Megan McArdle wrote about trust, and in particular social trust, in a recent article on “The left’s Denmark envy.” The reason for the left’s “Denmark envy” is fairly obvious: generous welfare benefits, social liberalism, and high taxes. Plus Denmark doesn’t have the things those on the right predict for a country with generous benefits and high taxes, such as high unemployment, fleeing capital, lower GDP, and benefit cheating. Why? According to Ms. McArdle: “Denmark and its Nordic neighbors get away with it because they have an extraordinary high level of social trust.”
Ms. McArdle explains how social trust works and why the United States has less of it:
“‘Social trust’ is, well, what it sounds like: How much do you trust your neighbors? And in turn, how trustworthy are they? In a low-trust place such as Greece, people don’t trust their neighbors not to cheat, which in turn makes them more likely to cheat themselves, because why should you stay honest when everyone else is getting away with something? This affects everything: whether people pay their taxes, whether they take benefits they don’t really need, how easy it is to regulate companies. And social trust also works as a productivity booster, because [it allows you to] do away with a lot of the cumbersome monitoring that is ubiquitous in modern societies – the supervisors who oversee low-level workers, the store clerks who keep an eye on the customers. Every worker who is not making sure that people don’t steal or shirk can be re-employed doing something that actually increases output.
The United States simply doesn’t have that level of trust. And while it would be nice to think that we could get there if companies and government simply stopped acting so suspicious, the fact is that they frequently act suspicious because, well, Americans cheat more than Danes do. (Compare, for example, the American and Danish rates of tax evasion).”
I wrote about social trust as a productivity booster several years ago when I compared my car rental experience in New Zealand and in Mexico. In New Zealand, trust let the whole rental go quickly and smoothly. In Mexico, a lack of trust made things much slower and much more difficult. But trust not only makes things more efficient, it also makes life easier and more enjoyable.
It is interesting to compare Ms. McArdle’s article on social trust with Walter Olson’s article in The Wall Street Journal about a government bank that politicians in New Jersey want to start. As Mr. Olson notes, the supporters of the idea of a government-owned bank in New Jersey point to the Bank of North Dakota, the only state-owned in the United States, and the Landesbanks in Germany, which are owned by state governments there.1 So why not here, New Jersey’s politicians ask. Well, as Mr. Olson points out, “what Germany and North Dakota have in common [is] relatively clean, honest political cultures.” Needless to say, New Jersey does not.
Which brings me to the humor section of this post: What about a state-run bank in Illinois? (Feel free to break into uproarious laughter.) In his article, Mr. Olson refers to a study by the Safra Ethics Center at Harvard, which ranked states on two types of corruption, illegal and legal, the latter being “the kind that isn’t against the law but is still aromatic.” In North Dakota illegal corruption was “not common at all,” while legal corruption was just “slightly common.” New Jersey was among the seven most corrupt for both kinds. As for Illinois, there is no need to look.
When it comes to illegal corruption, with all of the convictions we have, you sometimes wonder if it would be easier to get a quorum for the Chicago City Council in federal prison than City Hall. However, it is the other kind, “legal” corruption, that may be the bigger problem in Illinois. In fact, when you see what public officials can get away with legally in Illinois, it is hard to understand why any of them would risk doing anything illegal. They can get so much from legal corruption that risking jail seems stupid.
And the idea of a state-owned bank in Illinois? It would be just another legal way for Illinois politicians to get rich. Which brings me back to Meghan McArdle’s point about social trust.
The problem with Illinois is that the lack of social trust is self-reinforcing. If other people, especially our politicians, are out for themselves and aren’t doing what is right, i.e., what builds social trust,2 why should anybody else? The feeling becomes: if your neighbor or your elected leaders are cutting corners and getting rich, you’re a fool if you don’t do the same. A lack of trustworthiness begets even more untrustworthiness. And down and down it goes.
Ten years ago, I posted an article with the title “Honest Abe Should Ask for His Name Back.” The reason Abraham Lincoln was called “Honest Abe” was, when he was a shopkeeper, if he gave a customer too little change, he would close the store and walk as far as necessary to give the person their money back. Abraham Lincoln’s wife, Mary, wrote to a friend: “Mr. Lincoln … is almost monomaniac on the subject of honesty.” Compare that with our politicians today, and you understand while the level of social trust in Illinois is where it is.3 And it’s hard to see how it is going to get any better.
1 Another such bank that could have been listed is Kiwibank in New Zealand. Potential corruption never even came up as an issue when New Zealand was considering the question of a state-run bank. But then New Zealand is at the top of the least corrupt ratings.
2 Just because something is legal doesn’t make it right.
3 As an alternative to the Illinois way, consider Paul Ryan’s decision to not run for reelection in November. Some had suggested that, even if Speaker Ryan wanted to retire, in order to help the Republicans keep their majority in the House, he should have run for reelection and then resigned after the election. But Paul Ryan couldn’t do that: “My conscience could not handle going out that way. To allow [my constituents] to vote to reelect me knowing I wasn’t going to stay simply would not be honest.” That wouldn't bother politicians in Illinois.