The Global Trust Crisis
World leaders at venues like Davos need to start taking the public’s declining faith in institutions seriously—or face more upheaval to come.
As the world’s political and business elites ruminate on world affairs at the Swiss ski resort of Davos, this year they must contend with grave public discontent with the global system. In recent months, protests have multiplied across the globe: self-determination riots in Catalonia and Hong Kong; rebellions fueled by inequality and corruption in Algeria, Chile, Ecuador, Egypt, and Sudan, to name just a few; and the climate-focused strikes around the world led by the activist Greta Thunberg.
Unlike previous waves of protests such as the Arab Spring, which sought regime change as a central objective, the latest uprisings are calling for a fundamental change in the world’s systems of political and economic governance. Unless the leaders convening at Davos can formulate far-reaching reforms, the continued spread of populism, growing anti-capitalist sentiment, more trade wars, and many other dislocations are likely.
The Edelman Trust Barometer, an annual study of the level of trust in institutions across 28 countries, shows the erosion of faith in the system. The results of the recently released 2020 report show low confidence in government and media, with business and NGOs fairing slightly better. This year’s survey also showed a worrying 14 percent “trust divide” at the global level between the “informed public”—defined as wealthier, more educated citizens who are more frequent consumers of news—and the general population. A record eight countries—Australia, Brazil, France, Germany, Italy, Ireland, Russia, and Spain—registered the highest-ever gaps between these two groups. A full 23 countries recorded a double-digit gap. Overall, less than 20 percent of the global population expressed trust in the system, and 73 percent supported a change in the current system of global capitalism.
Why are so many people so disillusioned? There are four broad reasons, and they apply globally.
The Edelman report singles out the first cause: disillusionment with rising inequality and an increasingly insecure economic future. The majority of people in 21 out of 28 surveyed countries are worried about being left behind and “losing the respect and dignity” they once enjoyed. Although economic growth and employment are robust in developed markets, trust is lagging because people feel that the benefits of prosperity are accruing to a narrow group of elites. Less than 1 in 3 people in developed markets believe that they will be better off in five years’ time, and 83 percent of workers are deeply concerned about losing their jobs due to factors such as automation, the gig economy, lack of training, cheaper foreign competition, and immigration.
A second driver of mistrust is growing polarization between different segments of society. In India, for example, Muslims feel increasingly marginalized under the Hindu nationalist government of Prime Minister Narendra Modi. The country was recently rocked by days of violent protests after the government introduced a new citizenship law that discriminated against Muslim refugees from neighboring Afghanistan, Bangladesh, and Pakistan.
In the West, persistent gender inequity has mounted in the form of movements such as #MeToo and the annual Women’s March, which drew an estimated crowd of 3.3 million to 5.2 million participants across the United States in 2017—reportedly the largest protest in U.S. history. Meanwhile, the diverging economic fortunes of high-wage knowledge workers in densifying cities and blue-collar labor in deindustrializing rural areas have contributed to populist movements like Brexit and Trumpism.
Third, public alarm about climate change, which is intrinsically linked to the world’s resource-intensive production model, appears to be escalating. Many people view the recurrent flooding in cities like Venice and Jakarta and the vast forest fires in Australia, the Amazon, and California as signs of what is to come. However, the public is becoming increasingly exasperated by the lack of a broader institutional response to the climate crisis, combined with statements like U.S. President Donald Trump branding climate change activists as “prophets of doom” and Australian Prime Minister Scott Morrison going on holiday during the country’s intensifying forest fires.
Fourth, many citizens of developed countries believe that international trade contributes to job losses and stagnating wages, as a host of manufacturing and tradeable service industries have migrated to lower-cost countries. Support for the North American Free Trade Agreement, for example, almost halved among Republican voters between 2004 and 2017. In developing countries, trade has widened the inequality gap between workers employed in high-productivity traded sectors and those still engaged in the informal economy.
These four factors have converged into a Great Trust Crisis—a tinderbox of disaffection that could erupt with unpredictable consequences.
Given the profound nature of the grievances, restoring public trust will require a reset of the order that has been defined by the Washington Consensus since the 1980s. It’s time for governments, businesses, and the media to demonstrate new leadership and collaboration to effect positive change in four key aspects of the global system: economic security for workers; restored faith in the media; the transition to a carbon neutral economy; and a more equitable model for trade.
First, to ensure economic security for the working population, government and business must come together—at venues like Davos—to develop innovative new approaches to make basic needs like housing, education, child care, and health care more accessible and affordable. According to the U.S. Bureau of Labor Statistics, the real cost of medical care has more than doubled and college tuition almost quadrupled in the United States since 1980. The rising cost of basic social services creates a drag on household income and dampens overall economic growth. For example, without affordable child care, parents (especially women) find it more difficult to return to full-time work after giving birth and may drop out of the workforce altogether.
Government and business must also collaborate to invest in the development of human capital and regional economies. Taking a cue from the flexicurity program in Denmark, in countries that invest in lifelong learning and job placement services, workers are more likely to secure well-paid jobs in high-growth, knowledge-intensive sectors. In parallel, efforts to transition to a greener economy also provide opportunities to revitalize rural areas through public and private investments into infrastructure and the green economy.
Many policies designed to support economic security will also help fight social polarization. But to enable constructive political dialogue, the second pillar of the global system that must be held to higher standards is the media. For example, proposals have been put forward in the United Kingdom to place a fiduciary duty on social media and other digital information platforms to prevent the spread of fake news and harmful content.
Third, more countries need make concrete steps to achieve a carbon neutral economy. The governments of the European Union are poised to show the way forward with their 10-point Green Deal to be released in March. The plan will target a 50-55 percent cut in greenhouse gas emissions by 2030. New directives are also expected on the accelerated deployment of renewable energy, energy efficiency initiatives, and emissions trading markets. Outside of Europe, China is aiming to introduce a carbon trading scheme in 2020, which will cover a quarter of global carbon dioxide emissions. And New York City is committed to having net-zero carbon emissions by 2050 under its OneNYC plan.
Fourth, governments must move beyond damaging trade disputes to reforming the model for international trade. In the recent “phase one” trade agreement between the United States and China, China’s commitment to purchase $200 billion in U.S. goods over the next two years only serves to temporarily redraw the balance between the two countries. The two superpowers have made few advances in key areas such as industrial subsidies, labor standards, intellectual property protection, digital trade, and environmental sustainability standards. In the absence of a new model of international trade, these unresolved issues will come to a head again and again. For example, as part of the EU’s Green Deal, proposals are also expected for a carbon border tax to protect green EU companies against unfair competition from other regions with less stringent environmental regulations.
As world leaders deliberate the future direction of the global economy in Davos, they would do well to heed the impatient public outcry for genuine systematic reform in the era of the Great Trust Crisis. If they don’t, they could be swept aside as pressure boils over into anti-establishment revolt.