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Trust: The Social Virtues and the Creation of Prosperity

Book Review

September 1, 1995


Edward Lotterman Agricultural Economist
Trust: The Social Virtues and the Creation of Prosperity

By Francis Fukuyama
The Free Press, 458 pages

Why are some nations richer than others? Rand Corp. political scientist Francis Fukuyama argues in his latest book that some societies are able to develop cultural norms, such as hard work and mutual trust, more than others. Such positive cultural values foster economic growth, their absence retards it. Cultural values are like appropriate economic policies, they are necessary, though not always sufficient, for economic growth to occur.

These issues are not new. The question of why economies grow has been at the core of economics since the discipline's inception. The very title of Adam Smith's An Inquiry into the Nature and Causes of the Wealth of Nations demonstrates the question's early importance.

Smith's assertion that wealth is produced most rapidly when the economic role of government is limited is probably the most influential and durable argument ever made by an economist. Many contemporary economists, including some with Nobel prizes, have further explored the roots of economic growth. But Fukuyama argues that while the efforts of these economists have been fruitful, most since Smith have ignored a crucial growth variable—that of culture:

"We can think of neoclassical economics as being, say eighty percent correct: it has uncovered important truths about the nature of money and markets because its fundamental model of rational, self-interested human behavior is correct about eighty percent of the time. But there is a missing twenty percent of human behavior about which neoclassical economics can give only a poor account. As Adam Smith well understood, economic life is deeply embedded in social life, and it cannot be understood apart from the customs, morals, and habits of the society in which it occurs. In short, it cannot be divorced from culture. Consequently, we have been ill served by contemporary economic debates that fail to take account of these cultural factors."

Fukuyama begins with a general argument about the importance of cultural factors in economic growth. He concentrates on the specific factor of trust, which he defines as "the expectation ... of regular, honest, and cooperative behavior, based on commonly shared norms." Social capital, which is the ability of people to work together for common purposes, "arises from the prevalence of trust in a society," and cannot be acquired through rational investment decisions. Rather, acquisition of social capital "requires habituation to the moral norms of a community and the acquisition of virtues like loyalty, honesty and dependability."

Continuing, Fukuyama explores the development and expression of trust in different countries, grouping them into low-trust (China, Italy, France and Korea) and high-trust (Japan and Germany) categories. The United States is also classified as high-trust, but merits a section by itself.

These detailed examinations of specific societies and cultures comprise the bulk of the book. And whether or not readers buy Fukuyama's central thesis, they will find these sections to be masterful analyses based on detailed knowledge of the societies involved.

Fukuyama directly challenges neo-mercantilists such as James Fallows and Lester Thurow who argue that Asian economies are somehow fundamentally different from Western ones and who imply that all Asian societies are essentially alike in their Confucian values. He contrasts China's Confucian society, where the family is paramount but there are few viable institutions between the family and the state, with another Confucian society, Japan, where many such intermediate institutions sprang up a century or more ago. This cultural ability to form non-family, non-government organizations, he argues, is key to the formation of successful, large, modern business organizations. Moreover, a high level of trust in a society facilitates productive activity for all sizes of organizations by reducing risk and the need to expend resources accumulating information about business counterparts. Trust within organizations fosters cooperative work in teams and thus creative feedback and innovation.

But, Fukuyama argues, trust and other cultural virtues can be destroyed more easily than created. Large centralized governments destroy those intermediate institutions between the family and the state and hence destroy trust. The French Revolution and Napoleon's dictatorship destroyed many such institutions; hence France's poor performance in industry and technological innovation relative to other societies in which such institutions survived.

Furthermore, beliefs and practices that are extreme in emphasizing the individual rather than the group also destroy intermediate institutions and trust. In the United States, the school of scientific management pioneered early in this century by Frederick W. Taylor reduced workers to interchangeable receivers of instructions and stifled the sort of bottom-up contributions of innovation that had thrived in earlier workplaces and that was never extinguished in Japan. Only in the last two decades has U.S. management theory rediscovered the virtues of worker participation in design and production decisions.

Similarly, American liberals' extreme emphasis on the rights of the individual, often at the expense of the best interests of intermediate groups or of society as a whole, stifles trust and hence cooperation and innovation. In this Fukuyama essentially echoes the arguments that Philip K. Howard makes in his recent bestseller, The Death of Common Sense. But there are also dangers from the conservative end of the spectrum. Policies that result in extreme economic and social inequality, and belief systems in which haves are encouraged to be complacent about the needs of have-nots, lead to the breakdown of social institutions and cultural virtues.

Thus readers will find that Trust contains useful insights into other societies, many stimulating arguments and plenty of plain old good writing.