Business goes down. Stock market goes down. Growth goes down. These are the hot news ingredients that become headlines. These are also topics in conferences. These are the agendas in Global forums. The world, post-Covid, has gone into a downward spiral that seems to have no finishing line.
The best heads in the top institutions have not been able to come up with a solution for reversing this slide. Is it a case for looking at the surface and not deep enough? Is it a case of trying to manage the symptoms and not the virus? Is it a case of trying to hold rather than lead? Is it a case of filling the cracks without stabilizing the foundations? These are questions that are unaddressed, undebated and undiscussed.
Key indicators of how the economy/industry will grow are mostly termed as business confidence level and consumer confidence level. If these are going up, the economy is sure to improve and vice versa. However, the term “confidence” is the key to finding out why the organizations and economy are performing and not performing.
The more confident the public sentiment is the more they will buy and the more the businesses will invest. What is confidence made of? It is made of the perceived level of trust in the ability of something to happen.
The most important factor that determines a household, a business, or a country’s success is its credibility and trust. The fact of the matter is that no long term success is possible if the work is focused on putting out fires, creating a temporary lull in the market, establishing a veneer of recovery.
The real change comes when work is done to recover the confidence and trust of the people. Let us see the Credibility builders at different levels and how they make or break each sector:
1- The impact on social relationships- There is a depression pandemic in the world. Post Covid traumas are continuing. High costs, unemployment, a Gen Zee generation fighting its generational hormones, domestic conflicts, divorces, single parenting are all causing an imbalance in the emotional health of people.
Uncertainty bred on a non-conducive environment has taken a toll on the mental health. Interpersonal trust levels are all time low. Even rich households, who do not have economic problems, are going through grave family issues.
The recent murder of a very famous doctor and hospital owner turned out to be a tragedy. He was purportedly shot by his own son over lack of trust with money issues. These incidents highlight that even in the closest of blood relationship lack of trust can bring down the whole family unit.
Family values constituted the back bone of our culture. Social media emergence and the social distancing strategy during Covid has also created family distances. The new generation spends more time on their Smartphones than in family dialogues and conversations leading to social imbalance.
2- Business confidence dilemma-While Trust is recognized as an important factor in businesses it is hardly considered a measurable factor like ROI. But companies must and can calculate the ROT, i.e., Return on Trust.
A Harvard Business School Article on “The neuroscience of Trust” written by Paul J Zak outlined the returns. His study shows that compared with people at low-trust companies, people at high-trust companies report: 74% less stress, 106% more energy at work, 50% higher productivity, 13% fewer sick days, 76% more engagement, 29% more satisfaction with their lives, 40% less burnout.” A recent Gallup survey in Pakistan showed that 86% business community is unhappy over the budget and business conditions in Pakistan. Companies this year are struggling with the twin problems of high costs and low revenue.
Trust has a viral and spiral impact on businesses. When the business community loses trust on the government policies, it stops investing in growth. If 86% businesses are low in trust on the country conditions, they cut down on growth and go on financial diets. This dietary plan reduces the salaries and jobs causing a panic in the companies. This panic then makes the organization employee trust levels go down. Employees under stress cannot work at their optimum creating grounds for low performance and further job and salary cuts.
The Global HR report says that only 23% of people working in businesses are engaged. That means a shocking 67% of the employees are just going through the motions of the job and feeling disconnected and dejected. The translation into loss in productivity will be in trillions.
3- Country credibility dilemma-A country’s credibility is the biggest indicator of its viability. The country trust literature usually distinguishes between different types of trust: political, institutional, and social. Political trust refers to citizens’ trust in various dimensions of a country’s political system and its leaders.
A distinction can be made between trust in political leadership and trust in institutions (for example, justice, police, hospitals, public officials, etc.). Finally, social trust, and the notion of the radius of trust represent trust between individuals within society across a range of social ties. High trust societies get a high return on trust in the form of people paying taxes because they trust the government.
The credibility index makes foreign investors want to invest in such countries. The tourism industry flourishes as people feel safe in such countries due to sound public services. Lending agencies give special treatment and low interest loans as the risk is low.
On the other hand, low trust countries have to pay high costs for insurance, safety and corruption. In Morocco, according to a World Bank publication, it is estimated that the decline in trust constrained the country’s growth by $2.21 billion between 2005 and 2014 (based on an initial nominal GDP of $59.52 billion).
Pakistan has been struggling with not just having low or no foreign investment but if you factor in the number of multinationals leaving the country, negative investment figures in recent times. Most of the time the reasons quoted are the instability and uncertainty prevailing in the country.
These two factors eat away trust leaving people unsure and suspicious of the opportunities that are being presented by the government in the form of incentives, etc. In the absence of trust on main public institutions the cost of providing safety, combating a service resistant bureaucracy, convincing consumers to spend becomes too cumbersome to invest.
The biggest shortage is not of foreign investment and foreign exchange but of trust. The biggest deficit is not of budget and trade deficit but of trust deficit. The biggest decline is not in stock values but of trust values. Unfortunately, Trust will not come back through the IMF finally extending their loan, but when the public finally extends its trust.
Copyright Business Recorder, 2024