The Requirements of a Developed Country: Trust

Introduction

Many people think that a country’s development depends only on its economic performance, such as its gross national product (GNP) or its industrialization. However, this is not enough to achieve the status of a developed country. A country also needs to have a rich social capital, which is the network of relationships, norms, and values that facilitate cooperation and mutual benefit among people. And the foundation of social capital is trust, which is the belief that others will act in a fair and honest way. Trust is essential for a country’s development, because it enables people to work together, solve problems, innovate, and create value. In this essay, I will argue that trust is the most important requirement of a developed country, and I will provide some examples of how trust has contributed to the development of countries such as the United States, Germany, and Japan.

Trust and Economic Growth

One of the ways that trust contributes to a country’s development is by enhancing its economic growth. Trust reduces the transaction costs that are involved in economic activities, such as contracting, monitoring, enforcing, and resolving disputes. When people trust each other, they can save time and money that would otherwise be spent on verifying information, negotiating terms, securing guarantees, or litigating breaches. Trust also increases the efficiency of economic exchanges, because it reduces the risks of opportunism, fraud, or default. When people trust each other, they can engage in more complex and long-term transactions that require mutual dependence and cooperation. Trust also fosters innovation and entrepreneurship, because it encourages people to share ideas, experiment with new solutions, and invest in risky ventures. When people trust each other, they can access more resources, information, and opportunities that can lead to creative and productive outcomes.

There is ample evidence that supports the positive relationship between trust and economic growth. For example, a study by Knack and Keefer (1997) found that countries with higher levels of trust have higher rates of investment and growth. Another study by Zak and Knack (2001) found that trust increases per capita income by affecting both the accumulation of physical and human capital and total factor productivity. A report by the World Bank (2017) also confirmed that trust is one of the key drivers of economic development.

Trust and Social Welfare

Another way that trust contributes to a country’s development is by improving its social welfare. Trust promotes social cohesion, which is the sense of belonging and solidarity among people. When people trust each other, they can overcome their differences and conflicts, and work towards common goals and interests. Trust also fosters civic engagement, which is the participation and involvement of people in public affairs. When people trust each other, they can cooperate more effectively in collective action and decision making. Trust also facilitates public goods provision, which is the delivery and maintenance of goods and services that benefit everyone. When people trust each other, they can contribute more willingly to public goods such as education, health care, infrastructure, or security.

There is also plenty of evidence that supports the positive relationship between trust and social welfare. For example, a study by Putnam (1993) found that regions in Italy with higher levels of trust have better social and institutional outcomes, such as lower crime rates, higher voter turnout, more effective public administration, and higher quality of life. Another study by Rothstein and Uslaner (2005) found that countries with higher levels of trust have more generous and universal welfare systems, lower income inequality, and higher life satisfaction. A report by the OECD (2017) also confirmed that trust is one of the key factors that influence social well-being.

References

• Knack, S., & Keefer, P. (1997). Does social capital have an economic payoff? A cross-country investigation. The Quarterly Journal of Economics, 112(4), 1251-1288.
• OECD (2017). How’s Life? 2017: Measuring Well-being. OECD Publishing.
• Putnam, R. D. (1993). Making democracy work: Civic traditions in modern Italy. Princeton University Press.
• Rothstein, B., & Uslaner, E. M. (2005). All for all: Equality, corruption, and social trust. World Politics, 58(1), 41-72.
• World Bank (2017). World Development Report 2017: Governance and the Law. World Bank Publications.
• Zak, P. J., & Knack, S. (2001). Trust and growth. The Economic Journal, 111(470), 295-321.