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HONESTY AND TRUST

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					                  Introductory talk at the first session of the planning workshop on the project
                                                 Honesty and trust
                                              Budapest, May 25, 2001

                                                     János Kornai

My motivation

          Susan Rose-Ackerman’s presentation concerns mainly the supply side; it surveys the existing literature,
and also works in progress.
          My talk deals with the demand side: What does ColBud expect, and, at a more personal level, what has
motivated me to initiate the project?
          I am a student of the socialist system and post-socialist transition. Apart from a few exceptions (e.g. the
study of bribes in medical service) I have not studied honesty and trust. But as a citizen of a post-socialist country
and an open-eyed observer of society I am sad to see the profound disappointment many people demonstrate ten
years after the change of system. The reasons are manyfold, one of them being a strong sense of moral outrage
generated by corruption, cheating, lies and distrust. These are at least as strong a reason for disappointment and
anger as is reduction of material well-being or loss of power.
          Also, I feel dissatisfied as a researcher. Most of us who examine the transition are preoccupied with the
usual economic aspects of the change, such as the macro relations, privatization, prices etc. We seem to have lost
sight of the dramatic change in human relations at a time when disruption and erosion of the old forms of
cooperation are taking place and new forms are emerging. I believe that our knowledge of the transition is
incomplete without the study of this dimension.
          These were my reasons to bring together researchers of this field. I feel fortunate that Susan Rose-
Ackerman has decided to assist me in realizing this plan and has undertaken the part of co-convener of the project.

The comparative advantage of Collegium Budapest

          I read the many interesting papers submitted by the participants of the workshop with great excitement and
interest. The literature is already huge, as Susan’s paper has well demonstrated. So is the number of researchers.
Besides, there are institutions too that are either specializing in or supporting research in the field (e.g. Transparency
International, the World Bank).
          What can a small international institute in Budapest contribute? What are our comparative advantages?
What are the differentiae specificae?
(i)       As is usual in the world of academia, work on the various aspects of honesty and trust is carried out in well
distinguishable groups that pay little attention to what the others do. As an outsider, I have identified the following
groups:
          The corruption team
          The trust and social capital team
          Students of blat, reciprocity and social networks
          The informal economy team
          Mathematical economists, working on reputation etc.
          Philosophers, specializing in ethics and normative morale reasoning.
          Certainly, other groups could also be distinguished. “Group” or “team” does not mean that members agree
with each other; there could easily be controversies, debates within the group. What keeps the group together is
searching for answers to the same set of questions, applying similar methodology and reflecting on each other’s
work.
          Here, today, mainly the first three groups (corruption, trust, social networks) are represented, including
some of the leading scholars of the groups.
          Having read the papers in a row my impression is that there is very little interaction between these groups.
References across groups are rare.
          Consequently the primary aim of the ColBud project is to bring together people belonging to these separate
groups and initiate an intellectual interaction across groups. Susan Rose-Ackerman has set a good example: a
“corruption” student delving into the literature on “trust” and analyzing the linkages.

(ii)    The literature reflects a separation of disciplines, although there are traces of occasional cooperation
between neighbouring disciplines, mainly among economists and political scientists. The ColBud project is more
ambitious: it plans to bring together
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           economists,
           legal scholars
           political scientists,
           sociologists,
           social psychologists,
           anthropologists,
           historians and
           philosophers
to whom it offers the chance of an interdisciplinary cross-fertilization of ideas and methods, which is a typical
feature of an institute for advanced study.
(iii)      There are researchers of honesty and trust who specialize in post-socialism but the number is low. This
project wants to branch out into both directions:
           Researchers of honesty and trust who, so far, has not studied post-socialism are called on to come and
study this region. They could help us understand our situation. The project offers a good testing ground for theories
about robust universal phenomena based on the study of other regions (inter-regional comparison), or for theories
concerning the robust nature of a universal phenomenon by checking if it showed up before, during and after the
systemic change (inter-temporal comparison). The chance for experimenting is unique: there is no need for an
artificially created laboratory, the setting is natural.
           Researchers of post-socialism who, so far, has not studied honesty and trust are invited (including myself)
to do so now.

(iv)     In spite of the huge literature some issues are not yet understood completely. There are even some blank
spots. This project could fill them in.

Seven questions

           In the light of the above, what topics offer themselves for further research? Let me give an answer to that
by presenting a set of questions.
           The list of exciting subjects is, in fact, endless. The directors of this project do not want to impose a
research agenda: the direction is not “top–down” but “bottom–up”. However, allow me the privilege to submit my
list of curiosity.
           The list does not contain specific topics: the study of one or another form of trust, or dishonesty in a special
context. I formulated my questions in a more abstract way, at a more general level. My questions, if you find them
relevant, can be raised in the context of each specific topic you are already working on or will work on in the future.
It is more about the approach, the way of looking at things.

1.        We, the students of post-socialism believe that there is something special about our region, due to its
common communist past.
          Does that hold in the area of honesty and trust as well? There is no suggesting that the common communist
past is the exclusive explanatory factor. A host of other things, such as the level of development, culture, religion,
the present governmental policy are also of influence.

         Question 1. Does the common historical background, the communist past have a strong impact on the
                       present situation concerning honesty and trust? In this respect, is there a clear difference
                       between these countries and the rest of the world?

          I could not yet find the answer in the existing literature (correct me if I am wrong.) There are a lot of very
good studies on the post-socialist countries, including some that compare countries within the region. But no
sufficient work has been done on comparing countries with and without a communist past. I believe that the
communist past is a strong explanatory factor.
          To clear that up two complementary approaches are needed:
*         Abstract theoretical analysis of the honesty and trust situation: why should (or could) it be different
according to the past (communist or non-communist);
*         Comparative empirical analysis: for example comparing Austria and Italy with the Czech Republic and
Hungary, or Greece with Bulgaria or Romania or Central Asian countries with and without a communist past.
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2.        In the post-socialist countries there is disappointment and outrage because of dishonesty at all levels, a
feeling of distrust caused by bitter experience etc. But there is confusion in explanation.

         Question 2. Are certain negative phenomena (A) the consequence of the communist past, (B) the
                    consequence of transition, i.e. shifting from one order to the other, (C) the normal side effects
                    of the new system, (C1) democracy and (C2) the market economy, (D) the consequence of
                    universal human nature, including normal human weakness, (E) the consequence of mistakes
                    andor crimes of various individuals and organizations, governments and other policy-
                    makers?

           Here we need again comparative theoretical and empirical work. The approach must be dynamic: we have
to look at the time-path of changes.
           My conjecture is that all five explanations exist; each being equally strong. What is missing in quite a few
of the studies I read is a rigorous separation of them. This separation is important both for the sake of scientific
analysis and for policy making and public discourse. The confusion in people’s mind in the post-socialist countries is
in part caused by the vagueness of analysis.
           We may console ourselves with saying that the problems caused by (A) and (B) are temporary. They must
be strictly separated from the (C), (D) and (E) type of troubles which will stay with us even when transition is over.
Steady reference to the communist past and the traumas of the change of system as the main explanatory factors can
easily be a diversion from the genuine problem and would certainly not help in sorting out problems (C), (D) and
(E).
           Another important distinction must be made between the “normal” (perhaps negative, even harmful, but
statistically usual) phenomena of (C) and (D) versus (E).
           A further important distinction is that (D) is a perpetual problem while (E) is due to a specific historical
configuration of institutions etc. in modern democracy and the modern market economy.
           Let me give a few examples:
*          State capture in Russia (see Hellman and Kaufman et al.): Is it a post-soviet, or generally post-socialist
specialty [(A) or (B)]? Or is the intertwining of big business and top government well-known in capitalist systems
that missed out on the communist detour? The irony of the thing is that Hilferding, Rosa Luxemburg and Lenin
wrote about this type of intertwining. Even the Russian terminology (oligarchy etc.) is taken over from Lenin.
*          Reciprocity, networks, “blat”, corruption in the relationship of the individual and the state (see Ledeneva):
The influence of the communist legacy is certainly strong, but that does not offer a full explanation: it exists in many
other countries. When searching for a comprehensive explanation (A) should be accompanied by (C) and (D).
*          Citizens’ “alliance” against the state: one does not report those who cheat the state under communism. This
remains after the systemic change for a long time (see (A).
*          Dishonesty in politics: it is perceived by the general public in post-socialist countries with surprise and
disappointment. In fact, it is quite “normal” (see (C) and (D).

3.         Most of the existing academic literature is written in a value-free, positive framework. Value judgments are
left to politicians, journalists, priests and the men in the street.
           Researchers usually do not discuss the ethical dimension in an explicit way. Marxists ridiculed
“moralizing” as a petty-bourgeois habit. It is ironical that rational choice scholars are inclined to ignore this aspect as
well.
           There are a few exceptions: Mueller says honesty is a good business strategy. Fine – but here honesty (or
more generally, business ethics) has an instrumental value. However, honesty is not just a good instrument, it has an
intrinsic value. Rothstein and Frey show in their papers that morale does matter (not only self-interest in the narrow
sense).

         Question 3. What is the meaning of “honesty”? Can we (and should we) apply certain ethical standards in
                      evaluating systems, governments, parties, institutions, businesses and individuals? What are
                      the ethical standards tacitly applied by the population when evaluating these entities?

         Most of us here have not yet analysed the serious and unresolved philosophical problems associated with
the notion of “honesty”. We apply a simple, down-to-earth interpretation: “honesty” means a minimum standard of
decent behaviour expected from every individual and organization. When choosing the title for the project we placed
the good standard in the foreground: the reference is to honesty and not the violation of it, not misbehaviour, not
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crime.
          Right now philosophers specializing in normative reasoning are missing from the workshop. Extension in
that direction would be needed.
          “Honesty” is a multi-dimensional concept; being incorruptible is only one of the dimensions. People in the
post-socialist countries are upset not only because of corruption. They find it equally upsetting that politicians and
the media are lying, businesses and other fellow-citizens are cheating etc. The ColBud project wants to look at these
various violations of the honesty-standard, not only at corruption.
          An important part of the work could be the comparative survey of the distribution of ethical positions
concerning honesty in various countries (including comparisons with countries which did not have a communist
past).

4.        Under the socialist system we had certain mechanisms that substituted for democratic processes and the
market:
*         Instead of a free market, we had black and grey economy.
*         Instead of impersonal transactions, we had blat and networks (see Ledeneva).
*         Instead of free speech, we learned to read between the lines, used metaphors, jokes etc.

          Question 4. Will the substitutive mechanisms applied under the communist system which were based on
                       personal relations and human understanding disappear after the transition is over? Is their
                       reduction or elimination desirable?

          Question 4 implies both a positive-predictive and a value-loaded normative aspect.
          The positive-predictive aspect calls for a careful comparative analysis. For example “blat” exists in
traditional market economies as well! Therefore it will probably not disappear in the post-socialist countries either, it
will only modify.
          The task of normative evaluation puts us in face-to-face with the well-known problems of alienation,
loneliness etc. Certainly, perfectly impersonal relations are not desirable.

5.       A considerable part of the literature on post-socialism is about the speed, the sequencing of the changes
transformation involves. This is referred to as the dilemma: shock therapy versus gradualism.
         A similar set of questions can be raised in relation to the issues on honesty and trust.

          Question 5. What is the time-requirement for eliminating the (A) and (B) type of troubles? Will it take much
                        longer than the transformation of the fundamentals?

          The papers by Woodruff et al. set a good example to study empirically the time-sequence of the evolution
of trust in business relations. A related problem is the danger of traps (see Rothstein’s paper): the passing of time
does not solve the problem spontaneously.

6.       There is a new current in social science, which is called institutionalism. It provides an important
contribution to the understanding of social change. The problem is that it seems to be outgrowing itself: institutions
are becoming the sole explanation for a too wide set of phenomena. Perhaps it is not a sign of immodesty to say that
my own work, from the very beginning, has not exhibited many attributes of the institutionalist approach.

          Question 6. What is the role of institutions and other factors in creating the conditions of trust, respect and
                       honesty?

         My conjecture is that creating appropriate institutions is a tangible task: necessary but not sufficient.
         The importance of ideas and morale must also be tackled. Is it the institutions that create the ideas? Or is it
the evolving new ideas that call for new institutions?
         The role of education, in the broad sense is a related important issue. Not only the family and scholars but
also the media, the way politicians express themselves, the everyday experience of people etc. all have a marked
educational effect. For instance, the existence of a strict tax law (the appropriate institution) may “educate” for tax
evasion unless it is consistently enforced by penalizing those who break it.

7         As far as I can see none of the papers now on our webpage deal with the effect of the Web on social
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networks and on trust in the post-socialist region.

         Question 7. What will be the effect of the Web on social relations, including personal networks and trust?
                      How do honesty and dishonesty show up on the Internet?

          Is it not too early to ask this question for the post-socialist countries? I do not think it is. Remember the
Gerschenkron phenomenon: the advantage of the latecomer. There is a great leap toward the e-economy, a www-
society in the region. For instance, in Hungary 35 % of teenagers have mobil phones with email accessibility.
          The spread of the Internet raises some very exciting issues that are certainly worth considering:
*         Does it increase alienation because of the lack of direct personal connection?
*         Does it create more or fewer opportunities to cheat and lie by making access to information easier?
*         Network of endorsements through www. New forms of building trust.

The work of the ColBud project

          What kind of results do we want to produce? The aim of the workshop is – beside getting acquainted and
having an inspiring discussion – to elaborate a plan for the project. The conveners do not want to impose a plan, they
are just asking those interested to join. We call for suggestions for the whole project and offers for individual
contributions.
          Here are a few ideas about what we could do:
*         Establish new contacts across the boundaries of the separated “groups” (trust-people, corruption-people
etc.) and across disciplines. Perhaps new co-authorships, new teams will emerge after this meeting or in the near
future.
*         Use our webpage for further direct interaction. Alongside final products semi-finished products are also
welcome, especially if you seek comments.
*         The climax is a group of researchers who focus on the various aspects of honesty and trust (a “focus group”
as we call it) in residence at ColBud in the fall of 2002. We think there should probably be 3-4 foreign and 1-2
Hungarian fellows for the full period. Furthermore, 8-10 foreign and Hungarian fellows for 4-6 week periods. They
are expected to do some intensive work together which does not mean a joint paper should be produced, but there
should be close interaction among them. There will be regular seminars, presentations, meetings with each other and
with invited scholars from Budapest, and public lectures held by members of the group.
          The composition of the group cannot yet be finalized. A lot depends on finances, and of course on the
outcome of the workshop. We think a balance should be struck in the themes, disciplines, regions, seniority. As I
have mentioned several times already we are open to suggestions. How about thinking about the following
questions: Do you want to come? Can you partly or fully finance your participation? What themes do you think you
would like to work on while in residence? With whom would you like to work together at ColBud? If you have not
talked about these matters with the conveners please do so in correspondence. Please keep in mind that the decision
on the composition of the focus group must be made in the next few weeks.
*         We suggest holding two types of conferences sometime in November/December 2002, while the focus
group is in residence at ColBud.
          The first type should be one or several academic conferences with papers to be discussed. The results could
be published in a volume addressed to the academic readership. Suggestions for papers for the conference are
welcome.
          The other type of conference should be a more policy-oriented meeting, and be open to a wider, non-
academic audience to discuss our recommendations. Each recommendation must be targeted at a particular
institution (such as the government, the parliament, the executive sectors (e.g. tax administration) various levels of
economic activity; education, the media etc.). The recommendations should preferably be based on the findings of
the academic research and could be published in a slim volume addressing a wider public.

				
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