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Trust and the Wealth of Nations

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By Carolyn Ervin

Carolyn Ervin

In the 17th arrondissement of Paris you can walk past a bust of the 19-20th century French writer, Tristan Bernard. It carries a maxim that always makes me smile, roughly translated: Only trust yourself and then not very much. ("Ne compter que sur soi-même et encore pas beaucoup. ") It is simple, but invites reflection on the staggering level of trust that each of us invests in countless fellow humans.

Every day we have contact with hundreds of people and trust their civility. Our high standards of living and social well-being rely on trust in thousands more-to teach our children, cure illnesses or present us with clean water from the tap, etc.!

Of course the fundamental elements of trust among people are regulated by strict law (for example against doing willful harm to others). But much of the behavior we expect from others is not about obeying the law-but rests on deeply ingrained shared concepts of civility. Public and private institutions-for example, schools, the family, religious beliefs or businesses and media--promote social and cultural norms that contribute to trust.

Similarly, much of economic behavior is based on trust. True, the functioning of markets are governed by many sets of rules for engagement among individuals and companies: competition rules, accounting and disclosure rules, laws to protect labor rights, payment rights, investor and creditor rights, laws to protect the environment. And, governments establish the means to control whether the rules are followed and to enforcement them. But no regulator or inspector is watching every element of every transaction. We trust people to be honest (and we think we have a collective idea of what that means).

In democracies we rely on politics to balance interests in forming social and economic rules. But what happens if we stop believing that politics delivers rules that are fair? In politics, does everyone have their fair say? In economics, does every worker or business get their fair chance? Individuals and companies can accept failure to win a job or contract, if they feel that the rules and the systems give equal chances. In the wake of the recent financial and economic crises doubts have arisen about the systems that set the rules.

What happens when there is interaction across national borders? Let's focus on economics - the heart of the OECD. Countries have very different histories and traditions; behavior is different and perceptions of behavior (of strangers!) will differ. Economies are organised along different lines. And they enjoy widely different standards of living. In fact, the exchange of goods and investments is based on the idea of using these valuable differences, in skills, natural resources, assets and the like, to promote well-being among workers, consumers, entrepreneurs, youths, retirees, etc. International exchange depends on trusting that the rules of engagement are fair. Without this trust, politics will lead to protectionist impulses.

Many people work to foster international trust. Governments and private actors sponsor education and cultural exchanges. In the economic sphere, governments have negotiated bilateral and regional treaties and created international organisations like the OECD and the WTO. Governments have also negotiated and agreed broad standards on human or labor rights, for example. The OECD's founding convention is dedicated to promoting global well-being. Its agreed rules on open capital markets and against bribery in international business, and its standards on investment rules, corporate governance, responsible business conduct, to name a few, are expressly designed to create shared expectations about the conduct of governments and companies in order to promote trust and exchange.

These standards are not the product of the imagination of a few bureaucrats; they are built upon facts and analysis and the experience of dozens of countries around the world. They are debated at length so that we achieve shared understanding. Our standards are aspirational; no country would score 100% on any one of them. They chart a direction. They are open to others and they are open to improvement. Engaging and working together on shared solutions help us trust each other more-possibly even more than trusting in just ourselves.

Carolyn Ervin is Director for Financial and Enterprise Affairs at the OECD.

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