A Crisis of Trust Threatens Economic Paralysis
BY THEODORE PANAYOTOU
Cyprus International Institute of Management
We don’t trust the EU and we don’t trust our government; we don’t trust our parliament and we don’t trust our courts; we don’t trust our banks and we don’t trust each other. To each of us, all the others, whether individuals or institutions, look like the proverbial used-car salesman who praises the qualities and hides the defects of his product to a degree that he makes us believe he is selling us a peach when he is, in fact, selling us a lemon. Hence we learned not to trust him. And, when we want to challenge someone’s honesty and integrity we call him “a used-car salesman” or ask rhetorically “would you buy a used car from this man?”
No aspersion is intended against used-car salesmen, many of whom are honest and trustworthy, but their profession has acquired the reputation of un-trustworthiness due to the actions of a few unscrupulous salesmen in the past and it has stuck for all eternity. This is exactly what we are risking will happen to us with our thoughtless behaviour in a desperate effort to maintain the status quo, to secure are ill-acquired gains and to avoid paying for our past mistakes and excesses.
The examples are legend. Take some of our banks which we have been blindly trusting with our savings and our pension funds. Unrepentant for the big part they played in our economic predicament, our two largest banks have apparently been legally misleading people to put money in high-interest and high-risk securities, by playing up the high return in their oral pitch to clients and obscuring the high risk in the small print of their brochures, just like the proverbial used-car salesman.
This was very much in character as they have being gambling with our savings, by buying Greek bonds even when the Greek economy was in free-fall and the Germans and others were ditching them by the truckload. How different is buying used cars with our money from buying bonds at a 30-50% discount in the secondary market or lending our money to Greek businesses and households about to default?
Instead of apologising to depositors and investors that trusted them with their savings, banks tried to extract more money by misleading them to recapitalise themselves even if this meant de-capitalising their unsuspected clients. This is a textbook application of the Cypriot proverb: “I blindfold you to sell, keep your eyes wide open when you buy” which is responsible for the demonisation of business and profit in our culture to our great detriment.
DENIAL AND BLAME
This would have been digestible if we could trust the rest of our institutions. But how can we? Whether it’s the budget deficit, the state of our economy or our national problem we are never told the full story. Our executive branch starts with a denial (“everything is hunky dory”), followed by a partial admission of the problem (“the problem is manageable”), followed by concession that the problem is much bigger but others are to be blamed (“the global economic crisis, the Greek economy, the banks”), followed by desperate and ineffective measures after the problem is well beyond our control. This is again very much in line with our culture aptly described by the Cypriot proverb “after she was raped, the granny put a lock on her door” or the English “we closed the barn door after the horse has bolted”.
When we finally “cry uncle” and ask for help from our European partners we garnish our request with conflicting statements, with red lines, and concurrent search for alternative sources of help in the hope that we will get the funds we badly need while continuing to carry on with business as usual. We don’t actually believe that mistakes must be paid for, distortions corrected and excesses eliminated. The result is that our partners get a sense that we don’t really want to change and we don’t trust them much, and in return they don’t trust us either. We inadvertently undermine their trust by our own actions at a time when we need their trust most in order to be effective as the EU presiding country.
NO CONFIDENCE
But perhaps we can trust our parliament. After all, we have only recently elected them to represent us and help get us out of the economic mess we got ourselves into. You would think that after the Eurocypria 35 mln euro debacle they will not vote another 31 mln euros down a black hole to keep Cyprus Airways afloat for another six months. But they did exactly that, possibly against EU regulation, and by attaching some terms that inspire no confidence in the future of the airline. Likewise, the way parliament dealt with the big problem of the semi-public dinosaurs by limiting the term of their appointed boards from 36 to 30 months, does not inspire any confidence that they actually comprehend the magnitude and the root cause of our economic problems.
If not the banks, the executive or the legislative institutions, we can surely trust our legal system and the courts to deliver justice. Unfortunately, we are not doing much better here. Whether it is the stock exchange debacle, the Helios airline disaster or the Mari tragedy we haven’t seen justice delivered in a way that builds trust in the system. We have a way of deflating even the most serious injustice and preach of the law with procrastination and delay upon delay, legal technicalities and legalistic jargon to end up with hardly a case to rule on. Satisfying the public’s sense of justice may not be the way to deliver justice in every case but when virtually all cases end up having the same fate, the citizen loses faith in the justice system.
Thus, while we are all (state, businesses and individuals) absorbed by our preoccupation with our dwindling bank accounts and the mounting deficits and debts, we should not lose sight of the even bigger deficit of trust that has built up in our society. Our trust accounts are running very low and in many cases are in the red. There are not many around us we can trust or many who can trust us. Little by little we lost credibility and trust. Unless we regain both we will not regain our confidence in our future; the generalised crisis of trust threatens us with economic paralysis.
More than money, we need to build trust in our institutions, in others and in ourselves. Whatever we say and don’t say communicates, whatever we do and don’t do communicates. We should make sure it communicates credibility and builds trust, not the reverse. As business writer Ram Charan famously said, “without trust the rest doesn’t matter”. Our market system depends critically on trust. “Mistrust doubles the cost of doing business” according to Professor John Whitney of Columbia Business School. And the only way to built trust is by being trustworthy ourselves.
Dr. Theodore Panayotou is the Director of the CIIM and Professor of Economics and the Environment at Harvard University, served as consultant to the UN and to governments in the U.S., China, Russia, Brazil, Mexico and Cyprus. He has published and was recognised for his contribution to the Intergovernmental Committee on Climate Change won the Nobel Peace Prize in 2007. [email protected]
