THE EXCHANGE. Trust needs to be the default option

Trust takes long to build, yet it can be squandered quickly and its fragility is startling. Trust and confidence of stakeholders is key for institutions to function as intended and lack thereof could make society stumble or create unforeseen circumstances for itself.

In this context it becomes disappointing that trust is rapidly fading as the “default option” in the psyche of the contemporary world. Even time-tested principles like “presumption of innocence till guilt is established” are often turned on their head. Trust endures when founded on rationality.

The Edelman Trust Barometer is based on an annual trust and credibility survey. According to the 2018 Barometer, India remains a nation largely trusting of its institutions. However, there was an aggregate decline in trust of government, media and business. India became one of six markets that experienced extreme trust losses by informed public and the general population.

As per the survey, this drop in trust signals a need for leaders and institutions to more vigorously target real-world outcomes. The dip also signals doubts in the public mind about effectiveness of rules and benchmarks, of the tempo of economic growth, and of forthright discourse.

Consumer confidence

On a different yet relevant plane, the Reserve Bank of India’s consumer confidence survey of May 2018 points out that expectations about the economy have come down sharply. Perceptions and expectations on income growth and employment prospects have worsened. While pessimism is still below majority levels it is disappointing at a time economic growth and health are being projected emphatically.

A three-way relationship and presumption of trust between government, commerce and citizens are essential for growth of the economy and society. Unless this framework is healthy, worthwhile decisions may not get taken in boardrooms or in offices of public authority, social pressures may trigger clumsy decisions, lenders may not lend, and businesses may not borrow nor invest. Bankers may find it safer to liquidate rather than repair stressed corporates, which are otherwise worthwhile. Select governance transgressions tend to invite new decrees without full analysis of how these may play out in the long run.

The list goes on. These symptoms are not to lay blame at any door — they are the outcome of real-life events, some of which expanded gaps in trust.

Expenditure by government cannot salvage the economy forever. If consumers feel the way they responded to the RBI in its survey, consumption is also not going to be a saviour. There must be many reasons why significant private investment is not back. Unless all drivers in the economy fire in sync the outcome can be grim.

Business and market attractiveness are necessary — but not sufficient — conditions for committing investment. Deep-rooted systemic trust is critical for undertaking this risk.. e are at a time where there are serious concerns, due to which the government and establishment have reason to be miffed with and suspicious of a few in India’s business sector. Or even with the financial hygiene of some citizens.

Though these aberrations are harsh realities, such circumstances can lead to (misplaced) instincts that “more rules and a strong hand” automatically unleash the potential of the economy. Because its easy to colour past core problems as akin to fraud, corruption or some form of complicity? In reality such notions perhaps help self-justification for aggression, prescription or intrusion.

But to those not culpable of transgression, such aggression, prescription or intrusion are serious deterrents. Confidence or trust must not become accidental victims of good intentions.

It is not the place of this column to second-guess if trust is impacted or not and to what extent it is relevant for the way forward. Reality and the cumulative omissions and commissions of all sides need to be impartially evaluated — so that the ball is not just in any one court.

If empirical evidence points to cracks in trust and confidence, these must be dealt with — both fact and perception merit being addressed via meaningful dialogue. So what if it’s a complex year in a political economy?

Solutions must be maturely balanced among significant stakeholders. As long as they are without bias towards any one constituency — government, business or public — they will most likely be acceptable. People deserve well-directed trust or mistrust. If that elusive intangible — trust — is robust, all is well. We need then only to confront real-world concerns that disrupt revival of investment and consumption cycles. But if confidence and trust need attention, all other matters become secondary.

Placing trust implies making informed choices — trusting some people for some tasks even if some others merit being mistrusted for those same tasks. As Charlie Munger — an associate of Warren Buffet — had said: “The highest form civilisation can reach is a seamless web of deserved trust. Not much procedure, just reliable people correctly trusting one another.”

The writer is an entrepreneur and former President of FICCI.