Trust is the killer app

Research produced by IBM over ten years ago concludes; “Individuals in higher-trust societies spend less to protect themselves from being exploited in economic transactions. Trust is an economical substitute for extensive contracts, litigation, and monitoring in transactions and thus economizes on transaction costs.”

Organisations of every size pay for a lack of trust over and over again and it’s the absence of trust that chokes innovation and prosperity. This doesn't mean contracts shouldn't exist between people, the state and companies but the level of transparency, type of rules and acceptable use policies of networks and the reputation metrics of individual members means ‘contracts’ can be lightweight and egalitarian. When there’s a continuous fair exchange of value then the need for ‘paperwork’ becomes redundant.

However crude these reputation metrics are, one team of researchers states that “reputation systems are performing commercial alchemy in online auctions where they enable trash to be shuttled across the world and in the process transmuted into personal treasures”. Breakdown of trust is just about the only thing eBay, Alibaba and others have to fear, and if they can sustain a largely positive environment of trust, they will likely thrive for many years to come.

William Davies at the Institute for Public Policy Research said in a ground breaking paper over ten years ago examining the role of the government in the increasingly decentralised social and political activities taking place online. He said there are three sources of trust: State, Community & Online Community. Notice the absence of corporations. Ok, so Facebook has issues but the delight it brings to billions of people by keeping the invisible lines of connection between them alive is indisputable. Mr Davies goes on to say that “out of nowhere trust has become the most talked about abstractions of our times” and notes that online communities have an unusual propensity to create environments of trust.

One of the most comprehensive studies of the open source community was carried out by Yochai Benkler to understand how Linux, a free operating system, and a slew of other Internet facing software products (e.g. Apache, Tomcat, MemCache), have come from nowhere to challenge mainstream, paid for products from Microsoft, IBM and others. Benkler concludes:

“Removing property and contract as the organizing principles of collaboration substantially reduces transaction costs involved in allowing these large clusters of potential contributors to review and select which resources to work on, for which projects, and with which collaborators.”

Think about this. Facebook, Twitter, Google, Amazon could not exist without open source software nor could the much, much bigger long tail of small businesses and entrepreneurs. Back in 2003, for the first time ever, Microsoft formally stated in its annual report the threat from Linux to its revenues. It even started to play this new game by releasing portions of its Windows code ‘open source’ style. This didn't go well as we've seen from its Window 8 car crash. The big question is, over this time, did the world trust Microsoft? With reports of Windows 10 beta versions containing key loggers, recording absolutely everything you, does Microsoft have a future?

Japan has the oldest companies in the world. It has a few that are over a thousand years old and many that are over a hundred years old. Studies from a number of academics, scientists and anthropologists all agree this longevity happens because they were founded on a central belief that is not tied solely to making a profit.

Howard Dean, a former US democratic presidential candidate, who came very close to becoming president enabled by bottom up, ground roots social media activism hinted at the limits of command and control in the next phase of political activism by saying:

“We discovered that the path to power, oddly enough, is to trust others with it.”

Trust is the killer app.