Tuesday, July 05, 2005

Lack of Trust Carries Heavy Toll--Russia

I think something like this is true in Ukraine too--Lack of Trust Carries Heavy Toll

Would you trust a stranger on a train to look after your bag while you run to the toilet?

Probably not if you're Russian. Seventy percent of people in Russia believe "you can't be too careful in dealing with people," while only a quarter agree that "generally most people can be trusted," according to a poll of 1,500 Russians conducted by the Bashkirova & Partners market research firm last month.

The lack of trust does not just translate into a greater air of suspicion, it also carries a heavy price that weighs down the entire economy.

In the absence of effective mechanisms that enforce contracts and protect property rights -- what economists broadly call "legal institutions" -- trust is left as one of the few informal pillars of economic activity.

Although the costs of mistrust are indirect and hard to quantify, they undeniably take a heavy toll on economic activity. Insecurity forces companies into unprofitable businesses to secure supplies, confines entrepreneurs to dealing only with close partners and deforms the whole structure of the economy.

There are ways of dealing with this, of getting around this we have found, but to not have real rule of law, or, to put it as one analyst does more accurately, to have rule of law except when it matters, affects the smooth and efficient functioning of the system. It means predicitiblity and that allows businesses to better plan.

But there are also personal costs involved with it. Uncertainty has been a part of Ukrainian life for centuries. It is not something started after the Revolution under the Bolsheviks. It was a way of life under the Czars. In the end, it might just be one of those things that has shaped the Ukrainian soul.

8 comments:

blackminorca said...

Edward Banfield wrote of exactly this same quality which dooms some countries to poverty.

Its called the "Moral Basis of a Backward Society"

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