Trust to play a major role when COVID vaccines are rolled out

Karsten Junius December 29, 2020 09:54

Trust between business partners facilitates easier contracts, which do not require every eventuality to be pre-negotiated. Trust among different groups in a society bolsters their solidarity beyond the family or the broader tribe. Trust among countries facilitates forging of cooperative agreements that enhance the overall welfare of countries.

Yet lately, trust in science, the media and elections has been eroded by populists who have sowed and exploited doubts whenever facts did not match their own realities. This matters, as trust serves as basis for confidence in reliable future relationships that capitalism and peace often rely on.

Putman has found that civic traditions and social engagements, characteristics that date back many centuries when a powerful monarchy ruled in Italy’s south while communal republics emerged in the center and north, are principal factors that explain the divergence in development among regions. In Italian provinces which did better, people had more horizontal linkages among each other. These are relationships at a similar hierarchical level and can be any kind of network, including memberships in guilds, cooperatives, unions, mutual aid societies and even sports clubs. A vibrant civic community improves trust among members of a society, far beyond the immediate family. In this kind of environment, norms of reciprocity and civic engagement prevail. If people experience solidarity, they are more likely to practice solidarity too and they are less likely to engage in corrupt, exploitative and extractive behavior, which often pressures the efficiency and efficacy of public institutions.

In contrast, regions where vertical linkages prevail do less well. Those are typically for monarchies with hierarchical patron-client relationships where shape subordinates usually wield little influence. A larger distance to power means people do not own the system and they do not trust the elites. Instead of trying to improve the rules of the system, individuals merely try to avoid them. The level of tax compliance and importance of shadow economy are just two of numerous examples. Paradoxically, lower compliance redounds to stricter laws, and tougher policies and authoritarian leadership become more likely.

EU structural funds and the newly created EU Recovery Fund intend to level income disparities and foster cohesion among regions. But all those means a functioning institutional setup in the EU might be insufficient if there is lack of trust within a society and towards EU institutions and rules.

If trust is vitally important, why then, you may wonder, won’t policy makers do their utmost to foster it? The answer is, because it comes with short-term disincentives. Once lost, trust is difficult to regain. This is particularly relevant in financial markets where multiple equilibria are possible. Trust will play a major role when COVID vaccines are rolled out. Higher vaccination rates are expected, as well as a shorter time to achieve herd immunity, in countries where trust in the government or among neighbours is relatively high. It will likely be those countries in which horizontal social linkages and civic engagements are more prevalent than in others.

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Karsten Junius

Chief Economist, Head Economic Research at Bank J Safra Sarasin