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Measuring Trust in Transition: Preliminary Findings from 26 Transition Economies
Abstract
Much of the literature on institutions and social capital posits that trust is an important prerequisite to well-functioning markets (Arrow 1972; North 1981;Putnam 1993; Fukuyama 1995; Stiglitz 1999). Trust lowers transaction costs and facilitates cooperation among entities that might otherwise view mutually advantageous exchange as too costly or risky. Especially in places where third-party enforcement—that is, the state and its constituent legal and regulatory institutions—is weak or uncertain, a basic belief in a counterpart’s honesty is an “important lubricant” in a social and economic system (Arrow 1974). In these circumstances, trust can be built through repeated interactions, and the creation of a reputation for cooperating, even where incentives for shirking may be strong (Axelrod 1984).
... Also, when rule-based trust is high, the presence of tax enforcement activities in the form of visits and inspections by tax officials does not change the relationship between rule-based trust and unofficial payments. Raiser et al. (2004) employ data from a 2002 survey of firms in 26 transition countries conducted by the European Bank for Reconstruction and Development (EBRD) together with the World Bank, which asked firms specific questions about the contracting environment and the quality of the courts (i.e. Business Environment and Enterprise Performance Survey, BEEPS) and investigate the country-level variation in the contracting environment and relate this to other country characteristics, such as progress in economic, legal, and institutional reform. ...
... Thus, our variable of interest is related to the firms' perception of the quality of courts which is analysed within the question Please tell me if you 'Strongly disagree', 'Tend to disagree', 'Tend to agree', or 'Strongly agree' with the statement: The court system is fair, impartial and uncorrupted. As Raiser et al. (2004) point out, the variable which describes the courts' fairness and honesty is the only measure related to courts that could be related to higher trust at the level of firms. The data are presented in Figure 3. ...
... The rationale for expecting a positive influence of trust in courts on firm performance stems from the literature presented above and from the assumption that a firm that believes that it can rely on the courts, will be more motivated to enter into contractual arrangements with new suppliers and/or customers, and will be less motivated to be locked into already established networks (Akimova & Schw€ odiauer, 2003). Contrary, if courts are perceived to be unfair, partial and corrupt, firms will rely more on reputation, collecting information on new trading partners from other actors, sharing their own information on trading partners with others etc. (Raiser et al., 2004). Such actions are assumed to increase the firms' costs. ...
The purpose of the paper is to analyse the effects of interpersonal trust in business relations (proxied by trade credit) and institutional trust (proxied by firms’ trust in courts) on firms’ performance. The analysis is performed on a specific sample of 1298 firms in Western Balkan countries which are usually characterized by negative social capital that is considered to hinder economic and social development at all levels. The methodological approach is based on the propensity score matching method and the obtained results show that firms’ perception of courts as fair, impartial and uncorrupted, is connected with lower costs and with positive expectations of an increase in sales in the upcoming period. On the other side, trade credit as a trust variable has a statistically significant and positive effect on firm productivity measured as sales per employee and on expectations of an increase in sales in the upcoming period. The paper contributes to the existing literature in terms of the choice of the post-socialist groups of countries for the analysis, the method that is used (treatment-effects estimation), and in terms of performing firm-level analysis of the effects of two types of trust on selected variables of firm performance.
... Particularly, this approach puts forward that no short-term miracles should be expected from democratic transitions, as they lead to the breakdown of existing structures and the general disappearance of certainties. Consequently, already relatively low levels of civic attitudes cannot be expected to increase overnight or might even decrease (see Raiser, Rousso, & Steves, 2004), nor will unpopular groups be liked all of a sudden (cf. Gibson, 2009). ...
... Chanley, 2002;Davis & Silver, 2004;Gross, Aday, & Brewer, 2004;Skitka, Bauman, & Mullen, 2004). However, studies on the transition to democracy in CEE suggest that uncertainty inhibits any increase in political-institutional trust in a newly less-authoritarian context, though the transition might actually strengthen trust in informal networks as compensation (see Growiec & Growiec, 2014;Marinova, 2011;Murray, 2008;Raiser et al., 2004). These results suggest that political shocks have no single unequivocal effect; the impact of such events depends on the characteristics of the shock and context. ...
The protests that swept the Arab Middle East and North Africa (MENA) are expected to have influenced two key civic attitudes fundamental to well-functioning democracies: trust and tolerance. However, systematic comparative assessments of the general patterns and particularities in this region are rare. This contribution theorizes the uprisings’ impact and presents new society-level measurements of trust and tolerance for the MENA, synchronizing over 40 Arab Barometer and World Values Survey surveys on Algeria, Egypt, Iraq, Jordan, Lebanon, Morocco, Palestine, Tunisia, and Yemen, from before and after the uprisings. The analyses firstly show political-institutional trust falling in the uprisings’ aftermath in countries that went through democratic reform or regime change. It appears that politicians misbehaving and reforms not resolving social problems hurt people’s trust in politics. Secondly, in democratic transition countries Egypt and Tunisia, a decrease in social trust reflected the pattern of political-institutional trust indicating a spill-over effect. Thirdly, ethno-religious tolerance dropped region-wide after the uprisings, indicating that the aftermath of religious conflict impacted the entire Arab region. These results support rational-choice institutionalist theories, while at the same time refining them for the MENA context.
... Such issues are of particular potential importance in a transition context, where the relationship between formal and informal institutions is distinctively different to that in a more mature market economy (for empirical evidence e.g. Radaev, 2004, Raiser et al., 2004. Williamson (1993) distinguishes between personal and institutional trust, with the former depending on the characteristics of a group, such as an ethnic group, and the latter on the institutional environment. ...
... In relation to transition environments, a number of authors refer to a lack of systemic trust, and instability of norms, contributing to an extensive use of personal networks (e.g., Peng, 2000, Radaev, 2001, Raiser et al., 2004, Yan and Manolova, 1998. For example, in Russia, Voronkov and Zdravomyslova (2004) identify the 'master norm of double standards or hypocrisy' as a legacy of the Soviet period impeding trust building. ...
The process of EU enlargement is redrawing the political map of Europe with particular implications for regions, which are adjacent to new borders of the EU. This presents entrepreneurs and businesses with new sources of threat and opportunity, which in turn have implications for regional development.
This paper is an output of a research project supported by INTAS (04-79-6991) which investigates the extent, nature and forms of cross-border cooperation in border regions in Ukraine, Belarus and Moldova with EU new members and upcoming accession states, in order to assess its contribution to entrepreneurship, economic and social transformation. Requirements for successful co-operation, especially the role of trust and learning, will be assessed in relation to other factors influencing the success of these relationships.
... Such issues are of particular potential importance in a transition context, where the relationship between formal and informal institutions is typically distinctively different to that in a more mature market economy (for empirical evidence see Radaev 2004, Raiser et al. 2004, Welter and Smallbone 2006. Williamson (1993) distinguishes between personal and institutional trust, with the former depending on the characteristics of a group, such as an ethnic group, and the latter on the institutional environment. ...
... In relation to transition environments, a number of authors refer to a lack of systemic trust, and the instability of norms, contributing to an extensive use of personal networks (e.g., Peng 2000, Radaev 2001, 2004, Raiser et al. 2004, Yan and Manolova 1998. For example, in Russia, Voronkov and Zdravomyslova (2004) identify the 'master norm of double standards or hypocrisy' as a legacy of the Soviet period impeding trust building. ...
... In relation to transition environments which include new member states of the European Union, but particularly their neighbouring countries, a number of authors refer to a lack of systemic trust, and the instability of norms, contributing to an extensive use of personal networks (for example, Höhmann and Welter 2005, Peng 2000, Ledena 2006, Radaev 2001, Raiser, Rousso and Steves 2004, Yan and Manolova 1998. A trust culture is likely to take generations to emerge, as it is resistant to radical change. ...
Objectives: The aim of the paper is to assess the role of trust in the development of cross border entrepreneurial activity. Prior work: In recent years, there has been a growth of interest in the role of trust in business behaviour, because of its potential influence on reducing transaction costs, although empirical investigations of the topic are thin on the ground. Overall, the topic of trust in relation to cross border entrepreneurship has not been researched systematically, with most of the literature focusing on (inter-)-organisational and personal trust in the context of multinationals, but neglecting the regional component of international entrepreneurship. Approach: Conceptually, the paper will develop a framework outlining factors influencing cross-border entrepreneurship, drawing on institutional theory and concepts of trust. Empirically, the paper selectively draws on case material from two projects on cross-border cooperation , one concerned with Belarus, Ukraine and Moldova and the second one concerned with border regions in old and new EU member states, including Bulgaria, Estonia, Germany, Greece, Finland and Poland. Data of a total of 600 interviews with households, enterprises and institutions are analysed with the help of NVIVO software. Results: Results illustrate the important role trust plays for initiating and developing cross border entrepreneurship. For all forms of cross border partnerships, personal trust is a key enabling factor for cross border cooperation to emerge. This takes on particular importance for household cooperation , which thrives best when long-standing relationships between partners exist. Moreover, in countries where the institutional environment for entrepreneurship is still highly deficient, personal trust gains importance at all stages of cross border partnership and for all forms, acting as a substitute for institutional trust. Personal trust substitutes for control (and a lack of trust in formal institutions) in some of the former socialist regions, as well as in the NIS border regions, appearing to be a requirement for cross border partnerships to develop. Trust in formal institutions is not required for cross border partnerships in border regions to emerge, but it gains importance in the longer run. Institutional trust in the sense of trust in informal institutions (as reflected in cultural proximity) is more important for cross border cooperation , because it allows personal trust to develop and it can substitute for an initial lack of formal institutional trust, as seen in regions bordering highly deficient institutional environments. Implications: The results have demonstrated the close link between institutional and personal dimensions of trust. Future research could analyse the extent to which such differences in forms and levels of trust in cross-border entrepreneurship foster or impede the development potential of cross border activities. All this has implications for policies fostering cross border entrepreneurship as well. Value: The paper makes a conceptual and empirical contribution to the literature on the role of trust in relation to entrepreneurial activity, where detailed empirical studies are few in number. It also contributes to the evidence base for policies designed to promote cross border cooperation involving enterprises.
... It proved thus that those networks weaken competition between the firms. Raiser et al. (2004) found the inter-firm credit as inconvenient for measuring quality of cooperation, as it could be enforced by financial stress. They have chosen to measure rather distrust n cooperation approximated by requirement of prepayments. ...
... The expectations of instituting levels of trust in markets can be seen as a 'leap of faith' for many individuals, as they move from relatively closed trust networks (such as family and friends) to more open general trust of strangers with whom they interact(Cook et al, 2004) given that experiences in former socialist times led to a climate of fear and mistrust of the State and its aparatus for many individuals 5 . In a study of small enterprises and private firms in 26 transition countries,Raiser et al (2004) examined generalised trust in business transactions, based on the contracting environment within these countries. They found that trust increases as reforms progress within the countries. ...
The transition process in central and eastern Europe (CEE) had a profound effect on how individuals interact. Economic and social institutions have changed, requiring an adaptation process by individuals in the move toward a market economy. How each individual accesses, manipulates and uses their networks will determine the use of their social capital. Within CEE, there is a presumption of low levels of social capital. This paper was written as a conceptual framework for a research project entitled Integrated Development of Agricultural and Rural Institutions (IDARI) in CEE countries. The paper exposes the emergence and maintenance of cooperative behaviour in light of rural restructuring and institutional change in CEE. A link exists between social capital formation and cooperation amongst individuals, as both concepts imply social interaction and the formation of trust. This paper questions the rationale of applying the contested western concept of social capital to CEE countries. Social networks and use of those networks (social capital) is becoming more important in light of accession to the EU, particularly when opportunities within and access to rural and regional development programmes are dependent on existing networks. Social capital is seen as a dynamic entity, a form of institutional change, which leads to innovation in governance. Thus social capital provides a powerful explanatory tool for processes of institutional change.
A szerző a jelen cikk egy korábbi változatát „A modern kapitalizmus gazdasági kultúrája” című konferencián adta elő Szentpéterváron, 2012. június
29–30-án. A cikk rövidített változata megjelent az Élet és Irodalom 2012.
december 21. számának 23–26. oldalán.
There is controversy about the potential for collective action in Central and Eastern European Countries (CEECs). Many authors argue that the level of social capital is low in CEECs, whereas others underline that, while trust in authorities and the state may be low, interpersonal networks are present. This paper explores the issue on the basis of three case studies conducted in the project IDARI (“Integrated Development of Agriculture and Rural Institutions in Central and Eastern European Countries”). They study rural cooperation projects, i.e. production and marketing in agricultural cooperatives, a rural tourism initiative and the management of a national park. It was asked: what is the basis for successful cooperation and what are the reasons why cooperation fails? The conclusion is that two main obstacles for collective action in rural CEECs are low bridging of social capital and unclear gains from cooperation. In such a situation, well-connected local leaders who provide credible information and establish links among different actor groups and with authorities can be of crucial importance to achieve collective action. This finding is interesting because most of the literature on social capital does not acknowledge the need for a “mediating agency”but expects cooperation to happen “automatically”where enough social capital is present. However, it is also shown that leadership becomes difficult where conflicting interests, low general trust and little initiative of actors prevail. A policy conclusion is that better financial and technical support for prospective leaders in rural cooperation projects in CEECs could contribute to the success of initiatives.
Purpose
– While trust is widely recognized as central to the establishment of an effective market economy, research on transition economies has not examined sufficiently its role in promulgating economic development. This study seeks to ascertain the links between supplier trust, asset specificity, and uncertainty reduction in the context of a transition economy, and to validate a measure of trust developed in a Western developed market economy in the conditions of a transition economy.
Design/methodology/approach
– A confirmatory factor analysis of trust, asset specificity and uncertainty reduction was performed with a sample of Bulgarian small business owners.
Findings
– Commensurate with expectations, supplier trust is significantly and positively associated with both asset specificity and uncertainty reduction. The six‐item measure of supplier trust is a valid measure for new and small ventures in the context of a transition economy.
Originality/value
– This paper demonstrates that private entrepreneurs in transition economies compensate for the lack of institutional support through embeddedness in their relational exchange network.
"April 2005." Thesis (Ph.D., Dept. of Government)--Harvard University, 2005. Includes bibliographical references (leaves 193-210).
Under central planning, many firms relied on a single supplier for critical inputs. Transition has led to decentralized bargaining
between suppliers and buyers. Under incomplete contracts or asymmetric information, bargaining may inefficiently break down,
and if chains of production link many specialized producers, output will decline sharply. Mechanisms that mitigate these problems
in the West, such as reputation, can only play a limited role in transition. The empirical evidence suggests that output has
fallen farthest for the goods with the most complex production process, and that disorganization has been more important in
the former Soviet Union than in Central Europe.
Post‐communist countries offer new evidence on the relative importance of courts and relationships in enforcing contracts. Belief in the effectiveness of courts has a significant positive effect on the level of trust shown in new relationships between firms and their customers. Well‐functioning courts also encourage entrepreneurs to try out new suppliers. Courts are particularly important when specific investments are needed for a relationship to develop. While relationships can sustain existing interactions, workable courts help new interactions to start and develop.
Preliminary findings indicate that businessmen often fail to plan exchange relationships completely, and seldom use legal sanctions to adjust these relationships or to settle disputes. Planning and legal sanctions are often unnecessary and may have undesirable consequences. Transactions are planned and legal sanctions are used when the gains are thought to outweigh the costs. The power to decide whether the gains from using contract outweigh the costs will be held by individuals having different occupational roles. The occupational role influences the decision that is made.
t R U S T I M P L I E S CONfiDENCE, BUT NOT CERTAINTY, THAT SOME PERSON OR INSTITUTION WILL BEHAVE IN AN EXPECTED WAY (1). a TRUSTING PERSON
DECIDES TO ACT IN SPITE OF UNCERTAINTY ABOUT THE FUTURE AND DOUBTS ABOUT THE RELIABILITY OF OTHERS’ PROMISES (2). 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 (3). 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,
Douglass C. North, premio Nóbel de Economía en 1993. En esta obra analiza las estructuras y transformaciones económicas más significativas dentro de la historia económica occidental, con el auxilio de la teoría económica. Dicho análisis abarca desde las primitivas organizaciones agrícolas, hasta los albores del siglo XX, pasando por la Revolución Industrial.
Trading relations in Vietnam's emerging private sector are shaped by two market frictions: the difficulty of locating trading partners and the absence of legal enforcement of contracts. Examining relational contracting, we find that a firm trusts its customer enough to offer credit when the customer finds it hard to locate an alternative supplier.A longer duration of trading relationship is associated with larger credit, as is prior information gathering. Customers identified through business networks receive more credit. These network effects are enduring, suggesting that networks are used to sanction defaulting customers. © 2000 the President and Fellows of Harvard College and the Massachusetts Institute of Technology
This paper presents evidence that “social capital” matters for measurable economic performance, using indicators of trust
and civic norms from the World Values Surveys for a sample of 29 market economies. Memberships in formal groups—Putnam's measure
of social capital—is not associated with trust or with improved economic performance. We find trust and civic norms are stronger
in nations with higher and more equal incomes, with institutions that restrain predatory actions of chief executives, and
with better-educated and ethnically homogeneous populations.
The mix of formal and informal mechanisms for contract enforcement is examined using survey data from Russia, Ukraine, Romania, Poland, and Slovakia. Using the size of trade credit to quantify the success of contracting, we ask: Do the courts have a perceptible effect on contracting? When can a firm rely on its customer to repay trade credit voluntarily? Which is more effective, the courts or relational contracting? Do trade associations play a role in contract enforcement? Does relational contracting entail inefficiencies? Is the reliance on relation contracting merely a transitory phenomenon, reflecting the inadequacy of these countries' legal systems?
Corruption in the public sector erodes tax compliance and leads to higher tax evasion. Moreover, corrupt public officials abuse their public power to extort bribes from the private agents. In both types of interaction with the public sector, the private agents are bound to face uncertainty with respect to their disposable incomes. To analyse effects of this uncertainty, a stochastic dynamic growth model with the public sector is examined. It is shown that deterministic excessive red tape and corruption deteriorate the growth potential through income redistribution and public sector inefficiencies. Most importantly, it is demonstrated that the increase in corruption via higher uncertainty exerts adverse effects on capital accumulation, thus leading to lower growth rates.
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