Trust is the key to pandemic recovery in Latin America, report says

Improving trust at all levels in public and private relationships will be key for Latin America and the Caribbean to recover from the COVID-19 pandemic and escape persistently slow growth, a new report from the Inter-American Development Bank has found.

The report, “Trust: the key to social cohesion and growth in Latin America and the Caribbean,” calls trust “the most pressing and yet least discussed problem confronting Latin America and the Caribbean.” IDB’s flagship publication notes that trust in the region is the lowest in the world, with an average of fewer than 3 in 10 people trusting their governments and only 1 in 10 considering other people trustworthy.

“We’ve been worrying for a long time in the region and in the IDB … about why growth has been persistently low in the region: why the quality of public services has been persistently low in the region, including education in the public sector, public safety, why corruption has been a persistently a problem in the region,” said Philip Keefer, principal economic adviser of the Institutions for Development at IDB, as well as a lead author and editor of the report.

“Those are long-term problems,” he told Devex, noting the unrest experienced across the region in 2019 as citizens took to their streets to protest against their governments.

“Every single transaction that goes into economic growth involves trust: the decision to invest, to employ, to buy something from somebody, to sell something to somebody, to innovate, to take these risks. Those are trust intensive, all of them. So if you build trust, we see the potential to unleash a real enthusiasm for those kinds of transactions and growth,” Keefer continued.

“Trust is a great opportunity for countries of the region to, for example, break out of a slow growth equilibrium as they exit the pandemic, because it doesn’t cost any money to build trust in principle.”

The report includes a literature review, surveys, and research. Surveys were conducted in both the public and private sectors to determine levels of trust within institutions and between citizens and public institutions.

Keefer said the findings are key to unlocking Latin America and the Caribbean’s consistently low growth rates, which haven’t risen above 4% of gross domestic product since 2011, and were below 1% in 2019 before the pandemic struck. While other regions in the world have been able to lower their growth rate gap with the United States between 1960 and 2017, Latin America and the Caribbean has only done so by 4 percentage points, while East Asian countries have done so by 47 percentage points.

Keefer said mistrust shows dysfunction in society in two ways: People don’t trust that others are doing the right thing because they do not have enough information, and people are not empowered to make changes they want to see in society. If citizens perceive that they are the only ones attempting to hold the government accountable and there is no collective action to fix a problem, they feel as if they cannot trust their fellow citizens to improve society.

Increasing trust is more flexible in the private sector, Keefer said, because business owners have more say in the people they hire and the way their businesses are run. Employers’ lack of trust in employees is a hamper on growth because if businesses cannot find employees they trust to hire, they cannot expand and may opt to hire family members instead of someone who may be more qualified.

If businesses don’t trust the government, they are less likely to respond to even favorable policies. Meanwhile, the report said, citizens who mistrust both the government and private businesses want excessive regulation to monitor their activity, which in turn can stifle growth.

Data shows that trust and informality are “strongly negatively correlated,” according to the report.

“In an environment where citizenship is weak, you’re going to see lots of informality, you’re going to see lots of tax evasion, you’re going to see little attempt to act collectively to hold governments accountable,” Keefer said. “The problems of citizenship and trust and informality are tightly linked … If you don’t trust government to enforce regulations correctly, if you don’t trust government to produce good regulations to make everybody better off, then your incentive is to ignore those regulations and to go informal.”

There is also evidence that high-trust societies weather shocks like the COVID-19 pandemic better, Keefer said.

“When there are shocks, it’s very hard for citizens to judge who’s responsible for their misery: Is it the shock or is it the government screwing up? … Shocks are never good. They’re not a basis for building trust,” Keefer said.

“Governments need to be ready to launch themselves out of the post-pandemic period with systemic policies to drive growth and increase confidence. When they’re not constrained by the pandemic and have more freedom of movement, they have to exploit that new freedom of movement with better policies focused on trust. I think the faster things grow and the more they think about trust as they emerge from the pandemic … the faster I think trust will recover.”