Trust: The Social Virtues and the Creation of Prosperity

I live in Europe close to the fault line between (in Fukuyama-speak) low-trust-land and high-trust-land and I have rarely read such an interesting book. In some ways the book is the successor to Max Weber's magnum opus, The Protestant Ethic and the Spirit of Capitalism (published in 1905) about the impact of protestant religion and culture on economical success in Germany. Rather than compare Protestantism with Catholicism and their economical impact on German citizens, Fukuyama divides the world into high and low trust societies. Within Europe low trust societies largely coincide with Catholic countries and high trust societies coincide largely with Protestant countries, hence some of Fukuyama's work will sound familiar at times to a reader of Max Weber. Still, Fukuyama's categorisation is not based per se on religious affiliation. Fukuyama is at pains to attribute the low trust of Italians or French to historical events or situations. At times it seems he goes out of his way to avoid attributing any causal role to religion. But the advantage of his approach is that his methodology in theory works in any culture outside the European Christian context. Fukuyama also applies his trust criterion on societies such as the US, Japan, Korea, Taiwan and China. The Middle East and Africa are conspicuous in their absence, possibly because there are few if any examples of so-called high-trust cultures in these parts of the world. There are a few shortcomings to the book : Fukuyama only draws economical consequences from the presence or absence of trust, for instance, he claims high trust cultures such as Japan and Germany find it easier to form very large companies, whilst low trust cultures such as Taiwan or Italy feel more at home in family companies. It is a pity he does not extend the field of study of consequences into areas such as corruption (low trust countries generally score higher on corruption), the law (for instance perjury is not regarded as a big deal in low trust countries), demographics (intermarriage, such as consanguineous marriages, is much more common in low trust cultures such as in the Middle East), etc... The division of the world by Fukuyama into low and high trust cultures is very binary. Some studies by others into trust have first segmented the environment of individuals in concentric layers, starting with the immediate family, then friends, then the extended family, then the local community, then the country and then his or her civilisation. In such a scenario trust typically decreases with each layer which is further removed from the individual (although there are exceptions, such as in failed Islamic states where more trust is put by individuals in the Umma - all Muslims - than in the nation.), but the slope of the curve differs between low and high trust cultures. Still, as a simplification, the division into two extremes of trust is an interesting start. Like all human phenomena, economic organisation can never be exp

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!

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.

As a result of his previous major work Francis Fukuyama achieved fame as the man who predicted 'the end of history'. With this new work he has turned his attention from the political arena to consider comparative international economic performance. He describes the broad theme of Trust: The Social Virtues and the Creation of Prosperity as follows; "that social capital has a significant impact on the vitality and scale of economic organizations". Many commentators have tried to evaluate the importance of culture in determining national economic success. Fukuyama claims to have identified the key, performance-determining, aspect of national culture, namely, the level of trust present in a society. He maintains that culture is of critical importance to everyday economic life and that only high trust societies can create the kind of large scale business enterprises that are needed to compete in today's global economy. The culturalist view of history attributes the success of Japan and later of other East Asian countries such as China, Hong Kong, Malaysia, Singapore, South Korea and Taiwan to their common Confucian traditions and their concomitant cultural characteristics. However, the traditional drawing of distinctions between Eastern and Western cultures is seen as too simplistic by Fukuyama, who points out the many differences inherent in East Asian societies. He points out not only the differences between Japan and China, but also those between China and Chinese societies abroad such as Taiwan and Hong Kong. This attention to detail and depth of analysis is one of the strengths of Fukuyama's study. To date, the debate on this topic has centred around culturalist explanations of the economic success of the Asia-Pacific Region, but Fukuyama has gone further by attempting to apply his thesis to all developed economies; Chinese, European, North American, Japanese and former communist. Fukuyama, following Weber, sees the earlier economic success of Western Europe as culturally determined, namely as a logical result of the Protestant work ethic. Fukuyama sees three types of trust; the first is based on the family, the second on voluntary associations outside the family, and the third is the state. Each of these has a corresponding form of economic organisation; the family business, the professionally managed corporation and the state-owned enterprise, respectively. Societies in which family ties are strong (and thus ties outside the family relatively weak) have great difficulty creating large professionally managed corporations and look to the state to perform this critical economic function. Societies with high levels of trust, and many voluntary associations can create large economic organisations without state support. Fukuyama cites China, Italy, France and South Korea as societies with a strong role for the family and weak voluntary associations, while Japan, the United States, and Germany are said to have strong and plentiful as