Building on trust
Michael Prowse
TRUST: THE SOCIAL VIRTUES AND THE CREATION OF PROSPERITY by Francis Fukuyama Hamish Hamilton, f25, pp. 457 Francis Fukuyama is best known for claiming that the collapse of the Berlin Wall marked the 'end of history'. What he meant was that the demise of communism leaves democratic capitalism as the clear winner in the long-standing debate over the best way to organise society.
But establishing the primacy of capital- ism leaves many questions unanswered. Why are some capitalist economies so much more successful than others? In his new book, Mr Fukuyama suggests the answer is to be found by examining the quality of a nation's civil society. He claims that economic competitiveness depends on the degree to which citizens are able to trust each other and form associations intermediate in size between that of the state and the family.
He defines 'high trust' societies as those in which the honest and co-operative behaviour of others can be taken for grant- ed. Because people associate easily and can work together effectively in groups and organisations, such societies are said to be rightly endowed with 'social capital'. This emphasis on the social prerequisites for growth leads to a novel classification of economies.
In the literature on 'competitiveness' a sharp distinction is usually drawn between the US, which is regarded as free market and individualistic, and Japan and Germany, which are seen as more reliant on government. Mr Fukuyama regards all three as prime examples of 'high trust' societies; all three have done well economi- cally in large part because they have been able to draw on rich reserves of social capital. The US, he claims, has a strong communitarian tradition, arising mainly out of its sectarian religious life, that belies its self-image of rugged individualism.
Low trust societies that have weak civil societies include Hong Kong, Taiwan and other Chinese societies in Asia, as well as France and Italy in Europe. Mr Fukuyama is strangely silent about Britain, which he appears to regard as a society of middling trust. He argues that many Asian societies — with the notable exception of Japan lack social capital because family and kin- ship ties are so powerful as to preclude strong relationships between unrelated individuals. Societies that lack trust, more- over, have nearly always suffered from overbearing government at some crucial juncture in their history. Both China and France fall into this category. Echoing Tocqueville, he argues that it is the central- ising tendency of government that destroys the art of spontaneous association.
Mr Fukuyama's classification by social capital forces us to look at economies in a different way. He provides a useful service in showing convincingly that Asian societies are anything but homogenous. His claim that the US and Germany have more in common than Germany and France is striking, to say the least, as is his suggestion that the US and Japan are more similar in social structure than Japan and China.
Yet although Mr Fukuyama's analysis of social structure is often illuminating, it is not clear where it leads economically. At the start of the book, he claims that a nation's well-being and ability to compete is 'conditioned by a single pervasive cultur- al characteristic: the level of trust inherent in the society'. Yet as the book proceeds, he concedes that this is not, in fact, the case.
It is true that high levels of trust will help a market economy run more smoothly. In the absence of trust, there will be more litigation, for example, resulting in higher `transactions costs'. More generally, the level of social capital is likely to influence an economy's industrial structure. Large business corporations are more likely to be `I'm a psychiatrist Miss Jones. To me you're not sane or crazy. You're f150 a week' formed in high than in low trust societies. This is because a large company is a co- operative venture on a huge scale: it is like- ly to succeed only if thousands of people are able to work together in pursuit of a common goal. People are likely to have the capacity for this kind of co-operation only in nations that have a well-developed civil society.
The evidence appears to support his argument. Companies tend on average to be larger in the US, Japan and Germany than in low-trust societies such as Hong Kong, Taiwan, France and Italy. In Chinese societies, in particular, most private companies remain family owned and run — which sets a natural limit to their growth.
Yet although Mr Fukuyama establishes a plausible link between levels of trust and firm size, he does not convincingly show that industrial structure is critical for eco- nomic performance. Indeed he concedes that there is little correlation between firm size and economic prosperity. Taiwan is no poorer than Korea for having companies of smaller average size, and Italy grew faster than Germany in the 1980s. Small compa- nies are more flexible and innovative than large companies and thus may be better suited to the fast-changing markets of the 1990s. 'Cultural factors like spontaneous sociability are simply one of several factors contributing to aggregate GDP growth, and not always the most important,' he con- cludes.
His general argument is further under- mined by recent industrial trends. He says the US's stock of social capital has plum- meted in recent decades and warns that the rise of a destructive form of individualism — at variance with the nation's communi- tarian religious roots — poses a grave threat to its future economic prosperity. The implication, surely, is that the US ought to be falling behind competitors such as Germany and Japan where the bonds of social trust remain unbroken.
Yet this is not the case. Mr Fukuyama admits that, as of the mid-1990s, US economic prospects 'look very good indeed'. It has 'highly productive corpora- tions in positions of technological leader- ship in any number of key sectors'. It is nations where the communitarian traditions are still intact, such as Germany and Japan, that are struggling.
The reader is left perplexed. Mr Fukuya- ma's discussion of social capital appears to promise more than it can deliver. He is unable to establish a clear link between trust and economic performance. And his failure on this score leaves one wondering whether the entire enterprise is misguided. American protestant churches, German mediaeval guilds and Japanese samurai may all have provided forms of social glue; but they are so different in kind that it is hard to regard them as a common factor that explains the economic success of these nations.
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