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The Social Economy Is the Only Answer to Our Crisis of Trust

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As our social reputations grow in economic importance, we are becoming both creditors and debtors with everyone, exchanging micro-units of trust all the time.

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MINYANVILLE ORIGINAL The stock market recovered, but trust in our institutions never did. Therein lies the social and political crisis in the US over the past couple years.

We've now come to grips with the fact that we're living through a period lacking trust. And as Professor Pinch pointed out, it's holding our economy back. Why's that? Because trust and credit are indistinguishable. The third definition for "trust" on wiktionary is, "Confidence in the future payment for goods and services supplied; credit." A society that lacks trust won't have very robust credit growth.

It's no coincidence that our trust in powerful institutions collapsed at the same time as the rise of social networking. We had lost faith in the macro, and by default, the micro gained "trust" market share. Our misgivings about Big Government and Big Finance did not spread to our friends and family. And while social networking started out as status messages and weekend pictures, we've been slow to figure out that it's morphed into something else. We're in the process of building a social economy, an economy powered by our data and relationships, something that revolves around us instead of shadow banking and derivatives. This isn't some hippie utopia, but a movement being championed by some of the smartest entrepreneurs around.

Perhaps no anecdote is more indicative of the inadequacies of the prior system than learning that, despite the wreckage in household finances over the past five years, average credit scores have remained unchanged. Experts surely have their explanations, but of course, we don't trust them. So we're building something else, whether we realize it or not.

LinkedIn (LNKD), eBay (EBAY), Yelp (YELP), Kickstarter, Airbnb, Pinterest, Angie's List (ANGI), Twitter, Facebook (FB), Klout, and many others are building companies based on social trust. Just as our credit markets evolved over thousands of years from qualitative ("I'll pay you back") to quantitative (ratings agencies and credit scores), the same is happening today with social trust. As our social reputations grow in economic importance, we are becoming both creditors and debtors with everyone, exchanging micro-units of trust all the time.

If I recommend a restaurant that you like, you trust my restaurant recommendations more. If I'm late for a meeting, you have less faith in my punctuality. As more and more of our lives move online, where our actions can be tracked, our behavior aggregated and analyzed, we're going to figure out how to quantify social trust.

The upshot of this is that our new "social credit system" will incent much better behavior from us. The damage from a breach of trust could hurt more than the impact of defaulting on a credit card or getting too many speeding tickets. Being a bad tenant might mean you can't rent a room on Airbnb or rent another apartment. Maybe not a big deal today, but if Airbnb bankrupts the hotel industry and becomes the only game in town? Watch out. If you want to get dystopian about it, one could envision a coming era of conformity to online social norms like the US experienced in the 1950s.

Companies with social presences are already learning the consequences of gaffes.

OK, you say, time to delete my Facebook, Twitter, and LinkedIn accounts. Good luck with that. Those without online presences will have a hard time transacting in this economy, as people without credit scores who have tried to buy a house can affirm. It could get to the point where those without online profiles, like Colorado shooting suspect James Holmes, are considered inherently suspicious.

Economic winners will be those institutions and individuals who successfully build trust in their brands, or who create platforms that facilitate trusted interaction. Those who remain disconnected or distrustful will be left behind.

As my favorite line in The Dark Knight Rises goes, if you want to save the world you have to start trusting it.

Twitter: @conorsen
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No positions in stocks mentioned.

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