Trust is the basis of the economy – MK

Many years ago, when I was at a reception in the company of two academic economists, I shared with them my personal discovery: the basis of the economy is people’s trust in each other, market mechanisms and government institutions. And I heard that he “discovered America”: for economists this is an obvious truth. Since I did not claim the glory of a discoverer, I was glad and strengthened in my awareness of the importance of professional observation of this basis and the factors influencing it.

I would like to share the latest data on this matter. VTsIOM presented the results of a fresh study of public trust conducted in December 2023, compared with similar data obtained five years ago. 1,600 Russians over the age of 18 were surveyed. To the basic question whether most people can be trusted, only 25% of respondents answered positively, while 71% are inclined to be cautious in their relationships with other people.

In addition to the direct question about the preference for trust or caution in relationships with other people, two indirect questions were asked: “Do you think most people would try to deceive you if given the opportunity, or would they act honestly?” and “Do you think people most often strive to be useful to others or only think about themselves?” In answers to the question about honesty, the ratio of those who think better about people and those who think worse about them turned out to be in favor of the former (48% to 37%), when asked about altruism and egoism – in favor of the latter (37% to 43%).

What signs most significantly divide people by level of trust? Sociologists have found that the main thing is the level of well-being. People with low incomes trust others half as often as those with high incomes. And a third more often than the average of all respondents consider most people to be deceivers, and a quarter more often – selfish. Researchers explain this by saying that the more affluent have advantages in education, social status and breadth of communications, which allow them to be among people who are more trustworthy. For me, however, what is more important here is the reverse direction of cause and effect: those who are more likely to trust other people achieve greater well-being in life.

The next most influential factor is a person’s age. I confess that it was unexpected for me that young people are the least gullible, and the older the age group, the more gullible there are. Only 17% of young people (18 to 25 years old) and 28% of older people (60 years and older) are ready to trust most people, while 81% of young people and 65% of older people are wary of relationships with others. It would be easier for me to believe otherwise, but the fact is that the ratio of the number of gullible to the number of distrustful among the elderly is twice as high as among the young.

What does this mean? Psychologists believe that basic trust or distrust in the world is formed in a person in the first three years of life as a reaction to the behavior of the parent to whom he is most attached. As a rule, mothers. This means that significantly lower trust among those born in 1998–2005 compared to those born earlier, especially before the 1960s, indicates such features of the behavior of their parents during that period, which could have formed in the majority the attitude to trust people less and more often suspect them of a tendency to deception and selfishness.

At the same time, five years earlier, when the youngest group of respondents included those born in 1993–2000, their level of trust in people and assessments of their honesty and desire to help others were much lower than in the previous year’s survey. In the latest survey, a significant portion of them were in the group of 25-34 year olds, and it was this group that showed the maximum distrust in the honesty of most people and their willingness to help someone.

Last December, VTsIOM also conducted another measurement of its monthly consumer confidence index, which is calculated based on answers to the question whether now is a good time to make large purchases. 28% of surveyed consumers answered that it was rather good, 49% – that it was rather bad, the rest found it difficult to answer. But I would prefer to talk here about another indicator – the consumer confidence index (CII), which is calculated quarterly by Rosstat based on the results of a survey of 5 thousand adult citizens from all regions of the country. Citizens are asked about changes in their personal financial situation, as well as about the economic situation in the country, favorable conditions for large purchases and favorable conditions for savings. For each of these four indicators, the number of negative ratings is subtracted from the number of positive ones, and the IPU is calculated as the average of these differences.

Based on the dynamics of this index, one can study the modern history of Russia. The first published IPI for the fourth quarter of 1998 was minus 58, and this should not be surprising, because it was measured at the peak of the consequences of the default announced by the Russian government. By the fourth quarter of the next year, it rose to minus 35, and a year later to minus 17. In the next four years, it fluctuated in the range of minus 10–13, and in 2005–2007 it rose to minus 3–7, and sometimes even had positive values . But in 2008–2009 it dropped to minus 20. This brought us to the global financial crisis, which began with the collapse of the US mortgage market.

Subsequently, the IPU again recovered to the level of minus 7–11 until the last quarter of 2014, when, after the annexation of Crimea and the start of external economic sanctions against Russia, it dropped to minus 18, and a year later to minus 26. And then again rose to minus 13 in 2019, a new drop to minus 26 amid the pandemic and the restrictions and uncertainty it caused. In 2021-2022, the index remained at minus 23, but finally there is good news: in the fourth quarter of 2023, the IPU rose to minus 13.

It is also worth noting that this index always has a value significantly above the average for the youngest of the three groups of respondents identified by Rosstat (under 30 years old) and below the average for the oldest of these groups (50 and older). Thus, according to the latest data for the fourth quarter of 2023, young people had an IPI of minus 8, while older ones had minus 16. The fact that young consumers, despite their inherent lower overall level of trust in the world, are economically more confident than older ones can easily be explained by psychophysiological characteristics of each of these groups. However, it seems to me that the reason is not only the age-related decline in optimism and positive perception of life. The historical specificity of our country also manifests itself here – the majority of citizens enter old age without having such savings that can ensure their confidence in lifelong material well-being.

Without much hope for their own economic opportunities, many demand that the state stop the rise in prices (as the main threat to their material well-being from selfish entrepreneurs). Indeed, in accordance with the laws, prices for goods and services are set independently by their sellers. But how much freedom do they have in choosing a price that should provide them with cost recovery and profit? After all, if the price turns out to be significantly higher than that of a competitor, the buyer will leave and the seller will suffer a loss. If he sells cheaper than a competitor, he will not receive the possible profit, which he could use to develop his business. So it turns out that prices are similar to the readings of the needle on a scale that balances supply and demand. When the equilibrium point shifts towards greater demand, so that store shelves do not become empty, the price is increased. When supply exceeds demand, reducing prices helps prevent overstocking.

The authorities are learning from their experience. It is worth noting that they contained the rapid increase in egg prices that occurred at the end of 2023 by other means than the prices for sugar and vegetable oil in 2020. The Ministry of Agriculture’s announcements about duty-free supplies of imported eggs cooled the increased consumer demand for a rapidly rising product. I would call this method psychotherapeutic, since the number of eggs imported to Russia was insignificant compared to the volume of domestic products and not a single one of them ended up on the shelves of retail chains (all went for industrial processing). I think that the cases of price collusion between poultry farms, brought in several regions by the departments of the Federal Antimonopoly Service, which is supposed to do exactly this – closely monitor the markets, preventing their monopolization and protecting all participants from unfair competition, also played a rather psychological role.

Any attempt by the authorities to “control” prices with the most noble goals (and there are a huge number of proposals of this kind) is fraught with dire consequences. If you set a limit on the retail prices of some goods today, tomorrow you will have to introduce a mandatory assortment for sellers, otherwise these goods will not be on the shelves. The day after tomorrow, oblige their manufacturers, and then all those who supply them with raw materials and components, to fulfill plans for the production and delivery of products at regulated prices. And when their owners, limited in their rights, refuse to fulfill demands that are unfavorable for them or go bankrupt as a result of their fulfillment, nationalize enterprises and return the country a third of a century back to an administrative-command economy, the only one possible for the state as the owner.