Archive for the ‘Business’ Category

We take trust for granted in our economy

July 4, 2007

In our modern economy trust is taken for granted.

For example, I can walk into a store anywhere in the U.S. to buy a CD player and be relatively certain that it will work well.

I trust the store.

And I trust the store even though I may never walk into that store again.

This trust is a remarkable achievement of capitalism.

It wasn’t always this way.


Prior to the nineteenth century people would only buy and sell to those people they knew, or to those in the same sect or clan. Trade with a stranger was seen as a one-time opportunity to be exploited to the utmost.

As society became larger and more mobile, personal knowledge and reputations became limited, and a sizable proportion of potentially mutually beneficial transactions involved parties with no prior personal ties.

Breaking with the tradition of defining trust in familial or ethnic terms was essential for the growth of the economy. The type of trust essential to the nation’s economic performance is trust between strangers.

How did our current sense of trust come about?

In the nineteenth century trust started to become institutionalized. These two institutions were created which helped foster a sense of trust:
– Underwriters Laboratory
– Better Business Bureau

Fixed prices and customer service also fostered a sense of trust.

And people started to see that honesty might actually be profitable. People began to focus on return business, word-of-mouth recommendations, and ongoing relationships with suppliers and partners. Individual transactions became seen as links in a larger chain of profitable business ventures.

Of course the trust could not exist without the legal framework that underpins all capitalistic societies.


Can the Web take cues from the evolution of trust in our economy?

Consider the parallelism between the development of trust in our economy to the development of trust on the Web:

– In the early days of the Web exchanges were localized, between people you knew and trusted.
– As the Web became more complex and interconnected, breaking with the tradition of defining trust in familial terms was essential.
– The type of trust essential to the Web’s long-term survival is trust between strangers.

How can trust be institutionalized into the Web?

Reputation systems are the Web equivalent of the Better Business Bureau

How else?
Portions of the above is from The Wisdom of Crowds by James Suroweicki