FOCUS ON TRUST FOR DEVELOPMENT

Last week a building collapsed on Nasser road killing two people.

While hosting Talk of the Nation on Vision Voice 94.8 on Thursday night I had the pleasure of having Dr Dennis Kalumba, as a guest. Kalumba, a geotechnical engineer, basically his specialty is building foundations.

He has not worked on many construction sites in the central business district but his intuition based on the few building sites he has come across, suggests that many of the buildings in the central business district are being built on faulty foundations and are therefore fundamentally flawed.

Kalumba pointed out that our contractors cut too many corners, one, because they can – there is little supervision of these sites by local authorities and two, because there are inadequate – mostly outdated, guidelines in our regulatory books.

In the same week I met JorgWiegratz a PhD researcher from the University of Sheffield who is studying how economic liberalisation has affected the business culture in Uganda. His study is part of a much ignored field, but which is gaining currency very quickly, that economic development depends on more than the factors of production – land, labour and capital as the theorist have had as believe, but that issues of human interaction – beyond maximizing self interest, play a much greater role than previously acknowledged.

A quick surfing of the internet threw a few sites related to the subject, most especially the stunning revelations that until very recently the study of economic theory had greater prominence than the study of economic history.

This is critical in explaining why many of our countries continue to labour under economic models that doom us to being never-to-be-developed countries.

But I digress.

Related to our collapsed buildings and many other seemingly inexplicable, societal horrors is the issue of trust, a subject that is only now getting traction among economists as a major determinant of economic development.

And the trust we are talking about goes beyond the personal trust among individuals, families and small knit groups, this is a formal or institutionalized trust. Institutionalised trust which, comes from knowing your land title is genuine because the land office issued it to you, knowing that if you go to court you will get a fair hearing or if your employee presents a university certificate chances are its genuine and it will be reflected in your employee’s work.

According to one study trust accounted for 99.5% of the US economic output. Trust after all is what allows people to do business with each other, and doing business is what creates wealth.

Imagine a simple transaction like buying sugar at the shop. Without trust you would get into the bizarre scenario of reaching across the counter with your money as the shop keeper reaches across with the sugar, your individual interests would be to release the money or sugar at exactly the same time as the other so neither is cheated.

Of course that would be the tail end of the transaction the shop keeper might have frisked you for weapons first and you might have brought your chemistry set along to make sure you are actually getting sugar. This behaviour replicated over thousands of transactions would slow business and therefore development down.

So if you land in a foreign country and want to quickly determine the level of or the potential for development, look for indications of institutional trust.

And how is institutional trust developed? Studies of northwestern Europe and Japan, where economic development has been in effect for centuries, suggest that institutional trust evolves in situations of high population in relation to available resources and a system of negotiation instead of confrontation between various power centers has taken root.

Back to the collapsed building on Nasser road. According to Dr Kalumba, the collapsed building may have had no fault in its construction but the negligence of the neighbour in digging his foundation meant the building was doomed to collapse anyway or would have suffered major structural damage anyway.

So as a businessman, investor or everyday citizen can I trust the local government, police, courts to safeguard my investment if I do everything by the book? If not do I want to start a business, grow my business or put my money in this economy? And if there is a general mistrust for institutions in Uganda, what does that say for our potential for durable economic development?

Published March 2009, New Vision