Latin American Capital Markets

DEVELOPING CAPITAL MARKETS—ETHICAL ISSUES 423trusted by. 8 Trustworthiness is beneficial in a decent environment because it fosterscooperative relations, lowering the costs associated with uncertainty and ambiguity. Itis not a question of altruism since "trustworthiness contributes intrinsically to selfinterestvia its connection to self-respect, intimacy, and identity" (Hausman 2002). Furthermore,an individual who loses trust in a close-knit social and business environmentmay risk losing social standing and professional identity. For example, old master dealerswho authenticate, valuate, receive in consignment, or bid in auctions for majorworks of art on behalf of collectors (sometimes private collectors, sometimes institutionalones, like museums and art academies) seldom sign receipts or contracts withtheir client collectors; they know that one faux pas would force them out of businessfor good. Trust (fr Old English treowe, faithful), confidence (fr Lat conf/dere, to placefaith), and credit (fr. Lat. credere, to believe) are, to paraphrase Prospero (Shakespeare1973, The Tempest, act 4, sc. I), such stuff as dreams of cooperation and reciprocityare made.Ethics and the LawThere are many manifestations of social trust, like those associated with the expectationof reliable accounting, the ethical conduct of (ethical) business, and the pursuit oftransparency in the marketplace, which are addressed in other chapters of this bookAnother social form of trust is the generalized belief that government pursues thecommon good and that it has a monopoly of legitimate force. When this is in doubtbecause of perceived asymmetry in the workings of the market, the functioning ofgovernment, or unpunished acts of rebellion or common delinquency, a fiction is uncovered:the government does not have the strength and legitimacy it invokes. Asymmetriescan result from government action, like some of the welfare state policies ofthe postwar period that redounded in the debilitation of the rule of law through theirencroachment on private property rights. But, more perniciously, high and variable inflationas much as deep, protracted recessions can profoundly distort social and economicvalues and standards in society, impelling some sectors into desperation whileenriching others. It is difficult for the public to trust government authorities and institutions,current and future, when macroeconomic or political mismanagement is thedirect determinant of their predicaments. Nobody doubts that legitimacy also stems8 This runs parallel to the findings of social capital theorists. Putnam (1993), for instance, finds that both states andmarkets operate more efficiently in civic settings, that social context and history profoundly condition the effectivenessof institutions, that changing formal institutions can change political practice, and that most institutional historymoves very, very slowly.Copyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pub