Trust keeps the economic wheel going, but must be nurtured

A well-functioning society requires well-functioning institutions that ensure prosperity, fair distribution of wealth, social participation, security, and informative media. Such institutions are built on a foundation of trust. A study in PNAS warns that weakly governed market economies risk a “meltdown of trust” that can destabilise societies, undermine prosperity, and make solving global challenges nearly impossible.

The paper, by Beijer Fellows Stephen Polasky (University of Minnesota), Marten Scheffer (Wageningen University), and Beijer Fellow and Institute programme director John M. Anderies (Arizona State University), argues that trust is essential for economic success and effective governance.

“We are all so highly dependent on the performance and cooperation of others, and this dependence is so basic to the functioning of the economic system, that the deep level of trust this requires goes almost unseen” they write.

For example, as consumers, we trust that we will receive the goods and services we are paying for. Similarly, vendors trust that there is money behind the payment method consumers are using.

“Absent of such trust, modern economies, built on exchange among countless individuals, most of whom do not know each other, would seize up and cease to function”, the authors claim.

“Moreover, trust is important in promoting collective action and providing shared infrastructures. Trust is the lubricant that enables people to collaborate and cooperate,” says John M. Anderies and continues: “There’s a virtuous cycle there that you can get into when society says, ‘Hey, we have a win here. We got together, and we fixed this problem. Let’s do it again’”

When trust breaks down

While collaborative action thrives on trust, inequality can erode even a perceived strong foundation. According to the authors, governed market economies are prone to several factors that undermine the trust that they depend on: the intrinsic tendency for inequality to arise, modern media’s (with emphasis on social media’s) inclination to incite reactions by amplifying perceived inequalities, and the incentive to gain financial reward at the expense of others.

These processes instead risk triggering a “vicious cycle” of distrust, political polarization, and declining economic performance.  Nordic democracies are put forward as examples of how inclusive institutions and equitable prosperity can maintain high trust over decades.

“There’s this interplay between trust and the economy, and it’s a feedback structure. A loss of trust leads to  a decline in the quality of governance, less capacity for collective action, collaboration and providing public infrastructure, which then decreases economic performance, which further erodes trust,” Anderies elaborates.

The paper warns that once trust collapses, recovery is slow and politically difficult, as entrenched elites resist reforms. On a positive note, past experiences show that broad-based reform movements can reverse decline. One example being the “progressive era” in the USA, referring to the period around 1890-1920 characterised by multiple social and political reform efforts.

The authors call for deliberate governance strategies: reducing inequality, promoting social cohesion, ensuring fact-based media, and rewarding prosocial behaviour. Without such interventions, they caution, weakly governed economies risk locking into low-trust traps that threaten democracy, economic stability, and the ability to address existential crises like climate change.

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Acknowledgement: Parts of this text are borrowed from a web news piece by Arizona State University, written by O’Hara Shipe.

Reference: Polasky, S., M. Scheffer, and J. M. Anderies. 2025. Meltdown of trust in weakly governed economies. Proceedings of the National Academy of Sciences 122(14):e232052812.