Imagine going to a restaurant, ordering a meal, paying for it, expecting to be served and then discovering that neither the dishes you ordered, nor anything else that you fancy, are available. Imagine if the person managing the place also tells that you can’t have your money back since he does not have change, and that you can come back the next day for your meal. Or imagine the reverse — that you are a restaurant owner and a customer refuses to pay after having had a meal.
Luckily, this does not happen often because there is tacit trust between a consumer and a service provider and both parties respect the deal that something that has been consumed has to be paid for, and vice versa.
As we know from our day-to-day experience, without a degree of trust, no economic transaction is possible.
Trust lies at the heart of today’s complex global economy.
Prosperous countries often tend to be those where business relations between people can be conducted on the basis of trust, such as Germany, Japan and (perhaps surprisingly) the United States, as political scientist Francis Fukuyama famously argued in his 1996 bestseller Trust: The Social Virtues And The Creation Of Prosperity: Human Nature and the Reconstitution of Social Order.
One should not have to reaffirm such first principles. But recent statements by several public figures, including a former Prime Minister, zeroing in on how mistrust is corroding not only the social fabric but also the health of the economy, tells you how critical it is to address the issue.
In a widely talked about commentary in a national daily, former Prime Minister Manmohan Singh, a globally-renowned economist, linked the deeply worrying trends in the economy with a deeper underlying malaise. As nominal GDP growth falls to a 15-year low, joblessness rises to a 45-year high, household consumption sinks to a four-decade low, bad loans in banks breaking all records, and growth in electricity generation standing at a 15-year low, Dr Singh argued that the functioning of any economy is the result of the combined set of exchanges and social interactions among its people and institutions and that “mutual trust and self-confidence are the bedrock of such social transactions among people that foster economic growth. Our social fabric of trust and confidence is now torn and ruptured”.
Lack of trust in the fairness of the system plays out at several levels. If you fear that your action or word may be misconstrued, you could retreat into a shell of silence and inactivity. Dr Singh said that many industrialists have told him that they live in fear of harassment by the government authorities, that bankers were reluctant to give new loans for fear of retribution and that entrepreneurs were hesitant to put up fresh projects for fear of failure attributed to ulterior motives.
In a commentary in the New York Times, titled “India and the Mistrust Economy”, Kaushik Basu, a former chief economic adviser to the Government of India and now a Cornell University professor, also pointed out: “A drop in investment is usually connected to a lack of trust in the present and the near future. When businesses worry about a country’s policy environment, they hesitate to sink money into it.”
Is it only economists who are critical of the Narendra Modi government and are flagging the urgent need to restore trust in the social and economic fabric of the country?
What should an ordinary Indian make of two eminent Indian entrepreneurs publicly talking about the debilitating nature of fear and the lack of trust in the past week?
Biocon chairperson and managing director Kiran Mazumdar-Shaw has been quoted in the media saying that the government did not want to hear any criticism of the economy, while expressing hope that it reaches out to India Inc to work out solutions to revive growth. Her observations come soon after veteran industrialist Rahul Bajaj told home minister Amit Shah at a public event in Mumbai that there was an “atmosphere of fear” and that people were afraid to criticise the government because they do not have the confidence that the government will appreciate any criticism.
Last year, Ravi Venkatesan, a well-known business leader and former chairman of Microsoft India, publicly pointed out that the strident and polarised debate around Aadhaar was actually a reflection of the fact that India is a low-trust society and this has profound consequences for our future.
“Why are so many people anxious about Aadhaar despite the assurances of the government and Nandan Nilekani, the well-respected father of Aadhaar? It’s the fear of descent into an Orwellian state. In the Hollywood conspiracy thriller, Enemy of the State, rogue elements of the American NSA use technology to falsely implicate the character played by actor Will Smith, gets him fired from his job, and shuts down his phone, credit cards and bank accounts. All these technologies are being deployed today so it’s hard to dismiss them as mere fantasy. In a country where corruption is rampant, where trust in the government — any government — is low, where predatory rogue officials abound, where institutions are routinely subverted to settle scores and where the judiciary cannot be counted on to reliably uphold the rule of law and protect citizens’ rights, it is no surprise that there is so much angst around the extension of Aadhaar to scenarios well beyond its original scope,” Mr Venkatesan observed.
Much of what these eminent persons say is well known. They are articulating that the economy doesn’t exist in a vacuum, that to do well it needs rules of the game, and it is the elected government’s job to create institutions that make sure that the rules are fairly and equally applied to everyone. Without this, economic transactions, investment and risk-taking can’t proceed with minimal costs and smoothly.
That is currently not happening in India.
Arguably, the absence of trust between citizens and the state is not entirely a new phenomenon. But with the Indian economy in dire straits, articulation of these thoughts by public figures is something that can’t be ignored. Shooting the messenger, or dismissing them as people with ulterior motives, would be unfortunate.
The writer focuses on development issues in India and emerging economies. She can be reached at email@example.com...