Without trust, business is a dangerous undertaking. For some years I have been a substantial but passive investor in a smallish company. Unfortunately it went into administration in June – obviously reducing my shareholding to a negligible value. The founder promptly bought it back on his own in a “pre-pack” procedure – and is about to sell it for at least 10 times that amount, just six months later. He claims the whole sequence of events could not have been predicted. But I do wonder.
For commercial life to function at all, there has to be a general assumption of trust – that partners, staff, suppliers, customers and the authorities will do the right thing by each other. It is impossible to verify every transaction, and check each task: delegation is essential for all operations of scale. Those who are suspicious of everyone have to limit their ambitions, because they assume deceit is endemic. Such a pessimistic approach is a sorry and unprofitable state of human affairs. As Samuel Johnson said: “It is . . . happier to be sometimes cheated than not to trust.”
But to trust in one another is also to trust in a sanctioning authority, a point illustrated in the book How We Invented Freedom and Why It Matters by Daniel Hannan. He argues that trusting strangers is what helped make Britain and America rich. The US and the UK promoted secular democracies and private enterprise. Industrious individuals left their home communities to seek their fortunes – sometimes emigrating and settling in foreign lands – such as America. These endeavours only succeeded because there was a system of effective civil justice, from which outsiders could benefit as much as locals. This attitude contrasted with that in much of southern Europe, where business tended only to be done between known families and in neighbouring regions. This was a lower-risk approach, but it also inhibited growth.