Importance of trust for prosperity and democracy

“Why do the poorer half of people only earn 10 percent of all global income and own only 2 percent of the wealth?” ask Daron Acemoglu, Simon Johnson and James A. Robinson, who were awarded the Nobel Prize in Economics this year.

The superficial answer is: Because there are large differences in prosperity between countries in the world. But where do these come from? And why don’t the poorer countries simply copy the richer ones so that they can also become successful?

Democracies are more likely to form efficient institutions

The new Nobel Prize winners give an answer to the first question, on which Douglass North, who was honored by the Stockholm Nobel Prize Committee in 1993, wrote groundbreaking work. In addition to the natural endowment of workers, capital and resources, it is primarily prosperity-promoting institutions that make the big difference.

Security of property, legal certainty, a reliable justice system, but also the opportunity to advance socially and participate politically are important prerequisites for strong economic growth and high levels of prosperity. While North argued primarily theoretically, Acemoglu and his co-authors use economic historical data and analyzes from the period of colonialism to the present day to show that institutional differences persist and can explain why differences in wealth have persisted over such a long period of time.

What turns out to be crucial for the state of the institutions is whether the politically determining layer is interested in the well-being of the population as a whole and in economic progress or whether it primarily concentrates on extracting income from the population and securing it for itself through maintaining power and repression.

The economic answer to the second question, why poorer countries do not simply copy the more efficient, growth-promoting institutions, is closely related to this. Institutions are not simply given from outside, but are the result of a dominant, developing system. This arises from the interaction between the politically determining layer and the population. For those in power, the opportunities to gain wealth play just as much a role as the fear of losing it due to a popular uprising or a loss of power – and for the population, the prospect of reforms that will improve living standards as well as the costs and dangers of protest .

Roughly summarized, this results in three important findings:

As positive as the basic message is with regard to the increased systemic competition between autocracies and democracies, it is worrying that democracies have gone on the defensive in recent years and autocrats are enjoying increasing popularity.

Trust in governments is damaged

The reason for this can probably be found in the third insight. If there is a lack of trust, democracies also become unstable and autocratic politicians can be tempted to take back power and change the system.

The Organization for Economic Co-operation and Development (OECD) collected highly revealing data on trust in national governments and their institutions last year. Firstly, they confirm the theses mentioned. Where a larger proportion of the population trusts their government, prosperity is higher. Even if it is not proven what is the cause and what is the consequence, the connection is quite clear based on the considerations made. Trust in politics and its institutions is not a sufficient but a necessary prerequisite for economic prosperity and inclusive societies.

Secondly, the graphic also shows something much more uncomfortable, namely how disturbingly high distrust of governments has become in many democratic Western countries.

This is most extreme among the OECD countries that took part in the survey, in the Eastern European countries of the Czech Republic, Slovenia and Latvia. In the Czech Republic 71 percent, in Slovenia 58 percent and in Latvia 54 percent have little or no trust in their government. Mistrust of those in power has also reached worrying levels in Great Britain (57 percent), France (51), Germany (49) and Italy (47).

This is not an isolated phenomenon. On average across participating OECD countries, the proportion of citizens who have little or no trust in their government (44 percent) is significantly higher than the proportion of those who have moderate to strong trust in it (39). Switzerland is an exception, with 24 percent distrusting and 62 percent trusting.

Russia illustrates the danger

A lack of trust in politics has unpleasant consequences for the stability of democracies. The likelihood is increasing that autocratic-minded politicians will succeed in seizing power and transforming a society from an inclusive one (as the new Nobel Prize winners in economics call it) into an extractive one in which those in power primarily strive to enrich themselves from the people. A lack of trust means that the population believes less in the medium-term implementation and enforcement of reforms and is less willing to make sacrifices in the short term. Ultimately, it signals to the politically determining layer that they can rely less on orderly changes of power and protection of property and rather have to be afraid of disruptive political developments.

This is not just theory. This approach can be used to explain why Vladimir Putin found it so easy to turn democratic Russia back into an autocracy at the beginning of this century: the population did not trust those in power and did not get involved in their fledgling democracy, while those in power did not trust them As prosperity increased, they increasingly feared popular rebellion and loss of power and took refuge in autocracy and repression. It’s not just the Ukrainians (and many Russians) who are suffering from the result.

But what could be done to strengthen the resilience of democracies in Europe and the West and protect them from something similar?

Strengthening resilience means strengthening trust

First, the OECD survey shows that there is a close connection between the feeling of having a say and trust in the government. The proportion of those who have a high level of trust in government is much higher among those who believe they have a say than among those who doubt it.

The same applies to the question of how transparent and evidence-based political decisions are made. The more this is the case, the stronger the government’s trust in the population.

Conversely, it turns out that the fear of running into economic or financial difficulties in the near future greatly reduces the willingness to trust the ruling government.

Starting points to strengthen trust in governments again would be:

If functioning democratic systems are crucial to securing prosperity, but a lack of trust endangers their stability, politics and business in the western industrialized countries should currently look to the future with concern. More needs to be done to restore trust in governments.