Erosion of Trust, Economic Consequences and Lessons for Leadership

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We all know and wonder about the Trump phenomenon in the U.S. and ask ourselves why it’s happening and what we can learn from it.

One theory suggested in the recent Bloomberg Businessweek article by Peter Coy is that the Trump phenomenon is a direct result of a general erosion of trust, leading to polarization. Polarization also has its roots in cultural differences.

This polarization created by a general lack of trust and continued cultural differences leads to increased uncertainty about the future, which, according to financial theory, then manifests itself in the form of volatility in asset prices. Increased volatility, in turn, reduces people’s appetites to invest and build long lasting business and even personal relationships. This then leads to real and significant economic and business consequences.

This rationale has some basis in some great research conducted by a not-for-profit organization called the World Values Survey, which studied cultural variations across countries, cultural differences that may arise in a multicultural country or a country with high levels of immigration.

Understanding Cross-Cultural Variation

The body of research from the World Values Survey claims that people’s beliefs play a key role in economic development, the emergence and flourishing of democratic institutions, the rise of gender equality, and the extent to which societies have effective government. Using the data collected by this organization, two political scientists, Ronald Inglehart and Christian Welzel, assert that there are two major dimensions of cross-cultural variation in the world:

  1. Traditional values versus Secular-rational values; and
  2. Survival values versus Self-expression values.

Traditional values emphasize the importance of religion, parent-child ties, deference to authority and traditional family values. People who embrace these values also reject divorce, abortion, and euthanasia. These societies have high levels of national pride and a nationalistic outlook.

Secular-rational values have the opposite preferences to the traditional values. Divorce, abortion, and euthanasia are seen as relatively acceptable. These societies place less emphasis on religion, traditional family values and authority.

Self-expression values give high priority to environmental protection, growing tolerance of foreigners, gays and lesbians and gender equality, and rising demands for participation in decision-making in economic and political life. It is linked with a relatively high levels of trust and tolerance.

Survival values place emphasis on economic and physical security. It is linked with a relatively ethnocentric outlook and low levels of trust and tolerance.

The global cultural map below shows the scores of societies located on these two dimensions.

Moving upward on this map reflects the shift from Traditional values to Secular-rational values (good) and moving rightward reflects the shift from Survival values to Self–expression values (good).

In essence, the top right hand position is best, the bottom left hand position is worst.

map

Cultural map

A brief summary of the mapping above:

  • Societies with high scores in Traditional values and Survival values:
    • Zimbabwe, Morocco, Jordan, Banglades
  • Societies with high scores in Traditional and Self-expression values:
    • United States, Canada, most of Latin America, Ireland
  • Societies with high scores in Secular-rational and Survival values:
    • Russia, Bulgaria, Ukraine, Estonia
  • Societies with high scores in Secular-rational and Self-expression values:
    • Sweden, Norway, Japan, Benelux, Germany, France, Switzerland, Czech Republic, Slovenia, and some English speaking countries

This research also shows that there is a relationship between cultural values and economic consequences: “good” cultural values seem to correlate with GDP per person (with or without the advantage of natural resources), while “bad” cultural values seem to appear in countries under permanent stress, and countries that have issues with government and business conditions.

Understanding about Trust

The survey also reports interesting results on “trust”. The survey asked:

Generally speaking, would you say that most people can be trusted or that you need to be very careful in dealing with people?

The table below shows the answers to this question for six countries where I have done, or do, most of my work.

Level of Trust in Others by Country (Percent) Netherlands Canada U.S. India South Africa Trinidad and Tobago
Most people can be trusted 66.1 41.8 34.8 32.1 23.3 3.2
Need to be very careful 32.4 55.9 64.3 64.6 76.2 96.3
Do not know 1.5 0.3 0.9 3.3 0.5 0.5

Netherlands scored the highest (now I know why I enjoyed working there for over five years), followed by Canada (not surprising to me; we are a country of trusting citizens who are disappointed when someone betrays that trust). The United States and India were in the top one-third, South Africa in the middle and Trinidad and Tobago scored the worst. Of course, if such a survey were done today, one might expect a lower score in the U.S. It is obvious that the lower this “trustworthiness” score, the more friction exists in relationships, both personal and business. Naturally, more friction means more economic and business inefficiency. In the U.S., one way to ensure trust is a threat of litigation; in Canada, In Canada, where our legal system is less litigious, parties tend to use other methods to deal with a breaches of trust. As for Trinidad and Tobago, the survey results may explain why building business relationships is so difficult, and why the conducting business in that country faces so many challenges and may also explain some productivity challenges. For detailed results, go to the “Data & Documentation” section on the World Values Survey website.

Insights

What does this all mean for us as business leaders but also as fathers/mothers/uncles/aunts?  In my humble opinion, at least three lessons can be drawn from these results.

  1. On a personal level, we must ensure that when we say something, we deliver on it – this will go a long way towards building personal trust amongst friends and family. We also should ensure that we are aware of potential cultural issues especially dealing with people from a different background and culture and socio-economic conditions.
  2. At the corporate level, we must work hard to ensure that the people around us and those who report to us build trust in themselves and others. The same goes for our stakeholders – suppliers and customers. If leaders and teams start with the attitude that “we cannot trust so we must continuously verify and never build relationships with anyone,” then we will not prosper in the 21st century.  For companies with a considerable cross-cultural workforce (Canada is a case in point) and international business footprint, a single management or communication or incentive system may not fit all circumstances; flexibility and cultural awareness is necessary.
  3. At the societal level, we have a much bigger challenge. We need to find ways to trust our fellow citizens and our politicians and move away from relying on rumors and always assuming the worst of everyone whom we do not know or who look different. We must educate ourselves and others when needed – we are living in a global village. Otherwise we will succumb to the Trump doctrine.

I am sure you may have other ideas on how to increase trust in our society and how you view societal culture in a broad sense. I look forward to hearing your thoughts.

 

About Dr. Vijay Jog

Vijay-JogVijay Jog Ph.D. is the Founder and President of Corporate Renaissance Group (CRGroup) – a global firm that specializes in improving enterprise performance through innovative technology driven solutions. He is also a Chancellor Professor at Carleton University where he teaches at the Sprott School of Business. This article is based on his 25 years of experience in dealing with technology and his interactions with CEOs/CFOS and CIOs.

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