The Productivity of Trust

CAMBRIDGE – The Nobel laureate economist Paul Krugman once quipped that “Canada is essentially closer to the United States than it is to itself.” After all, most of its citizens live in a narrow band along the more than 3,000-mile-long border. Most Canadians live closer to more Americans than they do to other Canadians.

The same can be said of corporations and governments. Most firms are closer to the government than they are to other firms: they interact with government rules and agencies more than they do with the rest of the business community. The quality of that interaction and its evolution over time is probably the most fundamental determinant of a country’s potential for growth and prosperity.

But this is not the Weltanschauung – the worldview – that permeates private-sector discourse, especially the views expressed by most chambers of trade and industry and business associations around the world. Business organizations often hew to Ronald Reagan’s dictum: “Government is not the solution to our problems; government is the problem.”

It is a great sound bite: short, recursive, and somewhat poetic. Unfortunately, it is also dangerously misleading. After all, even if government were the problem, then changing what it does must be part of the solution.