Sunday, 13 March 2011

BASIS OF ECONOMIC PROGRESS HONESTY AND TRUSTWORTHINESS

Browsing through the Economic Survey 2010-2011 by the government of India, Ministry of Finance I came across this very interesting insight  on pages 39-41
....What is increasingly recognised is that successful economic development has a strong correlation with human qualities such as honesty and trustworthiness.The drive for greater profit ...devoid of these social qualities,creates a dysfunctional and chaotic society .


There are studies showing that societies in which interpersonal trust is greater are societies that exhibit faster economic growth .e.g. a modern and an efficient economy depends upon contracts and the ability of individuals to rely on these contract  .
Say, an individual gives money to a painter to paint his house .If the risk is high that the painter will breach the contract by taking the money and then doing a slip shod work in that case people at large may prefer to leave their homes unpainted for longer stretches of time !
Another example ,say, a person lends money to a company with the company making a promise of paying a certain interest rate over the next 10 years and then paying back the principal.In a country where such contracts are not dependable and companies are likely to renege on the contract,it is unlikely that people will invest in companies .The bond market will flounder and companies will be able to invest less than what is optimal .


A Modern Vibrant Economy relies critically on contract and our ability to have trust in the contracts .
A part of the responsibility for enforcing contracts lies with the State and the Judiciary .Long term contracts like a mortgage for buying a house with the promise of repayment over the next 20 years ,necessarily have to rely on the State machinery for enforcement .However these are not the only kinds of contracts . Economic life is full of little promises.The best enforcer of these little contracts is our word of honour and the culture of honesty and trustworthiness!


If a particular citizenry is known to be trustworthy ,people will be more likely to cut deals with that nation and, over time the nation will prosper economically. 


For India to develop faster and do better as an economy it is important to foster the culture of honesty and trustworthiness.Nurturing theses qualities will bring about economic progress and human development .

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