A year or two ago I read Sapiens by Yuval Noah Harari and one passage in particular stuck out to me. Prof. Harari argues that trust, in the form of financial credit, was the key that enabled the explosive growth of the modern economy. I’d like to pose the question: what else does trust enable, and what similarities can we discern among all the things that trust enables?
What enables banks - and the entire economy - to survive and flourish is our trust in the future. This trust is the sole backing for most of the money in the world.
– Sapiens, p. 306
The section in question is at the start of Chapter 16, “The Capitalist Creed,” where Prof. Harari describes a hypothetical interaction between Mr Stone, a builder, Mr Greedy, a banker, and Mrs McDoughnut, a baker.
In this scenario Mr Stone has $1 million in cash on hand and gives it to Mr Greedy to store in the bank. Mrs McDoughnut wants to open a bakery, and receives a $1 million loan from Mr Greedy to build it. Mrs McDoughnut then pays Mr Stone the $1 million to build her the bakery. Mr Stone deposits this new $1 million in his bank account with Mr Greedy.
At this point, Mr Stone has $2 million in his bank account with Mr Greedy. Mr Greedy only has $1 million cash in the account though – the same $1 million that Mr Stone started with, in fact. In a way, Mrs McDoughnut used Mr Stone’s own money to pay him.
It seems paradoxical, almost like one of those puzzles where wooden shapes are rearranged and suddenly there’s a hole in the center. But out of this paradox Mrs McDoughnut has achieved a personal dream, the town has a new building, and the townspeople have access to a new, tasty service.
Prof. Harari points out that the missing piece, the hole in the center of the puzzle, is trust in the future, specifically in the future of the bakery. Mr Greedy trusts that the $1 million loan will return as $2 million as Mrs McDoughnut begins selling baked goods in her new bakery. Mr Stone trusts that the $2 million credit he has in his account with Mr Greedy is equivalent in effect to having $2 million cash in his hand.
If we didn’t have this trust there would be no loans or no credit system, Mr Greedy would not make such investments in ventures like the bakery, and Mrs McDoughnut would only be able to achieve her dream if she personally possessed $1 million, which, if possible in a lifetime, may take years of hard work. Progress and growth would be stuck at a premodern pace.
Kathryn pushed on. "The fact is, if we don’t trust one another – and it seems that we don’t – then we cannot be the kind of team that ultimately achieves results. And so that is where we’re going to focus first.
– The Five Dysfunctions of a Team, p. 95
The trust in Prof. Harari’s example is intangible, effectively a figment of our imagination, and yet it paved the way for something real that tangibly benefits humans. One might call that trust a type of technology, a tool that can be applied to improve a situation.
A little while after reading Sapiens, I read Patrick Lencioni’s The Five Dysfunctions of a Team. After reflecting on Mrs McDoughnut’s bakery I was very receptive to the argument Lencioni puts forth that the most fundamental dysfunction of a team of co-workers is “absence of trust.” Without it, the team in the story had no chance of continuing on to master the other qualities of good teamwork.
The idea that trust is the basis of good teamwork and economic growth leads me to wonder just how fundamental and universal trust is. What connections can we draw between the trust that backs a loan of credit and the trust that allows a team to operate effectively? In that common ground could we outline helpful similarities between all trust-based interactions?
To start exploring these potential similarities, let’s consider an interaction between coworkers.
Product Manager at Innovation Inc. has an idea for a new product feature. Product Manager brings this idea to Engineering Lead and asks them to get their team to build it. Engineering Lead’s team spends three months building the first cut of the new feature, based on Product Manager’s ask and vision.
What capital does Engineering Lead have? Engineering Lead has their team’s time and skills, together creating the ability to build Product Manager’s vision into reality. And what capital does Product Manager have? Just the tools to build Engineering Lead’s trust in the vision. This may be a market research slideshow, or a convincing verbal argument, or a shared history of successful ventures.
Some of this equation will certainly be governed by organizational structure – it’s likely that Engineering Lead has some organizational mandate to follow Product Manager’s direction. But insofar as Engineering Lead has the freedom to make decisions, to accelerate or decelerate the process of committing to a vision, this is a trust-based interaction.
Engineering Lead will have to agree to invest their capital in the venture. If it’s a worthy investment it will return more capital in the future, in the form of assets for the business and improved personal reputation, both of which are thereafter available to be invested in future ventures. This positive feedback loop of organizational capital and investment closely mirrors that of financial capital and investment.
One similarity we can draw between the financial example and the organizational example is what happens when proof is demanded.
If Mr Stone demands proof that his $2 million is there, Mr Greedy may not be able to do so by literally showing him cash. Mrs McDoughnut may then pull out of the deal, and have to come up with the $1 million herself, which could take a long time and a lot of hard work. Conversely,
If Mr Greedy demands proof that Mrs McDoughnut’s bakery will successfully return the loan money with interest, what can Mrs McDoughnut do? They will have to prove (or be shown the evidence of) her skills as a baker, and that there is a market for her baked goods. This takes time and energy, and perhaps a considerable amount, on both their parts.
In examining the other direction, to aid the analogy, let’s pretend that Mrs McDoughnut has actually solicited a $1 million credit from Mr Greedy’s bank. If Mrs McDoughnut brings this credit to Mr Stone to pay for his services, he has to trust that it’s worth what it says it’s worth. They may both go to Mr Greedy and demand to see proof of this. What can Mr Greedy do? He may not be able to show $1 million cash to back up the credit, but perhaps they can all take the time and energy to analyze the future value of Mr Greedy’s credit to other people in the town, so that Mr Stone can be satisfied that when he uses that credit to buy groceries next week, the grocer will accept it as if it’s cash.
Ultimately, in either demand for proof, there will never be 100% certainty of what the future holds. The bakery venture will always require an amount of trust, and if that minimum amount of trust is missing, the deal will fall through.
Over at Innovation Inc., If Engineering Lead demands proof that Product Manager’s idea is a good one, what can Product Manager do? Similar to the financial example, they can both take the time and energy to prove (or be shown the evidence of) the validity of Product Manager’s vision – taking a look at Product Manager’s market analysis, user research, so on. In the other direction, they can take the time and energy to analyze whether Engineering Lead’s team is up to the task. In either case there’s a chance the proof will not be good enough, the minimum trust in the future isn’t present, and the venture breaks apart.
In both scenarios, and in both directions, we might be able to say that the people involved are claiming that they can back up a capital investment into a venture. This capital investment takes the form of financial credit, effort and baking skills, innovation, or effort and engineering skills. These demands for proof are guards against the risk of believing the claims of each other, specifically the risk that the claims should not be believed. As trust decreases, and proof is demanded, the people involved need to spend more time and energy in the venture. If we consider that time and energy are themselves capital that each person brings to the venture, we may say that as trust decreases, capital efficiency decreases. If trust (and efficiency) hits a critically low threshold, the venture itself may breaks apart.
I’ll end this post here, because my aim for right now is just to introduce the mode of thought and pose the question. So far I feel confident in the claim explored in the previous section, that as (deserved) trust increases, efficiency increases, be that efficiency economic or organizational. But what more can we say about trust-based interactions? Can we describe an overarching system that governs them? Where else do we see examples of trust-based interactions, and what insights can we gain by applying this system? I hope to follow up with another post containing more concrete investigation into these questions.
Thank you for reading!