Photo credit: Mike Braun

On Distrust, Regulation and the Modern Liberal

By Laurens ten Cate. Communications & Research Associate at Americans for Tax Reform

Why do modern liberals favor state control and regulation so much more than conservatives? It is due to this misunderstanding that the eternal state-control yea or nay debate will most likely stay undecided.

When juxtaposing states political leanings with regulatory freedom you see a clear positive correlation between regulatory freedom and the percentage of Republican leaning citizens in that state. (Blue dots represent states)

Chart created by writer. Data from Gallup & Cato Institute

New research suggests this difference exists due to the amount of trust people have in each other.

Effect of Social Capital on Society

It is accepted that social capital, or interpersonal trust, has an effect on economic outcomes of an area, state or country. One of the big factors for this is the increase of regulation in low-trust societies.

“Using the World Values Survey, we show both in a cross-section of countries, and in a sample of individuals from around the world, that distrust fuels support for government control over the economy.”
Distrust in countries highly correlated with ease of creating a new business

According to the authors this happens because when people distrust each other they want an authority (the government) to check up on business and the populace. This causes citizens to vote or push for more regulation on businesses and people. This very negative feedback loop has an incredibly negative impact on society. Distrust is correlated with all kinds of bad things like increased crime, worse social cohesion, worse education rates and lower social mobility.


Social Capital, Government and Political Ideology

The graph below shows data from University of Oxford’s ‘Our World in Data’ project. Interpersonal Trust (Social Capital) is overlaid with Trust in the Federal Government. These two figures correlate heavily with each other and are both experiencing a serious decline over the past 40 years.

Graph created by writer. Data from the Our World in Data project.

The effect of this trend can be seen in the enormous amounts of new regulation being added by the government every year.

Graph from Mercatus Center’s RegData

Interestingly enough it seems that trust in the government is highly correlated with party affiliation. Gallup shows this in their 2013 report on various social values and political leaning.

“Using Gallup’s 2013 data on state party affiliation, average trust in state government is 67% in solidly Republican or Republican-leaning states, 58% in competitive states, and 53% in solidly Democratic or Democratic-leaning states.”

Applying Occam’s razor to all this data creates the very simple hypothesis that modern liberals are so pro-regulation because of their lower levels of interpersonal trust. This also explains why Democrats tend to be against newer technologies like the more recent regulatory backlash against the sharing economy. They don’t trust other people to create companies that serve not just themselves but also the community.

Adam Thierer from Mercatus Center calls this phenomenon ‘Technopanic’ which I think is an entirely correct analysis. However, I argue that the rate of ‘Technopanic’ is based on interpersonal trust levels and not some innate fear of technology or change.


Consequences

This realization creates a deeper understanding of the often seemingly counter-intuitive actions of many modern liberals. For the aforementioned state-control debate this is of utmost importance. Next to that, this knowledge further solidifies the idea that new industries, like the sharing economy that risk over-regulation in their baby years, should focus on improving interpersonal trust.

Many sharing economy startups already try this by implementation of Reputational Feedback Mechanisms. I suggest however that communication of this idea is going to be a big factor for the future acceptance of new technologies by governments.

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