Trust and Prosperity

File:Cherry Stella444 1

It’s pretty clear that social values have an impact on economic performance, but traditional economic models totally fail to account for this. I thought the first paragraph of this working paper from Scott Sumner does an excellent job of gesturing at the underlying mechanism:

While traveling in Northern Michigan this summer I noticed farm stands by the edge of the road selling cherries. Often, no salesperson was present. One simply placed a five dollar bill in a small metal box, and drove away with a quart of cherries. This system makes one realize the enormous waste of labor resources involved in someone waiting by the roadside for motorists to stop and purchase cherries, and may be one reason why high-trust societies tend to be relatively prosperous.

Not wasting resources on monitoring whether or not people are stealing cherries would register as a kind of productivity-enhancing organization innovation. But there’s really not much that’s innovative about simply failing to employ someone to do the cherry-selling job. The real difference between this being viable and it being non-viable has to do with the circumstances in which the cherry-sellers find themselves. If you just leave the box, will people steal your cherries? If they by and large don’t, then there’s no need to waste resources on cherry-monitoring. Dubner & Leavitt have some anecdotal indication that trust has declined somewhat recently in the United States.

Shifting in the other direction, I recall that in Nizhny Novgorod circa 1998 there was generally no toilet paper in public bathrooms because people would steal it.