The Economic Truth about Distrust and Post-Truth Politics

Lies Told By Politicians - Thomas Hawk (Flickr)

There has always been scepticism concerning the truthfulness of politicians. Yet now it seems those who govern us have sidestepped the truth more than ever. With Donald Trump inhabiting a realm of his own, where President Barack Obama faked his birth certificate and founded Islamic State, one must find it hard to attach any credibility to his other so called “facts”. Mr Trump has become the poster boy for a new style of politics known as ‘post-truth politics’. Politicians are now increasingly appealing to the emotions of the electorate by making statements that ‘feel true’, rather than ones that actually are true. And with evidence-based discussion falling out of vogue, policymakers are becoming disconnected from the details of policy.

This political culture has also reached the UK. The proponents of Brexit avidly claimed that by leaving the EU, the UK would have an extra £350m a week that could be spent on the NHS. Following the result, even proponents of this claim admitted it was a ‘mistake’. These feel good statements with little or no factual basis are becoming ingrained in the political rhetoric of the day and are influencing the decisions of voters. However, such lies also make the electorate much more distrusting of the system. This is far more worrying, as not only does it impact economic, social and political decisions and outcomes but it also filters down to increase distrust in our everyday lives. Clearly then, with this political ethos embedding itself in both American and British politics, it cannot be ignored as it brings far reaching detrimental effects.


Interpersonal distrust in the workplace

All of us want to work with people we like and, perhaps even more importantly, we want to work with people we can trust. For businesses to run smoothly, employees must exhibit a level of trust between themselves, their colleagues and their superiors. Without a high level of trust, the workplace will struggle to function as a coherent unit. Research conducted by the Chartered Institute for Personnel and Development (CIPD) itemises the consequences, which include:

  • The benefits of cross-functional knowledge sharing are effectively lost.
  • Reduced communication, both horizontally and vertically, with the result that senior teams lose important information.
  • Defensive managerial compensatory behavior, such as a return to command and control management techniques, which are known to limit innovation and performance.
  • Reduced performance as a result of elevated stress and anxiety amongst employees.
  • Increases in staff turnover as employees search for more trusted employers.

While these consequences have a profound, negative effect on individual businesses, they also impact the wider economy. Ultimately this impact is channeled through lower productivity. With workers becoming demotivated and not receiving adequate communication, they are not able to work at the level of efficiency that they otherwise could. This reduction in employee productivity also leads to higher production costs and therefore higher prices for consumers.

high-trust countries and economies exhibit higher levels of productivity

Once this low level of trust becomes ingrained among a significant number of individuals, as seems to be the case now, businesses across the economy are affected. With the spread of lower productivity growth across businesses and sectors comes the decline in international competitiveness. Raising prices in order to offset the rising costs from lower worker productivity means business are increasingly priced out of the international market. This wouldn’t be an issue if all nations experienced the distrust phenomenon associated with post-truth politics to the same degree, but not all nations exhibit such a breakdown in trust. Countries such as Australia and Norway have seen growth in interpersonal trust over the last 5 years. In these countries the number of people stating when polled that “most people can be trusted” currently sits at 54.3% and 63.76% respectively. When this is compared to the number of British and Americans who said yes to the same question – 29.6% and 30.78% respectively – the stark difference becomes apparent. As a result, these high-trust countries and economies exhibit higher levels of productivity when compared to the UK. While the stagnation of productivity in the UK and America cannot be solely attributed to a loss of interpersonal trust, it appears that it plays a role.

Clearly then, the breakdown in distrust that has afflicted the political discourse has filtered down into our individual working lives. Once this distrust has taken a stranglehold of the workplace it leads to a loss of productivity growth, which in turn decreases the growth of wages and GDP. Productivity increases should be a central goal for any business and, while reaching this goal has no quick or easy solution, fostering greater levels of trust among employees may be a good starting point.


Governmental distrust and the national economy

Today, Americans’ trust in the US government is at historically low levels. In the 51 years prior to 2014, the proportion of the public who “trust government in Washington always or most of the time” declined by a significant 58 percentage points and now sits at a meagre 19%. This significant loss of trust at the macro level mirrors the trend seen earlier at the micro, interpersonal level, suggesting that degrees of trust do indeed filter and interact between the two levels.

This low level of trust in the American government is a result of many interlinking aspects. With Congress being the single most-cited reason for such negative attitudes, most Americans (76%) also say that the federal government is “run by a few big interests” while others point to partisanship (11%) and corruption (7%) as reasons for distrust. Because the causes of this low level of trust in politicians and politics are so far reaching across government, and because the issue is so widespread among Americans, the impact on the wider economy is substantial.

distrust has such dramatic effects on the global economy

“Virtually every commercial transaction has within itself an element of trust”. Written by Nobel Prize-winning economist Kenneth Arrow in 1972, this statement encapsulates exactly why distrust has such dramatic effects on the global economy: if people who normally transact in an economy do not trust their counterpart in this transaction, then transactions will decrease. Since transactions and their value form the basis of a countries’ GDP, there is a negative relationship between distrust and economic prosperity. This relationship is illustrated in the graph below which shows the strong positive correlation between trust and GDP per capita.

Trust vs. GDP per capita

With trust in America showing a downward trend, the American public should be prepared for GDP per capita to follow a similar trend. In an already faltering economy, the likely decrease in GDP arising from distrust is one that cannot be afforded by the American people. Therefore, raising trust must begin to be a key aim of the next US government.

Distrust in the economy also effects the distribution of wealth in that economy. Cross-country data, as well as within-country data, suggest that economic inequality is negatively related to trust. This negative relationship can be explained through various mechanisms: social ties may imply that people are more willing to trust those who are similar to themselves, or higher inequality may lead to conflicts over resources. Furthermore, the level of distrust in the country towards the government also effects the individuals’ economic outcomes. In a report it was found that trust has a positive and statistically significant correlation with the probability of becoming an entrepreneur, even after controlling for education, age and individual income. Undoubtedly then, the level of distrust in the government significantly impacts the success and the opportunities available to the individuals being governed. With American distrust at a historically high level, the future of many Americans will become bleaker unless the trend of distrust is bucked.


The need to tackle trust

With predictions stating that African countries would have a five-fold increase in GDP per capita if they had a high level of trust in their economy, the issue of trust and distrust in economic terms cannot be ignored. While high levels of distrust have no quick and easy fix, and no tangible measure, governments would do well to attach significant weight to this issue. And while higher levels of trust will not completely solve the problems of low productivity or faltering growth, implementing polices to increase it may help to create a more prosperous, equal and fertile economic environment.