Sunday, June 22, 2008

Erosion Threatening America: And it's not global warming

At the supermarket you try to buy fresh, natural produce. but you recently heard that more than 60% of the food on the shelves today likely contains GM ingredients (a recent survey said 80% of Americans want food labels to indicate the presence genetically modified ingredients but 99.9% of GM food it is not labeled as such).

In the meat aisle you look for some meat to grill at the weekend when friends come over to watch the game. You see some are Black Angus steaks on sale, but are vaguely aware that under USDA rules any beef meat can be labeled Black Angus if the animal has a "black hair coat". You just hope the steaks taste okay.

At the checkout you swipe your debit card and hope that there is not some malicious code in the store that is capturing your card details and shipping them offshore for use in fraud schemes (which was happening for a while at nearly 300 otherwise reputable grocery stores).

Come the weekend, you fire up the grill and settle in to watch the game, unaware that one of the teams has been illegally spying on its opponents for years. At half time a friend asks about an email he got from the IRS asking for bank account information so the agency could send his tax refund via direct deposit. You tell him the message is a scam and the IRS does not use email because it can't be trusted.

In fact, you have this growing feeling that there is too much that can't be trusted these days; surely this erosion of trust is not good for the country. As the second half of the game begins you find yourself surreptiously surfing the Web on your laptop, entering search strings like: trust economic payoff, trust erosion growth, and such like. You find a widely quoted paper from 1997 that showed trust having a significant impact on aggregate economic activity, specifically "the coefficient for Trust [...] indicates that a ten percentage point rise in that variable is associated with an increase in growth of four-fifths of a percentage point" (Knack and Keefer, 1997). You find another paper from 2000 that concludes "a ten-percentage point increase in the number of respondents revealing themselves as “generally trusting others” is associated with a rise of per capita income in purchasing power standards of three-fifths of a percentage point" (Van Puyenbroeck and Cherchye, 2000).

So, increasing trust within America by ten percent could actually provide a big boost to an otherwise sagging economy. Is that feasible? Consider the numbers in this IBM study. America's trust level is 36. The figure for the Netherlands is 55 and for Norway it's 65. The UK is at 44 and Ireland's at 47. In other words, if Americans had the same level of trust as the Irish, an annual GDP growth rate of 3% percent could be boosted to 3.8%. If we reached Dutch levels of trust, that 3% GDP figure could be 4.6%. And if we achieved Norway's trust level, we could hit 5.4%, a veritable powerhouse of growth, achieved not by raping the land and ruining the environment and hogging resources, but by engendering trust between individuals and institutions.

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