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Does Low Trust In Politics Mean Bitcoin Will Thrive?

I have thankfully gotten my ‘two jabs’ and theoretically at least should be free to roam the world. Before I do that, a quick detour to John Prescott, once the UK’s Deputy Prime Minister from 1997 to 2007, who being attacked (an egg was thrown) whilst on an election canvas, responded with his fists against his assailant. As a result he was nicknamed ‘Two Jabs Prescott’. Prescott came to mind when I read of the physical attack on French President Emmanuel Macron.

What was noteworthy was not the stupidity of the attacker but Macron’s response afterwards – he stated that his role was to get out and meet people, hear their concerns and rebuild trust with them. With that, he has put his finger on one of the essential political issues of our time – that people no longer trust their governments and the institutions that rule over them. In France there is speculation (misplaced I think) that Marine Le Pen will sweep to power, and in the UK and beyond a growing realization that Boris Johnson individually is untrustworthy.

Low in Trust

More broadly, a few surveys sketch a worrying picture. The PEW Centre in the US shows that trust in government is very low – only 24% of Americans trust their government (the low point was 17% during the Trump administration), compared to 50% after 9/11 and 77% during the Kennedy era.

The OECD Trust in Government project shows a similar picture – globally only 45% of people trust their governments and have a much higher level of trust in education and healthcare systems (in the USA healthcare and military personnel are amongst the most trusted professions – with politicians, banker and journalists at the low end of the trust spectrum).

Across societies, an interesting picture emerges. The World Values Survey shows that in smaller advanced economies – the Nordics and Switzerland for instance – people have a high (60%) level of trust in each other (this may be due to country size, culture and proximity of populations), but in many emerging countries with weak institutions and rule of law (i.e Colombia, Brazil, Ecuador and Peru), trust across societies is far lower (10%). What is striking is that trust levels in China are high, underlying a cohesive society and one where the ‘contract’ between the government and its people is still intact, something that is vastly underappreciated in the West.

Trust in small states

Still, this generalized lack of trust in government and high variance in trust across societies has many implications for politics and commerce. The PEW Centre also report that in the US, France and the UK, a majority of people desire a major change in their political system (with citizens assemblies and referendums amongst the solutions proposed here, a la Ireland and Switzerland).

It suggests that in the democratic world (which according to many surveys such as one by the EIU, is shrinking), governments need to invest more in transparency, and in new ways of giving voice to their citizens – either at a local level or for example using social media to gather feedback.

At an institutional level, many institutions are not at all well understood by the people they oversee, central banks being prime amongst them. One example I often flag is the EU, whose leaders now speak of ‘European values’ but who at the same time have not thought out what this means in a tangible sense to the diverse nationalities that make up the Union, and how in a pragmatic way, it might bring them closer together.

Institutions need trust

Moreover, with respect to the new institutions of the 21st century, be they the guardians of the climate or cyber activity or bodies that will marshal new forms of money, public trust will be one of the most important criteria that drives their construction.

In commerce, there are two trends worth keeping an eye on.

The first is the rise of blockchain, and blockchain enabled means of exchange such as bitcoin. The theory behind blockchain is that its protocol works to bind two parties in a technologically trustworthy transaction or contract. More particularly, the idea of decentralized finance is that it operates outside the ambit of governments and central banks – bodies that are increasingly less trusted. We might even interpret the decision of Ecuador – a country where trust and institutional quality are very low – to adopt bitcoin as a money, as an affirmation of the above.

Crypto rises as trust falls

If you draw a graph of the decline in trust in government and the market value of crypto currencies there is good (inverse) fit, albeit with only eight years of data. So, a provocative way for governments to curb the use of bitcoin might be to boost the credibility of their own actions!

Relatedly, banking systems – which are in many cases too battered or too ill formed to be trusted – are being replaced by other more trustworthy brands. In Kenya for example, the mobile payments system MPensa is widely used and trusted, in part because it is operated by a brand (Vodafone) that is (anecdotally) trusted by Kenyans.

The idea of trust in the economy is a vast and complicated issue, my own preference is that we have governments and institutions we can trust and admire, but the reality is that there is little innovation and dynamism in today’s institutions. I suspect that instead, the next ten years will see a wave of entrepreneurship in money and democracy, some of it ugly and I hope, the sum of it constructive.

What do you think?

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