How Trust Creates Wealth

Integrity might sound like a personal virtue, but a new book says it's actually a precious economic asset. In The Economics of Integrity: From Dairy Farmers to Toyota, How Wealth Is Built on Trust and What That Means for Our Future, journalist Anna Bernasek writes that almost every aspect of the modern global economy — from getting cash at an ATM to trading gold in international markets — is possible only because of deep-seated trust.

Here is what she has to say about this cornerstone value of Positive Leadership:

‘You talk about creating integrity systems. What are those?

I use eBay as an example of how you can create integrity from scratch. If you played according to the rules — if you bought, if you sold exactly the products in the way that you said they were, if you handed them over to the buyer in good order — then everybody created wealth and everybody benefited. And that cycle of integrity and wealth encouraged more people to come in. And then you had a bigger pot of integrity and a bigger pot of creating wealth. It's a virtuous circle.

What are the key components of creating an integrity system?

I call it the DNA of integrity: Disclosure, Norms and Accountability. [By] disclosure I mean bringing the truth out into the open so people can make their own decisions. Norms [are] basic guidelines that are simple, easy to understand and intuitive. If you're buying [on eBay], the rule is, you follow through and you send your money. If you're selling, you basically send your goods in the way that you say you will. That makes sense to us; it's easy to follow those rules. Lastly, accountability. This isn't about trying to catch people. It's actually about giving people the perception that if they break the rules there's a good chance they'll get caught.

I think there are two other factors I would include. One is a long-term view. [With] eBay, the potential for cheating was just enormous. What they did with their feedback system — where today buyers can rate sellers on how they behave — is that suddenly they brought sellers' behavior out into the open. So if you want to do business with a seller you can look at their feedback scores and decide, do I trust this person or not. So all of a sudden, it changed the dynamic: it eliminated the possibility of short-term cheating. If you cheated one person, it would go on your record. And then suddenly nobody would want to do business with you. That long-term view is really critical. And then the last thing is the feedback. When we put in place rules from government, new laws, regulations, you just have no idea how it's really going work out. So you need a feedback system that actually allows you to judge, to monitor, to make changes, to be adaptable.’

For more see: http://www.time.com/time/business/article/0,8599,1970964,00.html#ixzz0hx0wro6O

How Trust Creates Wealth