Global Economic News Digest

A Trust Recession Is Looming Over the American Economy

24 nov 2021
author: Jerry Useem
source: The Atlantic

MANUFACTURER INVENTORIES. Durable-goods orders. Nonfarm payrolls. Inflation-adjusted GDP. These are the dreary reportables that tell us how our economy is doing. And many of them look a whole lot better now than they did at their early-pandemic depths. But what if there’s another factor we’re missing? What if the data points are obscuring a deepening recession in a commodity that underpins them all?
Trust. Without it, Adam Smith’s invisible hand stays in its pocket; Keynes’s “animal spirits” are muted. “Virtually every commercial transaction has within itself an element of trust,” the Nobel Prize–winning economist Kenneth Arrow wrote in 1972.
But trust is less quantifiable than other forms of capital. Its decline is vaguely felt before it’s plainly seen. As companies have gone virtual during the coronavirus pandemic, supervisors wonder whether their remote workers are in fact working. New colleagues arrive and leave without ever having met. Direct reports ask if they could have that casual understanding put down in writing. No one knows whether the boss’s cryptic closing remark was ironic or hostile.
Sadly, those suspicions may have some basis in fact. The longer employees were apart from one another during the pandemic, a recent study of more than 5,400 Finnish workers found, the more their faith in colleagues fell. Ward van Zoonen of Erasmus University, in the Netherlands, began measuring trust among those office workers early in 2020. He asked them: How much did they trust their peers? How much did they trust their supervisors? And how much did they believe that those people trusted them? What he found was unsettling. In March 2020, trust levels were fairly high. By May, they had slipped. By October—about seven months into the pandemic—the employees’ degree of confidence in one another was down substantially.
Another survey, by the Centre for Transformative Work Design in Australia, found bosses having trust issues too. About 60 percent of supervisors doubted or were unsure that remote workers performed as well or were as motivated as those in the office. Meanwhile, demand for employee-surveillance software has skyrocketed more than 50 percent since before the pandemic. And this spring, American employees were leaving their jobs at the highest rate since at least 2000.
Each of these data points could, of course, have multiple causes. But together they point in a worrisome direction: We may be in the midst of a trust recession.
TRUST IS TO capitalism what alcohol is to wedding receptions: a social lubricant. In low-trust societies (Russia, southern Italy), economic growth is constrained. People who don’t trust other people think twice before investing in, collaborating with, or hiring someone who isn’t a family member (or a member of their criminal gang). The concept may sound squishy, but the effect isn’t. The economists Paul Zak and Stephen Knack found, in a study published in 1998, that a 15 percent bump in a nation’s belief that “most people can be trusted” adds a full percentage point to economic growth each year. That means that if, for the past 20 years, Americans had trusted one another like Ukrainians did, our annual GDP per capita would be $11,000 lower; if we had trusted like New Zealanders did, it’d be $16,000 higher. “If trust is sufficiently low,” they wrote, “economic growth is unachievable.”
If you can rely on people to do what they say they’re going to do—without costly coercive mechanisms to make them dependable—a lot of things become possible, argued Francis Fukuyama in his 1995 book, Trust. In the late 19th century, it was “highly sociable Americans” who developed the first large-scale corporations, effectively pooling the ideas, efforts, and interests of strangers. In the late 20th, some of the earliest iterations of the internet emerged from the same talent for association. Throughout nearly all of America’s history, its economy has benefited from a high degree of trust.
But leaks in the trust reservoir have been evident since the ’70s. Trust in government dropped sharply from its peak in 1964, according to the Pew Research Center, and, with a few exceptions, has been sputtering ever since. This trend coincides with broader cultural shifts like declining church membership, the rise of social media, and a contentious political atmosphere.
David Brooks: America is having a moral convulsion
Data on trust between individual Americans are harder to come by; surveys have asked questions about so-called interpersonal trust less consistently, according to Pew. But, by one estimate, the percentage of Americans who believed “most people could be trusted” hovered around 45 percent as late as the mid-’80s; it is now 30 percent. According to Pew, half of Americans believe trust is down because Americans are “not as reliable as they used to be.”
Those studies of suspicious Zoom workers suggest the Trust Recession is getting worse. By October 2021, just 13 percent of Americans were still working from home because of COVID-19, down from 35 percent in May 2020, the first month the data were collected. But the physical separation of colleagues has clearly taken a toll, and the effects of a long bout of remote work may linger.
WHY? ONE REASON IS: We’re primates. To hear the anthropologists tell it, we once built reciprocity by picking nits from one another’s fur—a function replaced in less hirsute times by the exchange of gossip. And what better gossip mart is there than the office? Separate people, and the gossip—as well as more productive forms of teamwork—dries up. In the 1970s, an MIT professor found that we are four times as likely to communicate regularly with someone sitting six feet away from us as with someone 60 feet away. Maybe all that face time inside skyscrapers wasn’t useless after all.
Trust is about two things, according to a recent story in the Harvard Business Review: competence (is this person going to deliver quality work?) and character (is this a person of integrity?). “To trust colleagues in both of these ways, people need clear and easily discernible signals about them,” wrote the organizational experts Heidi Gardner and Mark Mortensen. They argue that the shift to remote work made gathering this information harder. Unconsciously, they conclude, we “interpret a lack of physical contact as a signal of untrustworthiness.”
This leaves us prone to what social scientists call “fundamental attribution error”—the creeping suspicion that Blake hasn’t called us back because he doesn’t care about the project. Or because he cares about it so much that he’s about to take the whole thing to a competitor. In the absence of fact—that Blake had minor dental surgery—elaborate narratives assemble.
Add to the disruption and isolation of the pandemic a political climate that urges us to meditate on the distance—ethnic, generational, ideological, socioeconomic—separating us from others, and it’s not hard to see why many Americans feel disconnected.
Link: Theatlantic