Trust is Good, a Contract is Better
"...no false witness...."
Dealing in used cars these days requires that you have to put a lot more in writing, complained a car dealer recently in one of our dailies.
" Some time ago I sold a used BMW X5 with a little bit of stone chipping in the windshield. The customer knew that, because he had seen it when he bought the vehicle. Nevertheless he came back three weeks later demanding a new windshield."
The way in which this customer tried to defraud the dealer and in fact lied about him is, according to the Heidelberg Catechism, work of the devil while explaining the ninth commandment: ..... no false witness...., not against, not about.
Lying, not speaking the truth is damaging to trust and it is exactly this aspect that plays an important role in the auto branch. Big manufacturers like Nissan and Skoda announce on their websites that buying a car is a matter of trust.
"The customer spends money on a thing that he cannot take apart and study it. He has to trust that , for instance the gearbox works, and will last for a decent timespan.", says Rob van Boon of the Bovag (Association of Garages and Auto dealers) , the organization that looks after the interests of parties involved in transactions with regards to cars, caravans and motorcycles.
The trust is mutual. The seller has to be able to count on the customer not to come back demanding warranty for something which was excluded by mutual agreement.
Lying and cheating is undermining in any relationship, also in the economy. Trust and confidence are so integral that we gauge the status of the economy by way of a consumer index. The consumer confidence is important for the health of the economy: the greater the consumer confidence, the more they tend to consume.
"Trust is the Lubricating Oil of economic relationships", says Joop Hartog.
In Florence the Amsterdam Professor in Micro-Economics knows of a pastry shop where the customers can pick their own pastry and pack it in a box. The cashier asks what is in the box and checks out the customers without further ado. " The only way this system works is if there is a basic relation of trust that is not or hardly ever being violated", Hartog.
The economic benefits of trust are considerable, says Hartog, for if people trust each other and "do not bear false witness" in all their practices, it is not necessary to draw up elaborate and detailed contracts (like warranties and sales conditions), in which it is spelled out what it is exactly that the parties can expect from each other. The drawbacks of such agreements are quite clear for the economist. ''Contracts are almost by definition incomplete, for - unlike in informal relationships - you have to cover every possible angle. Which is virtually impossible. The result is that whatever is not mentioned in the contract will not be done either. People have a tendency to always reserve the better parts for themselves".
Once contracts have been drawn up, they have to be verified. And that needs the judiciary, the legal system and the whole parade of people that need a piece of the action too. To sum it up : when trust has to be traded in for contracts, the costs go up.
Our legal system is a necessary and very costly evil.
Businesses that are part of the Bovag, know all about (having learned the hard way) " We say now : Trust is Good, but a Good Contract is Better", says Rob Boon. It is for that reason that the Bovag warranty exists, a uniform warranty on materials and service, recognized throughout the country.
Some 15 years ago the National Auto passport started : a certificate that records the odometer reading of a registered vehicle. Auto dealers have to become a member of the Association in order to get their vehicles registered. Once a vehicle is registered the certificate keeps track of the odometer reading.
The National Auto Passport is recognizable example of a (costly) contract which was necessary for too often people's trust was violated because somebody had messed with the mileage on the car.
"No matter what you want to call it", says Boon, "changing the reading on a car is a form of theft".
Never mind how charmed Joop Hartog (University of A'dam) was of the flexible and relaxed atmosphere in the pastry shop in Florence, he fears that trust-without-contract is going to be a dying phenomenon in the modern economy.
"I think it has something to do with globalisation. When as a businessman you are dealing with somebody from your own village, you are probably not going to require a lot of paperwork to get things done. At a smaller scale there is often a much larger degree of mutual trust, not in the least partly due to the fact that in a smaller community where everybody is part of the same social fabric, there are natural checks and balances in place.
But an entrepreneur who does business with a colleague in China, will want a detailed contract. A given that large multinational corporations have quite a bit of experience with. A very costly experience at that. Often a vast army of legal advisers is needed to have all details covered.
The non observance of the ninth commandment has far reaching and very expensive economic consequences. Hartog: '' Trust is as vulnerable as a morning mist, once dissolved it does not come back. We see -especially due to globalisation- more and more and increasingly complex contracts. And the more often we do that , the more expensive our economic relationships become."
The tragic truth however is, the cost often goes beyond the financial aspect.
When our scientists are not witnessing to the truth anymore but bowing to other idols, society may face even greater dangers.
Dr. Marcia Angell, former editor of the New England Journal of Medicine, in her outgoing editorial : Is Academic Medicine for Sale? :”When the boundaries between industry and academic medicine become as blurred as they are now, the business goals of industry influence the mission of medical schools in multiple ways”.
An ABC news report: when a drug company funds a study there is a 90% chance that the drug will be perceived as effective whereas a non-drug-company founded study will show favourable results only 50% of the time.
In 1981 the drug industry “gave'' $292 million to colleges and universities for research. By 1991, this figure had risen to $2.1 billion, making it harder and harder for these research teams to witness to the truth. Consequently we now have a new phase of drug testing called 'post-approval', which is the documentation of side effects once the drug hit the market. Thus it was found that of the 198 drugs approved between 1976 and 1985, 102 had serious post-approval risks including heart failure, myocardial infarction,anaphylaxis,respiratory depression and arrest, seizures, kidney and liver failure, severe blood disorders, fetal toxicity and blindness.
When economic considerations rule in other areas than the market place, truth often becomes a victim and even our health and well being will be compromised.