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Trust, Honesty, and Corruption: Reflection on the State-Building Process

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  • Susan Rose-Ackerman

    (Yale Law School)

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    Abstract

    Trust implies confidence, but not certainty, that some person or institution will behave in an expected way. A trusting person decides to act in spite of uncertainty about the future and doubts about the reliability of others' promises. The need for trust arises from human freedom. As Piotr Sztompka (1999: 22) writes, "facing other people we often remain in the condition of uncertainty, bafflement, and surprise."Honesty is an important substantive value with a close connection to trust. Honesty implies both truth-telling and responsible behavior that seeks to abide by the rules. One may trust another person to behave honestly, but honesty is not identical to trustworthiness. A person may be honest but incompetent and so not worthy of trust. Nevertheless, interpersonal relationships are facilitated by the belief that the other person has a moral commitment to honesty or has an incentive to tell the truth. Corruption is dishonest behavior that violates the trust placed in a public official. It involves the use of a public position for private gain.I focus on honesty and trust as they affect the functioning of the democratic state and the market. I am interested in informal interactions based on affect-based trust only insofar as they substitute for, conflict with, or complement the institutions of state and market. The relationship between informal connections and formal rules and institutions is my central concern. The institutions of interest are democratic political structures, bureaucracies, law and the courts, and market institutions.As Mark Warren points out, governments are needed in just those situations in which people cannot trust each other voluntarily to take others' interests into account. The state is a way of managing inter-personal conflicts without resorting to civil war. Yet, this task is much more manageable if the citizenry has a degree of interpersonal trust and if the state is organized so that it is trusted by its citizens, at least, along some dimensions. The state may be able to limit its regulatory reach if interpersonal trust vitiates the need for certain kinds of state action (Offe 1999). Conversely, if the state is reliable and even-handed in applying its rules, that is, if people trust it to be fair, state legitimacy is likely to be enhanced (Offe 1999, Sztompka 1999: 135-136). Thus, there are three interrelated issues. First, do trust and reliability help democracy to function, and if so, how can they be produced? Second, do democratic governments help create a society in which trustworthiness and honesty flourish? Third, given the difficulty of producing trustworthiness and honesty, how can institutional reform be used to limit the need for these virtues?This paper provides a framework for thinking about these broad questions. Section I organizes the research on trust especially as it applies to the relationship between trust and government functioning. With this background, section II discusses the mutual interaction between trust and democracy. The alternative of limiting the need for trust leads, in section III, to a discussion of corruption in government and commercial dealings. Corruption occurs when dishonest politicians and public officials help others in return for payoffs. Because their actions are illegal, they need to trust their beneficiaries not to reveal their actions. Corrupt officials are also, of course, betraying the public trust insofar as their superiors are concerned. Reforms here can involve a reorganization of government to limit the scope for lucrative discretionary actions. Conversely, one might focus on changing the attitudes of both officials and private actors so that existing discretion is exercised in a fairer and more impartial manner.This paper analyzes the interactions between trust and democracy at a general level. However, its initial aim was to provide a context for a workshop at the Collegium Budapest on honesty, trust, and corruption in post-socialist countries. My companion paper in Kyklos makes that link explicit by bringing in survey evidence on public attitudes and behavior. Here, I conclude in section IV with some thoughts on the special character of the transition process. I highlight the tensions between interpersonal trust and trust in public institutions in the context of the transition to democracy and a market economy.

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    Paper provided by Yale Law School John M. Olin Center for Studies in Law, Economics, and Public Policy in its series Yale Law School John M. Olin Center for Studies in Law, Economics, and Public Policy Working Paper Series with number yale_lepp-1013.

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    Handle: RePEc:bep:yaloln:yale_lepp-1013

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    1. John McMillan & Christopher Woodruff, 1999. "Interfirm Relationships And Informal Credit In Vietnam," The Quarterly Journal of Economics, MIT Press, vol. 114(4), pages 1285-1320, November.
    2. Ernst Fehr & Simon Gaechter, 2000. "Fairness and Retaliation: The Economics of Reciprocity," CESifo Working Paper Series 336, CESifo Group Munich.
    3. Hellman, Joel S. & Jones, Geraint & Kaufmann, daniel, 2000. ""Seize the state, seize the day": state capture, corruption, and influence in transition," Policy Research Working Paper Series 2444, The World Bank.
    4. Simon Johnson & John McMillan & Christopher Woodruff, 2001. "Courts and Relational Contracts," NBER Working Papers 8572, National Bureau of Economic Research, Inc.
    5. Woodruff, Christopher, 1998. "Contract enforcement and trade liberalization in Mexico's footwear industry," World Development, Elsevier, vol. 26(6), pages 979-991, June.
    6. Rose-Ackerman,Susan, 1999. "Corruption and Government," Cambridge Books, Cambridge University Press, number 9780521632935.
    7. Simon Johnson & John McMillan & Christopher Woodruff, 2002. "Property Rights and Finance," American Economic Review, American Economic Association, vol. 92(5), pages 1335-1356, December.
    8. Slemrod, Joel & Blumenthal, Marsha & Christian, Charles, 2001. "Taxpayer response to an increased probability of audit: evidence from a controlled experiment in Minnesota," Journal of Public Economics, Elsevier, vol. 79(3), pages 455-483, March.
    9. Simon Johnson & John McMillan & Christopher Woodruff, 2000. "Entrepreneurs and the Ordering of Institutional Reform: Poland, Slovakia, Romania, Russia and Ukraine Compared," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 8(1), pages 1-36, March.
    10. McMillan, John & Woodruff, Christopher, 1999. "Dispute Prevention without Courts in Vietnam," Journal of Law, Economics and Organization, Oxford University Press, vol. 15(3), pages 637-58, October.
    11. Rose-Ackerman, Susan, 2001. "Trust and Honesty in Post-socialist Societies," Kyklos, Wiley Blackwell, vol. 54(2-3), pages 415-43.
    12. Sugden, Robert, 1984. "Reciprocity: The Supply of Public Goods through Voluntary Contributions," Economic Journal, Royal Economic Society, vol. 94(376), pages 772-87, December.
    13. Johnson, Simon & McMillan, John & Woodruff, Christopher, 1999. "Why do Firms Hide? Bribes and Unofficial Activity After Communism," CEPR Discussion Papers 2105, C.E.P.R. Discussion Papers.
    14. Frey, Bruno S, 1997. "A Constitution for Knaves Crowds Out Civic Virtues," Economic Journal, Royal Economic Society, vol. 107(443), pages 1043-53, July.
    15. Rose-Ackerman, Susan, 2002. ""Grand" corruption and the ethics of global business," Journal of Banking & Finance, Elsevier, vol. 26(9), pages 1889-1918, September.
    16. Rose-Ackerman,Susan, 1999. "Corruption and Government," Cambridge Books, Cambridge University Press, number 9780521659123.
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