My colleague Bill Somerville talks a lot about trust in philanthropy. Bill feels that funders do not trust grantees enough and that the reams of paperwork required by funders is simply a mark of their lack of trust.
To the cynical person, trusting someone is equivalent to being naive. Trusting someone can be criticized as demonstrating a lack of rigor. But it turns out that trust is at the core of what makes systems function.
From a recent Forbes article titled The Economics of Trust:
Imagine going to the corner store to buy a carton of milk, only to find that the refrigerator is locked. When you’ve persuaded the shopkeeper to retrieve the milk, you then end up arguing over whether you’re going to hand the money over first, or whether he is going to hand over the milk. Finally you manage to arrange an elaborate simultaneous exchange. A little taste of life in a world without trust–now imagine trying to arrange a mortgage.
Being able to trust people might seem like a pleasant luxury, but economists are starting to believe that it’s rather more important than that. Trust is about more than whether you can leave your house unlocked; it is responsible for the difference between the richest countries and the poorest.
"If you take a broad enough definition of trust, then it would explain basically all the difference between the per capita income of the United States and Somalia," ventures Steve Knack, a senior economist at the World Bank who has been studying the economics of trust for over a decade…
How could that be? Trust operates in all sorts of ways, from saving money that would have to be spent on security to improving the functioning of the political system. But above all, trust enables people to do business with each other. Doing business is what creates wealth.
One thing we know is that philanthropy is a dysfunctional system. Resources do not flow to those who can best utilize them. While I’m all for the efforts to quantify the effectiveness with which various organizations deploy resources so that we might better direct our giving, it is just as important that we inject more humanness into the workings of our field.
Trust isn’t a human weakness that analytical donors must overcome, it is a fundamental attribute of functioning systems. According to Forbes, the financial system would collapse without trust. Maybe more trust is just what we need to build a functioning social capital market.