A timely extract from Winning by Sharing circa 2004 on the importance of Trust.
Research produced by IBM 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 is the absence of trust that is choking innovation and productivity. This doesn't mean contracts should not exist between business counter-parties, but the rules and acceptable use policies of networks and the reputation metrics of individual members means they can be lightweight, equitable, and in some cases, redundant.
However crude these reputation metrics are, one team of researchers states that “reputation systems are performing commercial alchemy (in 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 has to fear, and if it can sustain its largely positive environment of trust, it will likely dominate for many years to come.
William Davies at the Institute for Public Policy Research and recently published another ground breaking paper that examines the role of the government in the increasingly decentralised social and political activities taking place online. He states there are three sources of trust: State, Community & Online Community. Notice the absence of corporations. He 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 conducted by Yochai Benkler to understand how Linux, a free operating system, and a slew of other Internet facing software products (e.g. Apache), 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.”
In 2003, for the first time ever, Microsoft formally stated in its annual report the threat from Linux to its revenues. It has even started to play this new game by releasing portions of its Windows code ‘open source’ style. The big question is, does the world trust Microsoft? If it doesn’t, not even its gigantic fortune can save the company. Howard Dean, a former US democratic presidential candidate, recently inferred that command and control is all over in the next generation of political activism. "We discovered that the path to power, oddly enough, is to trust others with it."
Trust is the killer app.