A Matter of Trust

While walking to the tourist mecca of the Recoleta Cemetary yesterday, I was approached by a young guy with a clipboard. The first thing he said was "hola amigo" which is a bad sign -- this is someone who's definitely targeting tourists, trying to get separate them from their money. Of course, there is nothing specifically wrong with that -- tourists are here spending money, after all, and you have to expect people to try to get a piece of the action.

The second thing the guy said was "habla espanol o ingles", which means that this guy is bilingual, a slick salesperson. OK, fine. Then he asked for one minute of my time, just one minute. I did my best to keep barreling by, but he was insistent and walked alongside, telling me that he worked for an organization that raised money for the less fortunate, children with AIDS and what-not. He quickly showed me as we continued walking the paper on his clipboard, and also some kind of ID card, which was supposed to validate his legitimacy as a fund-raiser. I considered it for a second, while continuing to walk so as not to feel trapped. Then he said something like, please, just a little, not much, twenty pesos, ten pesos, it's for the children." And with that I just kept saying, no, no, lo siento, lo siento, no, no, and charged away from him, head down.

So this experience made me feel bad for a couple reasons. First, naturally, was the question of whethere in fact I was so cheap and selfish as to not really consider giving 3 or 6 dollars to the unfortunate of Argentina. Lord knows I feel a lot of empathy for the unfortunate here, so this was a very uncomfortable feeling. But then I realized the real reason the whole encounter was troubling -- I didn't know if I could trust this guy asking me for money for a good cause. And I thought about this all day yesterday, realizing what a big, big issue this is for a society and an economy. And it's a delicate issue -- it's not something that can just be implemented, it's something that's got to develop over a long time. Perhaps it can be nurtured, but I don't know.

I was especially wary yesterday because of a story I heard a couple days prior from my spanish teacher Pato. She went on an errand with our friend Erin ("an errand with Erin" !) a few days ago to meet with a furniture builder. Erin had put a 50% downpayment on a relatively expensive custom-made chair about a year earlier, and hadn't had much luck getting the chair made. So Pato with her much better spanish came along to help. It was an ugly scene apparently. They spent about a half hour there arguing with the guy, and the guy was apparently very aggressive, almost abusive. And it became clear that Erin wasn't getting her chair any time soon, or really, any time ever. Even her receipt from a year ago was apparently "fake", whatever that means (there are a bunch of rules here about such things).

So this was an unfortunate situation where Erin thought she chould trust this person as a legitimate business person, but he clearly felt he could just violate that trust completely, essentially bullying her into letting him walk away with her five hundred pesos. And this is not a random person on the street, this is an established craftsperson, with a business and a shop and everything.

As I was talking to the dude purportedly fund-raising for a charity, all I could think of was the bullying furniture maker. The fund raiser was kind of aggressive himself, and all I could think was, here's a guy trying really hard to separate me from my money. Why should I trust him? And, in the end, I didn't, and I kept going.

So this got me thinking about the issue of trust in a society in general, and in an economy in particular. After hearing about Erin's experience, I am much more unlikely to put a deposit on anything here, right? And I'm much more unlikely to buy something that I'm not entirely sure about, knowing that I might not have any redress if something goes wrong. And so, lack of trust leads directly to less economic activity, less business, less income. And it probably leads to a lot of indirect costs as well -- people no doubt feel they have to spend a lot of time and money vetting potential transactions, and putting safeguards in place. All of these costs are just wasted, just pure inefficiency.

Development economists often refer to effective contract law as something essential for a smoothly functioning economy. Companies and individuals feel a lot better about doing business, about entering into a contract if they know that the contract can be reasonably enforced. Much of the third world has poorly functioning contract law -- the legal systems are either too corrupt or too inefficient for someone wronged in a contractual dispute to get any redress from the courts or anyone else. So what happens? Businesses and individuals don't want to do business in such countries, they don't want to invest or make big purchases. So economic activity suffers, and the economy suffer, and the people suffer.

Of course the issue of trust is much wider than contract law. Contract law is just the large-scale tip of the iceberg. Trust goes much wider, it can effect everybody, every transaction. Did your taxi give you the right change in the dark? Did the supermarket check-out person ring something up at too high a price? Is your plumber charging you a fair price for the work he just did? If there isn't trust, every single economic transaction requires extra vigilance, extra worry, extra annoyance. It's not pretty.

So where does trust come from? What makes an economy function smoothly in this way? Ha -- I think that's the subject of a dissertation or a book (or a hundred), not really the subject of an off-the-cuff blog post. But to state the obvious -- in a poor country with a lot of desperate people, I would guess that those people are more likely to try to rip you off. They just feel they have to. And, I don't know, if those poor people, or struggling people, see a lot of rich people around living it up, then they're going to feel less bad about ripping you off.

So you have the phenomenon of places like the Scandinavian countries, with relatively flat levels of economic disparity, being the places with high trust, and places like Mexico, with the second highest number of billionaires in the world and tens of millions of poor people, having a very low level of trust. It seems like a case of the rich getting richer and the poor getting poorer.

As I said at the beginning, trust is hard -- it's subtle, it's not just something you can decide to implement. That said, I do think that the public sector can have a really big influence. The more corruption you see in high places, in officialdom, the more the people in general are going to feel that they don't have to play by the rules. The example that everyone cites is Singapore -- this was a very, very poor country fifty years ago. But somehow it got this incredibly squeaky-clean government (an autocratic government, not a democracy, I might add). And now, its economy just hums along, with a reputation for great efficiency and reliability, and Singapore is as rich as some european countries on a per-capita basis.

So, what does this mean for Buenos Aires? I don't know. Four years ago, two years after the crisis, I was pleased with the trust level here -- it seemed like a country with a good tradition of trust, where you didn't have to be too careful about being ripped off. This seemed especially the case compared to Mexico, where I have traveled extensively. But now, I don't know. Maybe it's just that I'm a little more connected here, or maybe the trust level has eroded. It might be that the economic recovery here is not raising all boats simultaneously (what a surprise!). So the system might seemed rigged, in which case people think, hey, if I'm getting screwed, I should be screwing others, right? I hope this isn't the case.

If nothing else, after thinking about it for a day, I think my initial impression about the dude on the street was probably correct. He's probably a fraud, and that any money he got from me he was keeping. I hate it, but that's what I think.