Date: 2025-06-30 Page is: DBtxt003.php L0913-TVM-MMW-000025
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TrueValueMetrics ... Peter Burgess Manuscript
Making Management Work for Relief and Development |
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Chapter 25
Trust |
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Lack of Trust is a Huge Constraint
Impossible to trust something you don't know It is impossible to trust something that you do not know ... and since almost nothing is known by the general public of the “south” except what is promulgated by the media and the various controllers of communications ... it is no wonder that there is a lack of trust. If media stories about the “south” are going to be the basis for trust, then there will never be any. Something else needs to be done ... and that is the building of reliable information end-to-end about the relief and development sector. With good information, it is possible to start a process of trust building. What is trust? Trust is not a legal construct, but more a moral and ethical idea. If a person agrees to do something, will they do it? If a group agrees to do something, will they do it? The whole of the global economic system operates relatively smoothly because of this trust ... and has operated on a basis of trust for centuries. Trust is an incredibly important component of any society, and that includes both the modern urban society embracing technology as well as rural societies where there is little or nothing that is modern or technological. Nothing very much happens if there is no trust ... and the global economy and the relief and development sector are dysfunctional in part because there are insufficient mechanisms to create a trust full world. Can rule of law substitute for trust? In my book, trust is far more important than rule of law. If there is no trust, then the rule of law merely gives a basis for litigating, and in most litigation, nobody wins, except the lawyers. The rule of law has been of great value in the creation of value constructs that have help build wealth in the “north”, and for this the rule of law deserves considerable respect. But the rule of law has also been used to trick people out of what would reasonably seem to be their legitimate rights. Rule of law can easily be used to make wrong things legal ... because something is legal, it does not make it right, or ethical or moral. It might be, but it does not have to be. And anyone round the world that “trusts” the rule of law, is likely to be in trouble ... Better rather to have trust in people, and to have real agreement about what the economic transaction means, not a mere piece of paper called a contract, and no framework to enforce it. End to end trust In New York, or London, or Paris there is a well established rule of law, and most people doing business in these places know and understand the laws that apply and can act accordingly. There is also applicable law in a poor community hundreds of miles from electricity and the telephone and professionals ... the applicable law may well be a combination of local traditional law and the law of the country and a mix of accommodations to handle the multiple conflicts that apply. In this evolving legal situation, trust becomes important, and agreement and understanding. Trust and agreement and understanding are going to be further complicated by the differences in culture, in language and experiences. Trust is possible when there is clarity about what everyone is trying to achieve, and it is clear that the economics are fair to all concerned. There is the need for an organization that can handle both ends of this. That can be trusted by those that understand the New York rule of law, and those that understand the applicable rules in the remote “south” situation. Building trust Building trust takes time. It is really a matter of generations, rather than weeks, months or a few years. But maybe it can be accelerated as everything else in the world seems to be accelerating. Maybe the information needed can be put together on “Internet” time rather a normal relief and development sector timeline ... and maybe a younger generation can embrace global trust in a way that older generations cannot. Maybe ... but the essentials will not change. Good information showing good behavior and a pattern of good behavior that looks like it is absolutely reliable ... even when there are opportunities for bad reaction. Wrecking trust It is very easy to lose trust, to wreck it, and it is very difficult to build trust. In 1975, or maybe it was 1976, the Nigerian Central Bank revoked irrevocable letters of credit. They had good reason. However, in five minutes the Board of Directors damaged the essential trust in the Nigerian financial community that will take five decades or more to rebuild. In the 1975 and 1976 Nigeria had a huge cement shortage, and terribly congested ports. There were more than 400 ships waiting to get into the Lagos/Apapa port, and delays of months to land cargo. This was exploited by unscrupulous foreign cement suppliers who better understood the terms of the contracts, and the shipping rules, than the Nigerian buyers. Eventually Nigerians were paying more for the freight charters than for the cement ... and the cement by the time it arrived was useless after months at sea. It was a terrible scandal ... and a terrible rip off of legitimate Nigerian buyers. All of these payments were being made under the terms of irrevocable letters of credit ... and the Central Bank chose to solve the problem by revoking the letters of credit and not making further payments. Good decision in itself, but the repercussions have been bad and very long lasting. Deserving trust The world's financial community depends to a large extent on trust. The “south” has not built a good feeling of trust within the world's financial community. Nor has the “north” built much goodwill in the “south” either. There is a lot of work to be done by everyone. But without trust and goodwill it is difficult to make progress. There is a critical need for appropriate intermediaries and workable structures. Honesty Sadly, my experience is that rich people do not give people who are poor and live in poor communities much credit for honesty. And the good news is that my experience has been that people in poor societies are often a lot more honest than their counterparts in rich places. This is borne out by the experience of microfinance organizations in lending to the poor. Repayment rates were almost 100%, unheard of in lending to a richer part of the population. How to facilitate end-to-end trust If there is a deficit in trust, then there will be an ongoing and insurmountable constraint on relief and development performance. Somehow, structures have to be created that will help for trust to be created, or at least, the risk associated with this to be managed. A foundation of good accounting and management information and a framework of public accounting and accountability will help, but it is not enough. There need to be people involved who are able to demonstrate without a shadow of doubt that what is, is ... without any possibility of being wrong. This can be done efficiently with good people and good technology, and at a reasonable cost. End-to-end there cannot be any missing links ... or places where funds will leak and not be accounted for. In order for relief and development resources to flow smoothly to where they are needed, there has to be “end to end” trust. This can be achieved within a single organizational setting, or it can be built using a public accounting infrastructure and associated organizations. Up to now, integrated organizations that have this internal trust, have been “top down” and very rigid, and rarely get to reach deep into the community level and grass roots activities. Organizations that have originated in the “south” have rarely been able to establish a high level of trust in the “north” though this is starting to happen with a few examples such as the Grameen Bank being successful, but not many. Another way using a public accounting infrastructure and an independent network of organizations that use information and networked oversight that makes it possible to validate the credentials of any organization has a lot of potential. The network role is something like the “accrediting” that a professional organization does for its members so that there is some protection to the public. Members of the network have to be operating at a sufficient level of performance to be accredited members. Some organizations have already started to provide services to help philanthropic donors connect with reliable charities, and some to do a rating exercise on charities. At the moment these organizations are working well but on a small scale relative to the vastness of the relief and development sector as a whole. The old confirming house In the days before electronic communication ... before telegrams when physical delivery of mail was the only means of communication ... global commerce took place with the assistance of the confirming house. This system made it possible for someone to take on a financial risk and enter into commercial transactions with people who did not know each other, but in the middle was an organization, the confirming house, that knew both parties to the transaction. This was a very practical way of going about global commerce, and it worked very well. The modern banks have kept some small part of the old confirming house system, and still talk about “confirmed” irrevokeable letters of credit, meaning that only banks known to each other are involved in the transaction. A modern version of this, or something similar is needed to make it possible for the new flat global world to be able to progress unconstrained by the problem of lack of trust. Misplaced trust The well known organizations in the relief and development sector are “trusted” by the public, even though it is not at all clear that the trust is justified. Enough information that has been published over the years that suggests that very few of the well known organizations have adequate control over their financial and material resources. There are periodical news stories about the inappropriate use of resources. After 9/11, a lot of money was donated to benefit the families of the 9/11 victims ... stories have emerged about how the American Red Cross lost control of resources in the aftermath of this disaster. It seems that something similar again happened in the aftermath of the Katrina and Rita hurricanes. In the case of the South Asian tsunami, there was as much as $4 billion mobilized for rescue, relief and rebuilding ... but the use of that money is not at all easy to follow. There is not question that a lot of funding was used to help established organizations pay salaries and expenses for tsunami assistance personnel, though it is not quite clear if any of the activity that was funded actually produced value for the victims of the disaster. As in so much relief and development, white Land Cruisers built by Toyota proliferated, courtesy of relief funding for the tsunami. |
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