The Faith — The Norm, Plate iii

The convention solved the easy problem, the one in which to conform is in everyone's interest. The hard problem of the unwritten rules is the one in which it is not — where each could gain by breaking faith even as all depend on faith being kept. Its solution begins with trust, the silent precondition of nearly every exchange, and Robert Putnam gave trust its economic name: social capital. To lend, to hire, to invest, to deal at arm's length with a stranger, one must trust that the other will perform and not cheat; and Putnam argued that this trust is a productive asset, as real as a machine or a skill, though it is held not in any one person's hands but in the bonds and habits of a whole people. Where it is abundant, cooperation comes cheap and the economy thrives; where it is scarce, the surest wealth cannot make up the lack.

Almost no economic exchange is at once fully simultaneous and fully verifiable. The buyer pays before the goods arrive, or the goods arrive before payment; the worker labors before the wage, or is paid before the work is done; the lender parts with money against nothing but a promise to repay; the investor commits his capital to a manager he cannot watch. In every such exchange there is a gap, and the gap is spanned only by trust — the expectation that the other party will keep faith rather than seize the momentary advantage of defaulting. Where that trust is present, the exchange takes place; where it is absent, it does not, and commerce contracts to the small circle of those one can personally monitor or compel. Trust, as one economist memorably observed, is the lubricant of an economy: it is present in virtually every transaction, and an economy starved of it grinds against itself at every turn.¹

1. Almost no exchange is both simultaneous and verifiable: pay precedes goods or goods precede pay; labor precedes wage; the lender holds only a promise; the investor cannot watch the manager. Each gap is spanned by trust — the expectation the other keeps faith rather than default. Present, the exchange happens; absent, it shrinks to the monitorable circle. Trust, one economist observed, is the lubricant of an economy, present in nearly every transaction; starved of it, an economy grinds against itself.

Putnam gathered trust, together with the networks and the norms of reciprocity that generate it, under the name of social capital — the features of a society's organization that allow its members to cooperate for mutual benefit. The name is exact, for trust behaves like capital in the ways that matter. It is built up slowly, through repeated dealings and a shared civic life; it yields a return, in the cooperation it makes possible; and it can be drawn down and depleted, through betrayal and isolation. But it differs from physical and human capital in one decisive respect: it cannot be owned by any individual, because it inheres in the relations between people, not in any one of them. A person can no more hold social capital alone than he can shake his own hand. It exists only in the web of mutual expectation that binds a community, and it is, in precisely that sense, a thing held quietly in common — which is also why a single person, however he tries, cannot manufacture his own trustworthiness if the surrounding faith has failed.²

2. Putnam gathered trust, networks, and reciprocity norms under social capital — the features of social organization letting members cooperate for mutual benefit. Trust behaves like capital: built slowly through repeated dealing and civic life, yielding a return in cooperation, depletable by betrayal. But unlike physical or human capital it cannot be individually owned, for it inheres in relations between people, not in any one. One cannot hold it alone any more than shake one's own hand — a thing held in common.

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Putnam's most striking evidence came from Italy. When the country devolved power to a set of newly created regional governments, identical in form, he watched them diverge: the same institutions worked well in the north and badly in the south. The difference, he argued, lay in social capital. The civic north was thick with horizontal associations — choral societies, sporting clubs, cooperatives, mutual-aid bands — and with a generalized trust that reached even to strangers; the south, by contrast, was organized vertically, through patronage and clientage and a trust that ran no further than the family, in a settled pattern of mutual suspicion that left collective action stillborn. And the roots ran deep: the civic traditions of the north could be traced to the communal republics of the Middle Ages, the hierarchies of the south to a feudal and seignorial past. Civic culture, more than present wealth or formal institutions, best predicted how well a region would be governed and how well it would prosper — and the causation, Putnam was at pains to show, ran in good part from the culture to the prosperity, and not merely the other way about.³

3. Putnam's evidence: Italy's identical new regional governments diverged — working well in the north, poorly in the south. The cause was social capital. The civic north teemed with horizontal associations and generalized trust reaching to strangers; the south was vertical — patronage, clientage, trust no wider than the family, mutual suspicion stalling collective action. The roots ran centuries deep, to medieval communes versus a feudal past. Civic culture, more than wealth or institutions, predicted prosperity — and caused it, not only the reverse.

The crucial variable, the Italian case suggested, is the reach of trust — its radius. A society in which people trust only their kin can sustain only the small-circle exchange of the family firm and the clan network; the impersonal, large-scale, arm's-length exchange of a modern economy demands a generalized trust, the willingness to deal with strangers on the expectation that they too will keep faith. The radius of trust sets the radius of cooperation, and so the very scale of the economy. Where trust is narrow, transactions outside the trusted circle must be defended at every step — by contracts, guarantees, escrows, inspections, and the lawyers to enforce them — and a great many simply never occur, because the cost of guarding against the cheat exceeds the gain from the deal. Where trust is wide, that whole apparatus of suspicion can be set aside: deals close on a word, credit flows out to strangers, and cooperation extends to the very edges of the market. The high-trust society is richer in large part for this reason — that in it, cooperation comes cheap.⁴

4. The crucial variable is the radius of trust. Trust only kin, and exchange stays small — the family firm, the clan. The impersonal exchange of a modern economy needs generalized trust, a willingness to deal with strangers. The radius of trust sets the radius of cooperation, hence the scale of the economy. Narrow trust forces contracts, guarantees, escrows, lawyers at every step, and kills the deals not worth defending. Wide trust sets that apparatus aside: deals close on a word, credit reaches strangers. The high-trust society is richer because cooperation is cheap.

Yet trust, for all its productivity, presents a deep difficulty to which the volume will return: it is a collective good that the market which needs it cannot directly buy. No firm can purchase the trustworthiness of its society; no contract can manufacture the generalized faith on which contracting itself depends. Trust is built outside the market — in the family, in civic life, in the slow sediment of dealings kept and promises honored — and it can be eroded by betrayal, by corruption, by the retreat of people into the private isolation that Putnam, in a later study of a fraying America, traced and mourned. The market draws on a reservoir of trust it did not fill and cannot replenish at will, which is why the question of where trust comes from, and whether a society can renew it once spent, hangs over the whole of economics. But trust does not stand alone, nor is it the bottom of things; beneath it lies an older and more primal norm, the reciprocity by which a gift given calls forth a gift returned. The next plate descends to it. The next plate is the gift.⁵

5. Trust presents a deep difficulty: it is a collective good the market cannot buy. No firm can purchase its society's trustworthiness; no contract can make the faith on which contracting depends. Trust is built outside the market — in family, civic life, the sediment of promises honored — and eroded by betrayal, corruption, and the private isolation Putnam later traced in a fraying America. The market draws on a reservoir it did not fill. Beneath trust lies an older norm: reciprocity. Next: the gift.

The hardest unwritten rules govern the situations in which keeping faith runs against immediate self-interest, and their foundation is trust. Robert Putnam named it social capital and showed it to be a genuine productive asset — built through repeated dealing and civic life, yielding a return in cheap cooperation, depletable by betrayal — but one held in common, in the relations between people, never by any individual alone. His study of the Italian regions found that the reach of a society's trust, rooted in civic traditions centuries old, predicted how well it would govern itself and how well it would prosper, the high-trust north flourishing where the low-trust south stalled. The radius of trust sets the radius of exchange: where trust is wide, deals close on a word and cooperation reaches to the edge of the market; where it is narrow, suspicion strangles all but the smallest circle of dealing. Yet trust is a collective good the market cannot purchase, drawn from a reservoir filled outside the market and beyond its power to refill at will. Beneath trust lies the older norm of reciprocity. The next plate is the gift.