at the time of World War I as the world's premier industrial power, the United States was anything but an individualistic society. It was, in fact, a society with a high propensity for spontaneous sociability, which enjoyed a widespread degree of generalized social trust and could therefore create large economic organizations in which nonkin could cooperate easily for common economic ends. What bridges to sociability existed in American society that counteracted the effects of the country's inherent individualism and permitted this to happen? The country did not have a feudal past like Japan and Germany, with cultural traditions that could be carried over into the modern industrial era. It did, however, have a religious tradition that was different from that of virtually any country in Europe.