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Social Trust and Economic Development

Abstract

The aim of this paper is to determine how such a variable as social trust affects the economic and political development. It also seeks to assess the idea that the developed nations have a high level of social trust, and that is why they are wealthy, while the less developed nations have a low level of social trust and, therefore, less developed. Economic development generally refers to the sustainable courses of actions whose effects go a long way in ensuring that the living standards and health of people are maintained (Roth & Schuler, 2006). Properly implemented action is very vital in ensuring that the welfare of people is taken into account. However, other very important issues also play a great role in ensuring improved living standards. For instance, economic and political development cannot be attained if the social trust is not emphasized in addition to other aspects, such as human capital, or literacy among others. Economic development is related to any intervention policy whose aim is to counter the effects of prevailing challenges (Bjornskov, 2006).

This paper aims at comparing the contributions that social trust has on the level of development in any given country or state. Brazil has been used to represent the less developed nations while the United States of America has been used to represent the developed ones. Though there are many arguments brought forward regarding the contribution of so many other factors, the toughest question is whether social status plays a great role in ensuring that economic and political development of any nation are sustained.

Social trust applies highly to enable the people to leave most or some of the duties that they could do on their own in the hands of other people. It is worth noting that the thruster may withdraw attention or support from the trustee if the latter is not willing to cooperate with demands or wishes. It is a high level of social trust that culminates into people participating actively in the development of the society from both the economic as well as political perspective (Coleman, 1990). On the one hand, failure by people to have trust with each other within the systems of the society is likely to bring about negative changes within the society. On the other hand, however, when there is a complete trust among the people that everyone can participate actively in societal activities without fear of either losing their efforts to opportunistic people or fear of achieving less through corrupt practices, then, there will be the economic development.

If the people perceive each other as potential threats, they are likely to withdraw most of their interdependence. This consequently results in decline in the level of economic development. Emphasis placed on in-group cooperation will also adversely affect the economy. For instance, development is a holistic product achieved when there is a combination of diverse people from different backgrounds. Diversity is a source of wealth. When people combine different skills from different places, then the outcome is likely to have far-reaching impacts than when they use skills from a similar social background (Demaris & Yang, 1994). This, therefore, means that, for people to achieve economic and political development, they must be ready to go out and seek for more skills outside their environmental scope. This demands them to have social trust from the people from whom they get the skills.

Social trust has a great advantage in social science, especially within the backdrop of economic and political development. Most of the countries with very low social trust experience many problems with their economic and political growth (Butter & Mosch, 2003). The findings of this paper show that there is a strong association between social trust and economic growth of any society. Social trust has also been strongly related to countries with a higher level of development. There is no established direct correlation between social trust and economic development, but there are links or channels, such as education, or companies among others, which are significant in understanding how social trust works in order to account for the level of economic and political development in any country.

Social capital has been described as the glue that holds together people, and without it, it would be difficult to assist the society to develop (Serageldin, 1999). However, besides other factors directly influence on economic development, social trust as a social science concept has been popularized in the course of the 20th century as a strong factor that, if well utilized can lead to economic development.

CHAPTER ONE

1.0 Introduction

Social trust has been established to be an important factor that has an indirect influence on the level of economic and political development of any nation (Alesina et al, 2003). Development encompasses diverse aspects of any society, such as the economic growth. This approach, therefore, puts it in a level where all the other facets are to be taken into account to produce the holistic umbrella of its welfare and which is encompassed under the umbrella of development. Major sources of the weakness, such as the lack of freedom, poverty, tyranny, poor economic opportunities, social deprivation, neglect, and misuse of public facilities, as well as other repressive activities are some of the avenues that leadership can use to retard the level of development (Bachman et al, 2001). The non-developed nations are characterized by low level of education, healthcares, as well as life expectancy. On the other hand, the developed nations are characterized by high level of dispensation of these factors.

Most of the activities that the society engages in depend on the delegation of the topmost people, who are either experts or leaders, so that they can be successful. Leadership, therefore, in almost all the facets of the society becomes the key issue that the people should have in order to run the development of the society successfully. The success of all these, however, depends on the level of social trust that people have upon the leaders or the representatives have on the followers. Where the representatives win the trust of their followers, then the activities that they engage in are likely to be a big success (Karen et al, 2005). Where the followers do not have trust in their leaders, they are likely to manifest resilience in every activity that they engage in.

This thesis paper has also attempted to prove that there is a direct link between social trust and economic or political development. The link is manifested through channels, such as education, as well as employer-employee relationships among other avenues. Though the concept of social trust can be linked with the ethics of different economic agencies, its effects on the country’s development cannot be taken for granted.

1.1 Background of the Study

Social trust is an essential factor in ensuring that there is sustainable development in any given society. It is the trust that people bestow to the people they choose to lead them that makes them support them in all situations (Beugelsdijk et al, 2004). Without this important pillar, there is a big possibility that individuals in any given society will hesitate to indulge in development activities due to the fear of their efforts being taken for granted by other parties.

However, with this important aspect of social trust, there is a great possibility that people will put maximum efforts, which will be aimed at maximizing the returns that are vital in improving the economic as well as the political development. In cases where, for instance, the citizens have no trust with their leaders, they are likely to withdraw from participating in the projects that are meant to improve both the economic and political structure (Knack et al, 1997). Most of the activities done in the society are aimed at improving the peoples’ standards of living. Two important pillars, which are economic and political aspects, cannot be taken for granted. They both require solidarity of the people in order to ensure that each person plays his / her role to maximize the output.

There are several cases where individuals may not cooperate with others in ensuring that there is sustainable development within the systems of the society.

1.2 Statement of the Problem

Many factors are mainly used in ensuring both political and economic development. Individuals put many measures to ensure that they achieve the right target of both economic and political level. Some of these factors may include putting a lot of resources into projects aimed at improving people’s welfare, starting of welfare activities among others (Knack, 1999).

Although the contribution of these factors cannot be ignored, a main factor cannot also be taken for granted when the economic as well as political development is discussed. Social trust is the main factor which cannot be ignored if the society is to develop both politically as well as economically.

Different countries have different levels of social trust, and this is likely to have implications to either the economic or political development. There are many arguments that are raised regarding the relation between social trust and economic development. Social trust ensures that people are prepared to give some of the responsibility that could hitherto be taken by all to one person to ensure that they are the representative to their activities. Representing the people demands one to have a high level of trust among the population (Knack, 1999). For example, for the government to function well, people must be willing to trust the people who are leading them so that they can participate in the activities geared towards economic as well as political development.

In most cases, the level of social trust among the population contributes positively towards their prosperity. Countries with a high level of trust are highly prosperous, while those with low levels of prosperity are less prosperous (Uslaner, 2002). The non-developed countries like Brazil have a low level of social trust among the general population, and this may relate directly to the level of its development. In the developed nations like the United States, the level of trust among people is very high. It may make them to be highly prosperous.

CHAPTER TWO

2.0 Literature Review

2.1 The Concept of Social Trust

Social trust consists of two parts. There is the generalized trust and there is the particularized trust. Social trust is categorized as the general trust. This is a measure of the extent to which people trust the others without having any information about them. The particularized trust emanates from an individual having an experience with another individual. It can be got from information that one has concerning the other party (Whiteley, 2000).

2.2 Social Trust in Economic and Political Development

Social trust can be viewed from both aspects of mental as well as social. The beliefs and the goals of every individual who represents the others is the one that drives them either to deliver positively or negatively in the society (Woolcock, 1998). Things such as satisfaction of promises, contracts, among others are likely to increase the trust in the people. At the end this makes the population to cooperate with the implementing agencies and, thus, contributes to the development of economy as well as politics. In the developed nations like the United States, there is a high level of social trust that makes the citizens to have a positive attitude towards the leaders.

Most of the leaders are able to deliver what they are supposed to do to the citizens. This, in turn, earns both parties respect and, thus, economic development is attained (Woolcock, 1998). On the other hand, however, the non-developed states have problems where the citizens lack trust in the leaders emanating from excessive greed. The citizens, therefore, will lack trust in their leaders and the cooperation, necessary to engage them in development activities lacks leading to compromised economic development.

In case the population to be governed puts trust among the leaders, then they will assist likelihood in developing the country. For instance, it is the trust that the American people put in their systems that make their spirit to be highly aroused and contribute positively towards the development of their nation. On the other hand, however, the less developed and the developing nations put minimum or no trust in their leadership systems, which, in the end, makes the economic, and the political systems drag behind (Mion et al, 2005). The greatest factors that contribute to development include: income equality among the population, corruption avoidance, mature democracy, and generally good governance. These factors are strongly linked with trust.

Social trust that can also be referred to as the interpersonal trust has been known to reduce costs in certain areas and, therefore, contributes positively to the development of the economy. In the areas where collective responsibility is needed to solve problems, social trust is highly applicable. Civic engagement in all the matters pertaining to the running of the daily endeavors will be boosted to a higher level if the leaders earn trust from the general population (Portes, 1998). Although social trust has been linked with the capability to boost solidarity between the leaders and the individuals, who are supposed to carry out development projects, the question still remains, to what extent does it boost economic development?

Different societies have differing levels of social trust from the general populace. In the developed countries, such as Denmark, Sweden, and Norway, most people have high degrees of social trustworthiness. In the less developed countries, such as Brazil, a low level of trustworthiness is evident among the population. While social trust may be taken to just be contained in interpersonal relations, a more and in-depth approach is required to find out the channels of social trust. There are diverse aspects of social trust, which have either direct or indirect effect on the political as well as economic progress of any nation or society (Knack, 1999).

Democracy, which is a product of the relation between the implementing agencies and the people, contributes highly to the economic as well as political development of a nation or country. The leaders cannot give democracy to the people if the leaders are not socially trustworthy. The level of economic and political development runs from the relation between social trust to corruption rates and not from corruption to social trust (Inglehart, 1999). Therefore, it is the level of social trust that dictates the development level in any given country. However, more research is required to be able to determine ways in which problems emanating from lack of trust can be ameliorated.

In countries like America, what are more emphasized are the morals of an individual far more than the contributions that they make. Many emphases are made on building the character than having a successful person who bears a bad character (Barber, 1983). For example, members of the Congress impeached President Bill Clinton after they thought that he had strayed away from the normality. This aspect of self-responsibility is the one that makes the American leaders to be careful to a higher degree that they cannot even under deliver in the society, which highly makes them progress both economically as well as politically (Barro, 1991). Most of the countries have used a lot of resources to chase after economic progress at the expense of social trust.

In the less developed or developing nations, such as Brazil, trust has not yet picked up to a level that will allow the people to be motivated to assist in economic development. It is largely a big blow to the economic and political development (Berggren, 2009).

Fairness is an issue that requires to be emphasized when individuals are to talk about the social trust. It allows the few who serve the majority in the society to win public trust from them. This happens in key areas, such as the distribution of resources and dispensation of justice, across the whole population (Tocqueville, 1835).

There are differences in the way social trust is expressed in different countries which contributes to the determination of the economic and political development. For instance, in the United States of America, there are many people who are willing to engage in voluntary associations as compared to the number that is in Brazil. Most of these voluntary associations are the ones that result in positively developing the society both economically as well as politically. Engaging in voluntary services for the society means that the people have trust that the activities that they are engaging in will both help the general society as well as contribute positively towards attaining a sustainable level of the development for the current and future generation. It is evident that, if population can trust the future generation to sustain the level of development that they leave behind them, then the future generation is also obligated to work towards improving their current environment (Tocqueville, 1835). This inherent trend of events eventually leads to the sustainable development in all regions of a country or society. Consequently, there is a high level of economic development that is achieved. Though there is a lot of emphasis on the advantages of voluntary work, those who engage in the voluntary work for a long period can, however, find that they are not engaging in economic activities geared towards improving the economy. It is likely to cause a decline in the level of economic development.

In addition, societies like those found in the United States of America have an inherent culture of trusting the future generation as opposed to most societies in Brazil. This means that there will be more development taking place both economically as well as politically in the United States as opposed to that in Brazil. As people work towards bettering their daily lives, they also give a significant amount of time to care about the future generation welfare (Uslaner, 2002). As they do that, sustainable development is attained.

Another aspect of social trust can also be viewed from the perspective of equality among the general populace. When viewed from the diverse perspective, equality can be either from the perspective of opportunity or economic equality (Barro, 1991). The United States of America ensures that there is equality of all people within the population. All people are treated equally. This has been done through the emancipation proclamation that holds that all men are created equal with inalienable rights of life, freedom of speech, and association. This is highly respected in the United States of America in practice. However, in other developing nations like Brazil, though there is an allowance in the constitution giving the people the freedom of expression, there are limitations that are imposed to them regarding the kind of statement that they are to make. Mostly, the people are only allowed to say what the government only allows, but not what the individuals propose to speak about (Solow, 1957).

Freedom of expression is likely to bring about new ideas. It is the freedom of sharing ideas that people are able to communicate to each other and come up with ideas that are likely to bring about political reforms in the society. Restraining the people on the kind of ideas they are to share means that they are not at liberty to explore new ideas that can assist in both economic as well as political development. This greatly retards economic and political development (Warren, 1999). Denying people the freedom of speech also means that they have very limited avenues that they can use to relay vital information to the government. It goes a long way in limiting the development opportunities that are available. Lack of social trust between the government and the citizen’s leads to breakdown of the relationship between the two parties, which heavily affects the political and economic development of the society (Warren, 1999).

Social trust among the people is attained where there is no or less inequality in the society. Though this can be largely ignored in the non-developed nations, there has been a correlation between the level of inequality and social trust (Zak, and Knack, 2001). The perception that there is no equality in Brazil makes it to be economically and politically retarded. On the other hand, however, there is a high level of equality among the American population, which gives t a positive perception that leads to participation in developing the economy. Researches done have proved that the low levels of development that is experienced in the non-developed countries emanate from lack by the government to implement the level of equality among the society members. This creates lack of interest by the people to engage in the economic and political development projects, which, in turn, lowers the level of development in the society (World Bank, 2005).

The non-developed countries, such as Brazil, have low levels of social trust. This makes them to be stuck in what is referred to as the social trap. In this case, social trust will not increase due to massive social inequality among the populace. The policies, which are meant to be implemented by the public, will not be achieved because of lack of trust among the people in their leaders (Mion & Weill, 2005). In the developed or industrialised nations, such as the United States of America, the opposite happens where the championing of equality among the people will make them feel obligated to develop their national projects through participating actively, thus contributing to economic development.

People who lay a lot of trust on the others are also inclined to have a positive impression of their democratic institutions (Braithwaite & Levi, 1998). They are, therefore, likely to participate more in politics as well as civic organisations, which are directly linked to development. Social trust will also lead to people being tolerant to the others who have diverse views about the environment. In the United States, for instance, diversity of ideas is highly appraised but people with diverse ideas that are repressed in the developing or non-developed nations like Brazil. Trusting other people will also improve the level of charity work that is an important activity that bridges the gap between the wellbeing and the less disadvantaged in the society (Luhman, 1979).This means that the economic development will have been attained if charity work will be encouraged through mutual trust.

Social trust in another insightful perspective allows the people to have an optimistic view on their own lives. It also allows them to be happy with how their life is going. This makes them to be motivated to contribute positively towards the development of both the political and the economic aspects. In the non-developed nations, there is a low level of social trust. This makes the people to have low self-esteem. They may also be pessimistic about their lives, therefore making them to be unhappy. In more developed nations, the happiness of the people is derived from the social trust that they have in other people. This makes them to participate fully towards both the economic and political development projects (Offe, 1999).

Patterns created within the society are also linked with having a positive influence on the development level of both the politics and economy. For instance, those countries with more trusting people, such as the United States, have better working as well as democratic institutions, greater economic growth, open economies, less crime, and corruption (Paxton, 1999). This is the opposite picture witnessed in the less developed or non-developed nations, like Brazil. Where the level of corruption is minimal, then the level of economic development is likely to be very high. In addition, crime reduction ensures that a lot of resources are not diverted to maintain law and order in the society; therefore, the level of economic development is ultimately maintained.

It is disputable that the level of trust that people put on others determines their degree of moral standards. Social trust reflects on the level of solidarity that the people have. More so, there is a shared belief among the people that each one of them bears the responsibility of sharing the resources that they have, therefore contributing positively towards economic development. The connection between social trust and development is seen where there are good deeds from well-wishers volunteering their time and other significant resources to improve the lives of those with fewer resources. Most of these practices are more prevalent in more developed countries as opposed to the less or non-developed nations (Uslaner, 2002).

Social trust can be conceptualised as the measure of how people evaluate their moral standards in their respective societies. Countries that have got low social trust are unlikely to establish moral trust by not establishing universally accepted social programmes. This occurs because of the fear that the political history of the society may interfere with such programmes for their own selfish benefits. This leads to retardation of both the economic and the political development. Countries with dishonest leaders in their governance systems are unlikely to participate actively towards improving their economic and political systems (Braithwaite & Levi, 1998). In developed countries, such as the United States, the following programmes are useful in that they act to redistribute the resources, thus creating more economic equality to the general population.

The roots of social trust within the society lie in the ability of the concerned agencies to enhance a more equitable distribution of opportunities and wealth in the society. This will ultimately mean that there are no areas that are going to lag behind in terms of economic development. Lack of social trust in other people may go a long way in preventing people from participating in collective responsibilities that are likely to improve both the economy and the political system (Alesina, 2003).

Greater social equality and honesty among the people who are trusted by the others to implement certain activities reinforce a sense of solidarity that consequently culminates into the people delivering positively for the nation. For instance, the transparent and fair implementation of the universal social welfare policies in Sweden has assisted in economic development (Alesina, 2003). Though the concept of social equality can be highly appraised as one of the main contributors of economic development, sometimes it is difficult to ensure that there is ultimate equality in the general population. If it is to be held that equality contributes positively to the economic development, then to a large extent, it may not be achieved. But it is worth noting that the developed countries have succeeded in promoting equality for all people, and that is why they have been able to develop faster as well as consistently.

Generalised social trust cuts across a large population with differing ways of doing things. Particularised social trust only applies to people of the same category or in-group. Diversity is considered a source of wealth. When the population have a general trust in all the members in the society, there is a likelihood of that they will harness the available resources at their disposal to ensure that there is both economic as well as political development within the society. Where each group looks to its own selfish needs instead of seeking the demands and the needs of all the people, differences are likely to arise and, hence, conflicting interests. This leads to lowering the level of economic as well as political development (Bengtsson et al, 2005).

Social trust is an important element that links us to people who may be even different from us. A reflection regarding the concern of others will also be stimulated within the general population. Where people face discrimination and have very few resources, the rest who are able will assist them, hence leading to economic development. This is mostly possible in the developed nations, like the United States of America. On the other hand, however, the societies characterised by high levels of inequality and very few operational policies for increasing the equality of opportunities for development, social trust is noted to be very low among the general population (Newton, 1997). There is even less concern for people of different backgrounds. In countries, like Brazil, there is a high level of unequal distribution of wealth. The rich and the poor may live next to each other, yet their lives may never intersect. This, therefore, is likely to bridge the gap between the poor and the rich, thus resulting in the retarded economic growth.

It is evident that the non-developed societies emphasise on social classes that make them drag behind. On the other hand, the developed nations have been very keen not to divide the people along their social statuses. When this is achieved, then the people will be given equal opportunities for equal levels of development. In this case, the people will work towards improving the economic as well as the political development without the fear that, in the future, success depends on your social status. People are conditioned that their success will depend on the efforts that they put in their lives for the betterment of the society.

Social trust in countries like United States of America has a positive impact on the economic growth. It is the ability of the society to champion equal rights for all that results in people bearing a positive attitude to the places that they live in and the activities that they engage in. Making the people feel appreciated means that their self-esteem will be raised and they are likely to do all their activities knowing well that they will be highly rewarded at the end (Sobel, 2002). Children in such countries are given equal opportunities to attend harmonised medical treatment services, schools, and other services. In the non-developed countries, like Brazil, the opposite happens such that the people have unequal access to basic facilities, which contributes to the people having a negative attitude to their system. With this kind of attitude, they are unlikely to participate willingly in their activities and, therefore, lead to underdevelopment.

Lack of social trust can also make people to feel insecure in their own countries and, therefore, have the fear of participating in the daily activities with people of different statuses. For example, in Brazil, the rich are highly protected by the police and the private guards, while the poor see them as their likely enemies. In such societies, both the rich and the poor have no regard for each other. The general trust in such a situation is lowered while the particular trust among the members will be high (Roth & Schuler, 2006). Though the particular groups of the people are likely to assist each other in developing their economic levels, the economic development would even escalate when people of different groups work with each other towards improving their economic or political systems.

Where each person’s particular group is highly emphasised, the demands of the others are seen as conflicting with that of their own. There will be many conflicts within the general population, which is likely to retard or adversely affect the economic development of the society. On the other hand, however, individuals in countries like the United States have tried to bridge the gap between the poor and the rich. There are equal opportunities, as well as security. In such a situation, therefore, everybody feels secure to participate in activities aimed both the economic as well as the political development of the nation (Uslaner & Mitchell, 2005).

There are certain cases where there exists no trust between the people and the leaders. In such a case, the people may never understand that social equality may not be practically attained. The underdeveloped countries have a problem of the citizens being adamant of their leadership systems which they perceive as the main challenges source that face the society (Knack Zak, 2002). In addition, the people may never cooperate with the leaders in order to contribute to both the political and economic development. This, in turn, affects both the political and economic development programmes and projects. In the developed nations people are aware of lack of practicality in systems of governance.

Ignorance is highly eliminated to enable the people to make rational decisions. In that case, therefore, there is a developed trust system between the people and the leadership system. This means that the citizens will be highly willing to participate in development projects more than those who do not trust the leaders. For example, in the non-developed nations, like Brazil, the citizens have little trust in their leadership system and normally perceive them as retarding the process of development (Uslaner, 2002). Most of the projects that are initiated by experts are not taken seriously by the citizens and they end up ignoring what is the most important aspect of their life at the expense of what may never help them.

Robert Putman in his work, Making Democracy Work: Civic Traditions in Modern Italy, looks into the question of what makes a government to fail. He also aims to understand the working of democratic institutions. He concludes that their success or failure solely lies on social trust they are bestowed by the people. He noted that the social trust facilitates efficiency of carrying out the activities of the society by ensuring that the activities are coordinated (Putnam, 1993). It is true without any doubts. When we have people trusting the kind of authorities that lead them, they are likely to come together and work towards achieving the betterment of the economy. In addition, where the people can be able to trust each other with minimum conflicts, there is likelihood that they will minimize expenses that can be used in resolving conflicts leading to politically serene environment. Though it is the trust that people have in their leadership that determines the level of economic development, the extent to which it succeeds needs to be checked.

Social trust is a determinant of both the economic as well as political development. There are other studies that have shown that there is no direct correlation between trust and economic development (Bjornskv, 2006). Among the three pillars associated with economic development, social trust is regarded as the most promising factor that facilitates better economic and political development (Knack and Keefer, 1997).

In an economic system, many commercial activities are determined by mutual trust between two or more people or parties. For instance, an individual can be trusted that, after supplying him / her with goods or services, he / she can pay later (Guth et al, 2006). For economic systems to thrive, the managers have to entrust their employees with the duties that they are designed to carry out to assist in its growth. It is with the trust that the employees put on their employees that make them feel free to carry out their daily duties with self-esteem. In most cases, highly monitored activities may not give good results because of the perception-inflicted on the workers. However, if the workers believe in everything they are doing is the right thing, then they will always work towards maximizing the profits of the company or business, which, in turn, gives rise to an improved economic system (Solow, 1957).

An economic system requires investing with other agencies like the banks. It is the trust that the investors have on the banks that makes them either save or not save with them. In addition, the banks give individuals loans with the assurance that, in the near future, they will be repaying the amounts. In a society where the people can be able to trust each other, there is likelihood that dishonest activities are minimal (Demaris & Yang, 1994). This from another perspective means that less money is used in protection of people’s activities. The trust between the bank and the investor in this case needs to be properly scrutinized. Although it can be said that the investors trust the banks to keep their money, the aim of the bank is to make profit; therefore, they are likely to deliver proper services in order to attract more customers and minimize losing its clients.

Zac and Knack (2001) proved that social trust and investment rates are highly correlated. They realized that, for every seven-percentage point’s increase in the social trust, the investment rate increases by one percentage point. The reasons behind this are; first, the managers do not waste many resources trying to monitor the workers. Secondly, property rights are better protected in the high trusted societies. Although social trust can be quantified by assuming the qualitative aspects, it is likely to lose the most important meaning that it can have if dealt with from the qualitative perspective. Overemphasis on the quantitative aspect of social trust can create the problem of quantophrenia.

2.2 Indirect Influence of Social Trust on Economic Development

The quality of an institution determines the level of productivity of such an institution. The quality of an institution highly depends on the level of social trust within it. It means that a direct contribution of the increase in the level of social trust will lead to an indirect effect on the production level in a company leading to improved economic system (Whiteley, 2000). Legal disputes in the firm reduce drastically with increase in the level of social trust in the institution. If the disputes are likely to occur, then the application of legal law is easy. The environment which the investment is made in is made safer, thus leading to increased output level. In places where social trust is allowed to reign in investments, the rate of corruption is also lowered. More resources will not be wasted through corruption leading to the improved economic system.

It is the social trust that the people have in the political aspirants that makes them to turn out in large numbers to vote for their desired leaders. This aspect of political participation develops the political system. According to Knack (1992), the probability of citizens voting on the grounds of social trust increases by 8.6 %. This means that the politicians must account for their actions that are aimed at improving the economic systems of the society.

Coleman (1990) identifies trustworthiness in a social setup as the most important category of the social capital. From another point of view, the process of exchange is highly dependent on the virtues, such as trust. A significant factor greatly influences economic outcomes. The level of inherent trust present in a society is the one that highly influences the well-being of a nation. There would be less political and economic development without norms and rules of conduct.

CHAPTER THREE

Methodology

The method used in the collection of the data is the analysis of previously collected data. The secondary data, which will be obtained from reliable sources, will be used to prove that social trust is high in the developed nations and that is why they are prosperous. The paper seeks to put together all the relevant data related to the economic development of both the developed nations, represented by United States of America, and the non-developed nations, which are represented by Brazil. The collection of data ensures that there is a comprehensive and enough dataset that will significantly assist in analysis and come up with a comprehensive conclusion that social status is, indeed, a factor that leads to economic development.

The collection of data will also take into account the link between the individual determinants of economic growth, such as the effect of social status on per capita income. The role of social status on assisting in the smooth running of companies and related agencies, boosting the esteem of the employers has been explored.

Since the concept of social trust cannot be directly quantified, data collected has been coded to ensure that social status can be quantified to enable easy analysis of the data. Although the issue of the use of trust in quantitative analysis is a complex phenomenon, world values survey (WVS), is an important agency that can assist to get reliable information regarding the level of social trust in different countries.

The criteria used to judge whether the hypothesis is viable or not will be comparison of the secondary data. In this study, the United States of America has been used as a representative of the developed countries while Brazil has been used as a representative of the non-developed countries. The economic data from the GDP of both countries will be analyzed to make a conclusion. A comparison of the interpersonal trust between both countries will also be carried out so that an informed decision can be arrived at.

Chapter Four

Results and Analysis

The sample taken for the purpose of analysis comprises a few selected countries, which represent both the developed and the non-developed or underdeveloped countries. The dataset shows the levels of interpersonal trust for the selected countries. The United States of America in the study represents the groups of countries, which are developed, while Brazil represents countries, which are non-developed or underdeveloped.

Table 1. Levels of Interpersonal Trust between Different Countries

Country Trust 81 Trust 86* Trust 90 Trust 95 Trust 99

USA 45,4 – 50 35,6 35,8

Japan 40,8 – 41 46 43,1

Germany 29,8 43,4 37,8 41,8 34,8**

France 24,8 21,3 22,8 – 22,2

Italy 26,3 30,3 35,3 – 32,6

Britain 44,4 39,7 43,6 31 29,7

Canada 49,6 – 52,4 – 38,8

Brazil – – 6,7 2,8 –

S. Africa 29 – 28,3 18,2 11,8

Philippines – – – 5,5 8,4

Note: *The trust data from 1986 is taken from the Euro barometer 25. **Trust Data from Germany were taken from West Germany in 1981, 1986, 1990, and 1995. The Data from 1999 was taken from unified Germany.

As it is evident from Table 1 above, the United States of America has a higher level of interpersonal trust as compared to Brazil. Most of the renown developed countries, such as France, Germany, Britain, and Italy recorded high rates of interpersonal trust. This means that the higher the level of interpersonal trust is, there is the higher the likelihood of high economic development.

The table also empirically shows the relationship between two components: social trust and economic development. The United States of America records low rates of internal crime, meaning that, as the table suggests, the country has a high rate of interpersonal trust. Brazil, on the other hand, records low rates of interpersonal trust characterized by high rates of internal crimes (Islam, 1995). There are evidence and a strong correlation between the level of social trust and the level of economic development. The major issue in this study may not to extremely lean on providing statistical evidence to prove that social trust causes economic development, but the greatest aim is to help in understanding that the contribution of social trust cannot be taken for granted when the economic level of any given country is expected to be improved.

Social trust can be generally referred to as a form of social capital that indirectly assists in the economic development of a country or a region (Fukuyama, 1995). The rates of criminals, for instance, are more alike in the non-developed countries, such as Brazil. It means that they are likely to affect the economic development negatively. On the other hand, however, countries like the United States where the criminal rates are comparatively low have recorded high rates of economic development.

Morgan (1994) stated that social trust can be treated as a component of economic growth or as a product of social capital It can be used as both an instrument of creating social capital as well as a result of the presence of social capital. When it is viewed from the perspective of creation of social capital, individuals who are the main determinants of the creation of resources can be able to work with one another as they utilize the available resources to improve the economic standards of the society (Islam, 1995). For example, an individual can trust other agencies to invest his / her resources in order to develop economically.

Trust in the others also aims at reducing the transaction costs that might arise when one is carrying out their economic activities. When viewed from the perspective of the non-developed countries such as Brazil, illegal activities such as insecurity or prostitution among others tend to retard economic development (Luhman, 1979). The level of poverty that is manifest in the country is, therefore, to a greater extent, caused by low levels of social trust in the environment. Furthermore, social trust has worked to lessen the level of community participation in the development activities. Most of the citizens have a fear that their commitments may not be rewarded, but will be used by the people who are the custodian of their resources for selfish ambitions. In addition, the resources that could hitherto be used to finance projects in the society are used in eliminating or fighting against the prevalent abject poverty or criminal acts.

Social trust can also limit economic growth in the less developed or non-developed nations as the credit-lending facilities may not lend individuals money on the account that they may not possess enough security to prove that they are going to pay the loan on due time (Portes, 1998). On the contrary, there are systems in the developed nations that are created to ensure that the commoners are able to access credit-giving facilities even when the individuals do not have enough security to be awarded the loans. Most of the developed countries have such mechanisms that have greatly helped in eliminating poverty among the less disadvantaged members of the society.

The greatest level of trust that the developed countries have in their systems is also another contributing factor. A country may not develop if the people do not chose the right leadership systems. The people have absolute trust in their leaders. Even where there are disputes, they are solved at logical points of view (Serageldin, 1999). Other non-developed nations are likely to suffer from losses of capital as they try to change their leadership systems. People are also likely to use a lot of their resources trying to criticize their leadership system while they would have used the same amount of time to indulge in the economic development activities.

From Table 2 above, it is evident that the Gross Domestic Product (GDP) of the United States of America is higher than that of Brazil. From Table 1, it was also evident that the interpersonal trust was higher in the United States than it was in Brazil. There are several factors that would account for this, but it generally means that the higher the interpersonal trust is, then the higher it is likely to bring about economic development.

This, therefore, means that social trust is a positive contribution towards economic development. When the interpersonal trust is very high, then the economic development is also likely to be higher. When the social trust is very low, then economic development is also likely to be lower (Zak and Knack, 2002). The above analysis can, therefore, prove that countries with higher levels of interpersonal trust have high economic growth rates and are prosperous. Those with low interpersonal trust have low economic growth rates and are equally less prosperous.

The above analysis can be as a result of different circumstance. For instance, low interpersonal trust is likely to be caused by different factors, such as tribalism, lack of education, high rates of corruption, nepotism, among other vices that are likely to work and divide the attention of the people. In such a situation, therefore, the people will concentrate on building their social lives at the expense of concentrating on the economic activities that are important in economic development.

Chapter 5

Conclusion

There have been several researches whose aim has been a search for the determinants of economic growth. This search has been as old as the age when economics started. Over the periods, scientific research has dominated the world of research and this tends to allow more solutions to be unfolded. The coming up of technological advancements has made it easier for more advanced and intensive quantitative researches to be carried out (Den et al, 2003). Despite all efforts that have been put to come up with all the required factors of economic and political development, there has been little feedback concerning the key factors that are required in order to make progress in both the political as well as economic development.

The developed countries, such as the United States, have very good interpersonal trust rates and, thus, high economic development rates. On the other hand, the non-developed countries, such as Brazil, have very low interpersonal trust rates, which translate to their low economic development. Several factors could be associated with the low or high level of interpersonal trust, which culminates into the corresponding low or high economic development rates. Such factors may include low levels of education, different cultures, tribalism, fear, and corruption among others.

Different countries have identified different policies that they require in order to enable them to prosper both economically as well as politically. Even if great efforts have been made in an attempt to come up with diverse factors, there has been lack of universal factors that facilitate both economic and political development. Progress has continued to dominate the world of economy and the researches have come up with different factors on the development of both the economic as well as political systems. The work of Putnam in 1993 came up with the concept that social capital is also a major factor that contributes greatly to economic development. He published his work under the title Making Democracy Work. Social trust has been experiencing a considerable concern as one of the main force that contributes to a greater extent to economic development (Putnam, 1993).

In countries where social trust has been known to be higher, then there has been a high rate of economic development. On the contrary, countries with low rates of social trust have recorded low rates of economic growth (Fukuyama, 1995).The relationship between social trust and economic development has been widely discussed in this study, and there are considerable proofs to show that countries with high trust rates have been prosperous while those with low rates of social trust have been less prosperous (Kelton et al, 2008). The study has used the example of the United States as a country with the high rate of social trust and consequently improved economic development. Brazil has been used as an example of countries with low levels of social trust and consequently low rates of economic growth. The study has elaborated further on the relationship between social trust and economic development and the reason why social trust has been a significant factor in determining economic as well as political development.

The data collected and tested shows that social trust has a significant influence on the level of economic development of a country (Durlauf, 2002). In less developed countries, like Brazil, there are very low levels of social trust among the population and this has been directly translated into very low economic development. The developed nations, like the United States of America, have recorded higher levels of social trust. This has been shown by the way the economy of the country has been on the upsurge.

The research has also attempted to reveal the channels through which social trust can be used to boost economic development of countries, which are more developed. In addition, the results of the research can also be used to challenge the developing or the non-developed nations to keep up the rate of social trust in order to enable them to be on the same level with the already developed countries (Fukuyama, 1995). Another important query that would not be understood is the source of the trust, the people who should trust others and the reason behind laying trust on others. Some concepts on similar questions have, however, been explored. This study has attempted to compare the level of trust in less developed or non-developed nations represented by Brazil versus the developed nations represented by the United States of America.

The existing literature has underexplored the channels through which trust has been used to enhance economic and political development. The existence of good systems or channels is the one that makes the developed nations posses highly developed economic systems as compared to the lack of good channels in the less developed or non-developed nations that ultimately makes them to drag behind in terms of economic and political development (Maister, Green, & Galford, 2000).

The study has proven that the concept of trust as used as a factor that enhances economic development should not be taken for granted, but there should be more in-depth research that should be carried out in order to understand the deeper link between trust and the economic and/or political development. It has shown that the social trust concept has a more diverse link to both economic as well as political development that it was previously thought. This means that more research is required to come up with extra links between social trust and economic or political development.

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