A ‘low trust’ culture contributes to Pakistan’s slow economic growth
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Trust has always been, and is even more so now, an essential ingredient of good business practice. It is one of the driving forces in an increasingly interdependent global economy. Digital technologies bring together new communities of people to innovate and participate in a variety of social and economic activities. Globalization links people across borders with distinct legal frameworks and cultures. Trust is as important for the efficient functioning of market exchanges with myriad transactions between many economic agents, as it is for manufacturing and delivering products involving intricate supply chains that extend over continents.
Wealthy nations tend to be those where business relations between people can be conducted on the basis of unstated and implicit mutual confidence. In general jobs and business transactions will involve tacit acceptance of expertise and quality. The high degree of trust lowers transaction costs, which encourages growth of large associations and relationships – both economic and social. Trust within societies, and between people and institutions, is a vital element of progress that prosperous countries not only greatly value, but ensure that it is systemically inculcated within institutions and society at large.
Unfortunately, trust is in short supply in Pakistan. Viral video clips of legislators selling their votes exacerbates already low confidence of the people in state institutions. The renegotiation of one-sided contracts between Independent Power Producers (IPPs), where most of the benefits accrued to business groups at the expense of consumers, raises doubts about business’ influence on state institutions that are meant to protect public interest. The failure of state-owned enterprises such as Pakistan International Airlines in ensuring safety, and power and gas utilities in meeting already low public expectations further erodes trust.
Pakistan persistently ranks poorly on the Corruption Perceptions Index (CPI) prepared by Transparency International (TI). In 2020, Pakistan fell four places to 124 from 120 in the previous year, and the decline was for the second year in a row. The public’s lack of confidence in institutions that have been vested with the formal responsibility of regulating the general economic and political environment directly contributes towards a climate of uncertainty. Special interest groups extracting rents through manipulation of policy making on taxes, spending, and even regulation have contributed considerably to the virtual breakdown of public trust in the system.
The pervasiveness of mistrust not only holds back domestic and foreign investment, thereby threatening growth prospects, but also limits the capacity of the state to tackle major challenges. The state struggles to persuade various interest groups to accept necessary short-term sacrifices for the sake of long-term sustainable economic and social development – as witnessed by the recent protests by civil servants in Islamabad forcing the government to accept their pay rise demands.
The low trust culture also has a bearing on the private sector, and partly explains why corporations and social organizations have failed to scale up to become regional players.
Javed Hassan
The low trust culture also has a bearing on the private sector, and partly explains why corporations and social organizations have failed to scale up to become regional players. In a traditional society trust is often limited to kinship, and consequently the majority of organizations – business, social and political – tend to be family dominated. Key decisions are inevitably taken by the family promoters, who do not have sufficient trust in outside managers. Centralization in decision making restricts organizations from divesting any authority or influence to outsiders, thereby making the organizations reluctant to seek outside investment. This restricts their growth beyond a certain size, which is sub-optimal and limits innovation and growth.
The prevalence of ‘low trust’ can be traced back, inter alia, to Pakistan’s cultural and historical legacy, but as stated earlier the high level of corruption associated with the functioning of the state has also contributed considerably to it. Critical public institutions such as the judiciary have also often not played an adequately robust role in promoting and maintaining trust.
In order to successfully build a trust culture, many constituents of society need to sensitize themselves to the high cost of low trust, how each one of them contributes to it, and what they need to do to reverse the trend.
There is an urgent need for re-engaging the public’s trust in existing institutions, which can only be possible through genuine transparency by the use, among other things, of greater digital participation. The courts and government will have to play a critical role in enhancing trust by their own trustworthy behavior. Also, media and civil society can contribute by independently monitoring government and businesses behavior, to ascertain it is trustworthy, and help reduce the trust deficit.
Finally, the leadership needs to demonstrate a singular focus on the welfare of the people and be willing to stand against populist pressure for short term solutions. A higher level of trust will not only boost economic activity but also help engender collective acceptance by the public of short-term sacrifices for long-term gains.
- Javed Hassan has worked in senior executive positions both in the profit and non-profit sector in Pakistan and internationally. He’s an investment banker by training.
Twitter: @javedhassan
