Dean Matthew J. Slaughter and coauthor Matthew Rees discuss the values of trust and tolerance and their role in economic activity.
This month one of us (Matt S) and his wife enjoyed a delightful vacation Nordic skiing in and around Oslo. One day we met a Norwegian friend at Holmenkollen, Oslo’s amazing public skiing facility, to watch one of his sons at biathlon practice. There did we Americans behold something that struck us as almost unthinkable—and that underscores one of the biggest opportunities for business leaders to better today’s world.
Across the 90-minute practice, each of the early-teen boys and girls shot dozens of live rounds from their .22 caliber rifle as all sorts of skiers kept zipping by on the tracks set above the targets 50 meters away, with no monitoring beyond each child’s parent(s) and a coach standing nearby. We visitors were even more astonished when, as the kids sprinted away from the range for another circuit of laps, our host invited us to try our shooting hand at his son’s lane. (True to beginner’s luck, Matt S dropped the first target but then proceeded to miss all the rest.)
What stunned us Americans was how different from anything we have ever seen at home was the level of trust in the handling of firearms in Norway. On many measures, Norway consistently ranks as one of the world’s highest-trust societies. During his reign of 1957 to 1991, King Olav V was famous for riding the public tram alone—carrying his own skis and poles—from his royal palace up the hill to the Holmenkollen to do laps. When once asked whether he feared for his safety being out in public alone, he replied that “he had four million bodyguards”—i.e., all his fellow citizens.
Today’s world has far less trust than Norway. A few weeks ago, the global communications firm Edelman released its 23rd annual Trust Barometer, this year based on interviews conducted with over 32,000 respondents across 28 countries. The headline summary of the 2023 Edelman Trust Barometer—and the report itself—makes for dispiriting reading: “A lack of faith in societal institutions triggered by economic anxiety, disinformation, mass-class divide and a failure of leadership has brought us to where we are today—deeply and dangerously polarized.”
People around the world voice deep distrust of government, the media, and NGOs—both the institutions collectively and their leaders. Within almost every country, distrust cleaves deeply along economic class. In the words of Edelman, “People in the top quartile of income live in a different trust reality than those in the bottom quartile, with 20+ point gaps in Thailand, the United States, and Saudi Arabia.”
This class divide seems to be both driving and driven by economic anxiety: “Economic optimism is collapsing around the world, with 24 of 28 countries seeing all-time lows in the number of people who think their families will be better off in five years.” As has long been the case, people in emerging markets tend to report much more economic optimism than those in advanced markets. This year the share of people agreeing that “my family and I will be better off in five years” ranged from 80 percent in Kenya, 73 percent in India and Indonesia, and 65 percent in China to just 36 percent in the United States, 15 percent in Germany, 12 percent in France, and 9 percent in Japan.
Why care about people distrusting institutions and their leaders? One big reason is that trust can be a matter of life and death. A recent article in The Lancet analyzed variation across 177 countries in 2020 and 2021 in rates of COVID-19 infection. What national factor explained more of this variation than almost any other? Trust. “Measures of trust in the government and interpersonal trust … had larger, statistically significant associations with lower standardised infection rates” than factors such as GDP per capita, population density, or pandemic preparedness. “If these modelled associations were to be causal, an increase in trust of governments such that all countries had societies that attained at least the amount of trust in government or interpersonal trust measured in Denmark, which is in the 75th percentile across these spectrums, might have reduced global infections by 12·9% … for government trust and 40·3% … for interpersonal trust.”
The political value of trust—and, closely relatedly, of tolerance—are essential determinants in shaping the decisions of individuals and communities to invest in human capital. And it is human capital that underpins people’s opportunity to thrive economically amidst today’s forces of technological change and globalization.
Another big reason to care is that the political value of trust—and, closely relatedly, of tolerance—are essential determinants in shaping the decisions of individuals and communities to invest in human capital. And it is human capital that underpins people’s opportunity to thrive economically amidst today’s forces of technological change and globalization.
Think of trust as belief and confidence of citizens in fellow citizens, in leaders, and in institutions. And think of tolerance as openness to new and different people, cultures, and ideas. Building human capital is an investment calculation. Individuals do not invest in themselves if they do not expect a positive return. Similarly, individuals do not invest in their fellow citizens unless they care about the welfare of these fellow citizens (or, at least, if they do not see their own fates as linked with those of their fellow citizens) and expect a positive return.
The values of trust and tolerance are, therefore, central to personal and community human-capital calculations. Individuals who forego wages and pay tuition and/or taxes toward either their own education or the education of fellow citizens place trust in some combination of educators, schools, universities, and governments to deliver skills that improve lives. And tolerance matters because one important reason that citizens are willing to invest in the human capital of their communities is because they care about the lives and opportunities of their fellow citizens, beyond themselves.
Dating back at least as far as the seminal work of Nobel laureate Kenneth Arrow, economists have long emphasized the importance of trust for reducing transaction costs, which in turn enables mutually beneficial exchanges like human-capital investment. All sorts of economic and life transactions create risk for participants. Trust can mitigate risk far better than many alternative mechanisms, such as writing, monitoring, and enforcing contracts. And the importance of tolerance can be seen in the large empirical literature—both within and across countries—that has shown a negative correlation between the social diversity of communities and the quantity and quality of public investments of those communities.
Leaders and institutions can build trust by acting in the interests of those who trust them. Thus do we arrive at the one big note of optimism in the 2023 Edelman Trust Barometer. Around the world, there is one institution—and set of leaders—that people trust much more than the government, the media, and NGOs.
What is that institution? Businesses and their CEOs. Of those four broad institutions tracked by Edelman, only business is regarded around the world as both competent and ethical. Even people who feel polarized widely trust business overall—and they trust their own employer even more. People tend to report more trust in their CEO than they do in their neighbors or in people in their local community.
So it is business leaders, more than perhaps any other groups of leaders, who today can draw on widespread trust to expand it by acting in ways that their employees, and citizens more generally, are seeking.
So it is business leaders, more than perhaps any other groups of leaders, who today can draw on widespread trust to expand it by acting in ways that their employees, and citizens more generally, are seeking. Expectations are high. Across all countries, 63 percent of people say, “I buy or advocate for brands based on my beliefs and values”—and 69 percent say, “Having social impact is a strong expectation or deal breaker when considering a job.” By a factor ranging from 5 to 6.5, people are expecting business to do more, not less, on issues including workforce reskilling, economic inequality, climate change, energy shortages, health-care access, and even the trustworthiness of information.
We two Matts are realists. Leaders of global businesses are neither omniscient nor omnipotent. Each of them must discern which social issues do and do not comprise part of their company’s central stakeholders—and then how to balance the different considerations of these stakeholders. But the strongest leaders and organizations are rightly aligning themselves this way. A few years ago, the CEO members of the Business Roundtable, which represents many of America’s largest and most successful companies, abandoned their policy statement that a corporation’s principal purpose is to maximize shareholder return. Their new Statement on the Purpose of a Corporation articulates a 21st-century standard for corporate accountability by which, “while each of our individual companies serves its own corporate purpose, we share a fundamental commitment to all of our stakeholders … customers … employees … suppliers … the communities in which we work … [and] shareholders.”
We two Matts are also inveterate optimists. Yes, our world needs a lot more trust. Yes, building trust takes diligence and perseverance. But the yearning is clear. And so is the charge to business leaders.