Higher Trust favors the smaller Company here.
Trust is the key to economic success around the Globe. In SE Asia high trust among Family members so leads and favors superior performance by smaller companies.
According to a recent World Bank report the poorest county in the world is the Democratic Republic of Congo and the richest one is Luxembourg. Why does on average a Luxembrougian make 394 time more money per year then an average person in Congo?
We see that Japan ,Norway and Switzerland for example are richer countries per Capita then the US, so clearly there is no one recipe for economic success. Clearly cultures that “live for today” (or conversely are mired in the past) have problems ranging from a low work ethic, low enthusiasm, low trust etc.. Why indulge, if tomorrow does not matter much? They also suffer from a low level of trust among each other. This it seems is the real issue.
Numerous studies have shown that levels of trust among people vary widely across cultures. (See for example the book called “Trust” 1995, by Francis Fukuyama). In 1996 a major global survey was conducted across a number of countries asking “Generally speaking, would you say that most people can be trusted?” The diversity of responses was striking, Norwegians and Swedes respectively answered 65 and 60% with a yes. Then all the way down to Peru where only 5% of people responded with a yes, and Brazil came in last with 3%. *
Harrison and Huntington produced a figure plotting the responses among per capita income and responses of some 75 countries. And it turns out that without a doubt there is an important correlation between trust and economic success. High trust, no question, leads to high economic cooperation which leads to higher prosperity. While the trust level recorded has been dropping in the US it still can score relatively high on economic success due to the general stronger respect for the rule of law there. It seems also fair, if gloomy, to say that the US is still living off the high social capital of the past. The much recorded erosion of trust among people in the US in the past 20 years should be a matter of much concern…*
High trust countries usually have larger global corporations, hence the reason why small countries like Holland has globally important and dominant companies, like Shell, Philips, ABN AMro and Roayal Dutch, or why Finland has Nokia. Or conversely, why many of the less trusting among each other countries are in South America, a geographic area of the world with still poor countries; which for long seem to have “high potential” but never seem to get there. Perhaps it’s just all a vicious circle where poverty leads to low trust? But look at SE Asian countries, here high poverty did not lead to lower trust.
Actually in SE Asia the situation is a bit more paradoxical. Here trust among strangers and governments is not much better then the global average. But trust among family members is higher then anywhere. The family unit is more sacred it seems and trust among its members is higher then anywhere. This extends not just to direct family members but also to cousins, nieces and aunts, uncles and so on. Further, the pressure to re-align for a family member out of line is also stronger due to intense cultural taboo to not conform, or deviate. Not a new realization by any means and one well explored in the mid 1990’s major book called “Trust”, referenced above.
This is one key/core reason why smaller companies usually excel in this area of the world! They are often run by family members which trust each other more as is engrained by their culture. Its shows yet another angle why when investing here you want to favor smaller cap companies as this is overall where the culture excels. Invest where the strength of the culture rests.
Best Regards,
Paul A. Renaud.
* Trust for example in the US government by its citizens has fallen by half from 1966 to 2003. And trust among its citizens is even more alarming as the percentage of Americans which agree with the statement that “most people can be trusted” has fallen from 50% in 1968 to just over 30% in 2003. Its not only a US occurrence and has been called the “Great Disruption”. (Source is the Book The Origins of Wealth by Eric Beinhocker, Random House 2007). In time this trend may well lead to an economic wealth destruction among select developed counties.•
Yet study after study shows people in the West, more then ever before and increasingly so, seek and value integrity and honesty in their leaders more then anything else and far more now, then in the past. As compared to the past when competence, vision and leadership ranked higher. Just look at a book called “Credibility” by Kouzes and Posner, 2003
