The Crisis of Trust

PART 1: If Trust Goes, Democracy Goes

When thinking about the foundation of liberal democracies, elements such as the right to vote, the right to protest, the rule of law, private property and the right to freedom of expression may all come to mind. If these are some of the main components of the engine that powers our democracies, then trust is the oil that lubricates the entire system so that its parts don’t stop working and deteriorate. In contrast, fear would be the plaster that plays a similar role to enable authoritarian regimes.

On the latter, if the citizenry under an oppressive regime were no longer afraid of their oppressors, they would eventually rise up tired of the inherent inequities of their society and the repressive mechanisms used to control them. In a liberal democracy, however, if trust in the government and major institutions crumbles, the major parts of the social engine that keep the regime running could break down rapidly and oppression would become the only mechanism by which the government can maintain its power and avoid anarchy or civil war. If trust goes, so does democracy.

For many immigrants who come from Latin American countries, like me, the loss of trust in public institutions is a constant threat to the system that we have to learn to coexist with. If you have lived in Latin America long enough to experience a seemingly stable country disintegrate into chaos, you can certainly appreciate and understand the sentiment that democracy is inherently fragile.

In recent years we have seen many examples of this reality unravel across the region. What has happened in Venezuela over the past 20 years is the most notorious case illustrating what the collapse of a society’s trust in its public institutions actually looks like in practice. Venezuelans cannot trust their currency, their electoral system, the rule of law or law enforcement, and the news media. In order for the country not to descend into absolute anarchy, although it’s close, the government must control its people through oppression. For lack of a better definition, Venezuelans live under a dictatorship masked as a democracy.

Even though Venezuela illustrates the most extreme example of this problem, there are situations in several other countries that exemplify what a partial loss of trust looks like in reality. In Guatemala, Honduras and El Salvador, for example, there has been a near-complete loss of trust in law enforcement and the ability of the government to guarantee public safety. Marginalized peoples in these countries —which comprise the vast majority of the population—live under the constant threat of the most violent gangs on the planet. They would rather risk their lives walking for thousands of miles in search of refuge on the US-Mexico border than stay in the place they have called home for generations.

From 1996 to 2006, Ecuador, the country where I grew up, went through a political and economic crisis that defies belief. We had a total of 10 presidents in less than 10 years. Of all the presidents who were elected by the people at the polls, none finished their term. In every case, the president was deposed by the people and each presidential term was completed by vice presidents or next-ranking officials. In the midst of all this political chaos, we had the most severe recession in our history. Between 1999 and 2000, our currency, the Sucre, depreciated about 400% forcing our government to dollarize our economy, a process by which we made the US Dollar our national currency, to avoid further depreciation of the Sucre. Millions of people saw their life savings evaporate in a matter of months. As a result, the public lost complete trust in the government’s ability to handle the economic situation leading to a mass exodus for four consecutive years, where the country saw nearly 2 million people depart. Our population at the time was 14 million.

Because of my proximity to these types of tumultuous realities, I have a keen appreciation for the inherent fragility of our political systems. I also understand that when a system collapses, it might seem sudden and unexpected, but in reality, it is the result of years of decadence in small increments. Usually, decadent trends leading to events of systemic malfunction happen either because the trust of the citizenry has been abused or because powerful societal changes begin to put unsustainable pressure on the system, or sometimes because of both.

I happen to believe that we’re going through precisely such trends of decadence and societal change in western democracies today, and I don’t think enough of you are paying attention. Events of seismic proportions are converging in a time of extreme sensibility putting all kinds of unsustainable pressure on the system and leading to the loss of trust in major public institutions, and it concerns me deeply. Additionally, our societies are becoming extremely polarized by the unstoppable rise of dogmatic thinking and ideological fanaticism making it extremely difficult for citizens to resolve profound disagreements.

I presume you may think that realities such as the ones I described above only pertain to underdeveloped nations, but consider this: For most of our history, humanity has not been able to come up with political systems that can function on the basis of trust, such as democracy. In fact, the opposite is true, we have been mostly ruled by dictatorial governments and monarchies that have used fear and oppression as mechanisms of control. Western civilization’s ability to create liberal democracies to organize people on the basis of trust, in a time of major political complexities such as global trade and immigration, is nothing short of a miracle. Despite its imperfections, liberal democracy is an astonishing and historic human achievement.

In part two of this series, I will go into the nature and consequences of the converging events I mention above in much further detail. But for now, I will leave you with a short sample of my observations to inspire your thinking:

Our democracies are young and fragile and we are putting them through a severe stress-test as we go through transformative and tumultuous technological, social and economic changes. The COVID-19 pandemic, the distrust in the media, the uncertain future of work, the unreliability of higher education, the looming environmental collapse, drastic wealth inequality, a potential economic depression, and the future of the current world order are all becoming increasingly and worryingly unstable. However, instead of working together to address these enormous challenges, our society is becoming increasingly fragmented, polarized and fanatical. We’re becoming intolerant towards people who disagree with us, and we are allowing Ideology and dogma to take over reason and civility. I think we’re playing with fire and if we’re not careful, we might just get burnt.

PART 2: The Underlying Fractures

The Risks and the Diagnosis

The system that most of us in the west have known for our entire lives is under threat of disintegration. The European Union is facing severe existential challenges during a moment of extreme political tension. The US government is completely gridlocked during a time of intense polarization. The unstoppable rise of China is putting significant pressure on the current world order. And the reemergence of nationalism all across the world is putting globalization and free trade under careful scrutiny.

These generation-defining political challenges alone would be severe enough to put the world under critical risk of conflict, but as fate would have it, when it rains, it pours. The world is in the midst of the worst pandemic of the last hundred years. There is a potential economic depression looming on the horizon. The planet is under severe threat of ecological collapse on several fronts. The accelerated advances in artificial intelligence and automation are putting millions of workers and professionals at risk of becoming economically irrelevant. And the largest wealth gap in a hundred years is becoming even more substantial, creating profound social resentment in many western countries.

The political forces being unleashed by the convergence of all these interrelated events are putting the world under critical condition. Tackling these challenges requires a very high degree of leadership and cooperation between countries and major global alliances. However, the public’s trust in our leaders and our institutions has eroded dramatically in recent years. Instead of working together to face these issues head-on, we’re profoundly divided and distracted by internal conflict. If we cannot rebuild trust, we will not be able to respond to these challenges accordingly.

To restore trust we must first provide a political diagnosis to understand the extent of the problem. Trust is lost when promises are broken or expectations are not met. In political terms, this condition applies to the relationship between the citizenry and its institutions. The promises and expectations are the metaphorical equivalents to the responsibilities and results that such institutions are mandated to fulfil and expected to deliver. If they fail to comply with their mandates, they begin to lose the trust of the public. It’s a simple but crucial agreement that guarantees the functioning of democracy.

The main pieces of evidence that our institutions are failing to deliver the results required for the system to operate properly are income inequality and social polarization. These are the most acute symptoms of the underlying disease. In a time of incredible abundance, prosperity seems to be concentrated only at the top while the situation in the middle and the bottom is becoming increasingly precarious. Meanwhile, the citizenry is getting profoundly divided along ideological and dogmatic lines making it impossible for our society to mediate political disagreements.

No matter what political ideology you subscribe to, the left and the right both agree that inequality and polarization are a democracy’s time bombs.

The Major Fault Lines

There are three major fault lines that I believe are pivotal to understanding the main failures of our institutions. These cracks in our system are not ideologically induced but rather provoked by technological externalities, mischievous incentives and legal technicalities running amok.

Legalized Corruption

In the most simple terms, our political institution’s mandate is to create and enforce the rules of the game. They write the laws required to regulate the system and they are responsible for enforcing them. Presently, this is a broken promise because money and influence have infiltrated the legislative process. Nowhere is this problem more prominent than in the US. But in a globalized economy, where most major issues are not isolated within any country’s borders, US politics have a profound effect on the rest of the world. This problem is very simple to understand. Politicians are incentivized to write laws that favour special interest groups because those groups fund their campaigns. In a system that allows for unlimited campaign contributions, politicians need to raise huge amounts of money to be competitive. In practice, this becomes a toxic cycle of money in return for political favours. This is also called crony capitalism or in simpler terms: legalized corruption. Many activists, on both sides of the political spectrum, have very accurately said that this is the problem behind all problems. If we can solve this, much of the political gridlock would be relieved.

The Finance Dilemma

If the economic effects of the COVID-19 pandemic have had an important revelation, is that the main street economy is completely decoupled from the financial markets. While record unemployment and small-business bankruptcies soar, the markets, aided by government stimulus, have managed to remain relatively steady.

Economist Mariana Mazzucato’s groundbreaking work on how value is measured in the economy reveals the profound effects that our interpretation of value as a function of price has had on how we understand capitalism. I encourage you to watch her latest Ted Talk to get introduced to her work, as I will just discuss a couple of points that relate to my argument.

She argues that capitalist economies today often reward Value Extractors over Value Creators. Value Creators are the actors in the economy responsible for producing the goods and services required for society to grow and function. Value Extractors are the actors in the economy that generate wealth from unearned income such as speculation and obscure financial instruments. The effects of this reward disparity are profound. Because we distort our notion of which activities in the economy actually create value, much of the capital that could fuel value creation activities actually gets squandered in value extraction activities. To give you an idea, Mazzucato points out that, in the UK, only about 20% of financial capital is invested back in the real economy, or in other words, in value creation activities. The rest remains stuck in the financial sector funding value extraction activities.

This is a problem of bad incentives and a lack of regulation. The financial sector could play a much bigger role in facilitating value-creating activities if it wouldn’t be corrupted by short-term profit motives. Unfortunately, current regulation does not incentivize the financial sector to invest in long-term value creation activities, but rather on short-term value extraction activities. For example, a firm may be incentivized to invest in stock buy-backs to increase valuation and maximize shareholder returns in the short-term, instead of investing in long-term value-creating activities such as R&D. Executives and shareholders get compensated because the firm’s value climbs, but the economy loses because that capital is not getting reinvested in growth activities.

In the end, short-termism and reckless gambling are rewarded and entrepreneurial risk-taking and innovation are not. This disparity has a profound effect on the economy. It distorts the value of labour, hampers job creation, and incentivizes the kind of reckless behaviour that caused the 2008 financial crisis.

The Decay of Journalism

The emergence of the Internet opened the floodgates of information to the world making it impossible for the established gatekeepers to control the narrative. All of a sudden, people were able to obtain all the information they could possibly consume on-demand. As a result, most of us gained fresh ideas and different perspectives by being exposed to new voices.

The established press faced unprecedented competition seemingly overnight. The emergence of the new media and the birth of the attention economy pushed legacy news organizations away from traditional journalistic practices in favour of entertainment-like news reporting. This new model is innately sensationalistic, subjective and superficial. Political commentary and debate programming, masked as the news, proved to have better engagement with audiences than conventional news reporting, which quickly got pushed to the sidelines.

The incentive structure of the press has become completely distorted and the effects of this transformation have been detrimental to the mission of journalism in our society. The prime mandate of the press is to hold power to account and inform the community with honesty and integrity, not to make money off major news events or to instigate factionalism to attract viewership. Today, trust in journalists is at an all-time low. If society cannot rely on a free and independent press to provide accurate information, it becomes extremely susceptible to propaganda and manipulation.

Restoring Trust

The problems that I outlined above don’t usually get the attention they deserve. Most of us are distracted by issues that appeal to our emotions and ideology or that affect our daily lives. It’s completely understandable that we feel more connected to matters such as healthcare, education and public safety. We like to focus on problems that provoke passionate opinions. But as long as we remain distracted from the real underlying issues that cripple our institutions, we will continue to have political gridlock and endless debates on the problems we care about the most.

Conclusion — It Starts with Us

I profoundly believe that ideology and dogma are the biggest obstacles to achieving functional societies. If we look at problems from the lens of doctrine, we will always have a skewed vision of reality. We must try to remain objective and self-aware of our biases. This is not easy, but try to question and scrutinize the people you agree with the most. We must try to become emotionally-intelligent, independent thinkers capable of changing our minds if merited by evidence. I promise you, it’s a profoundly eye-opening experience.

Over the past four years, since the election of Trump, I have made a conscious effort to diversify my sources of information. I wanted to understand how it was possible for such a despicable character to become the president of the United States. I have always been a liberal and for a while, I would identify myself with progressive views. So in the beginning, it was very difficult, even painful, to listen to conservative thinkers. However, the more I opened my mind to different perspectives, the more I understood that our most noticeable differences are not as profound as I thought.

I realized that if I didn’t subscribe to a particular ideology, it was much easier for me to understand issues from a pragmatic perspective. I was able to discover independent thinkers who were talking about the issues that I outlined above because I wasn’t distracted by the rhetoric of partisan politicians or pundits.

Rebuilding trust to protect democracy starts with us. If we cannot see past our ideology and mend our differences, we will never be able to focus on finding solutions for the underlying problems that are impairing our institutions. This may not be the kind of empowering message that will spark a revolution; however, some of the biggest achievements in politics have not been accomplished by loudmouth ideologues but by silent mediators who operate behind the scenes steering the ship in the right direction in order to avoid catastrophe.

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