As everybody is accustomed to believe, each country only has its formal institutions such as Ministries, Councils, etc.  However, there is more to the real economic mechanism than official institutions capable of controlling the system. We rarely think about transactions and ways to reduce transactional costs during everyday economic activity.

According to the Glossary of Political Economy, transaction costs are costs apart from the  monetary price that are incurred in trading goods or services. For instance, our time, efforts spent to find information, ability /inability to speak the same language with our business partners or officials, etc. are elements of our transaction costs.

Economic efficiency is closely correlated with transaction costs. Low transaction costs mean fast and successful interactions and vice versa. However, in reality there is a variety of destructive factors such as limited information, opportunist behavior and bounded rationality, which make transaction costs unnecessarily large and destroy Pareto optimum.

The question is how to reduce transaction costs and increase efficiency of economic interactions. And the answer is very simple – it’s a matter of trust. According to institutional economics, there are two main types of social capital: bonding and bridging social capital. Bonding social capital refers to the links between like-minded people, or the reinforcement of homogeneity. It builds strong ties, but can also result in higher walls excluding those who do not qualify.[1]  Similar values, social norms, mutual cooperation creates a protection from invasion for bonding groups.

In the case of Kyrgyzstan, we can see the example of maintaining traditional forms of social capital through family, kinship, and community. This form of social capital serves as a cushion to society in hard times when the state is unable to provide social security and social services.  On the other hand, bonding social capital can prevent social life from achieving a qualitative leap in terms of economic, cultural, and humanitarian development.

According to a cross-country study conducted by the World Value Survey in 2014, the level of interpersonal trust attitude in Kyrgyzstan is  37.73% on a scale of 100%[2] which is the evidence of strong bonding ties in the communities.

To make positive change possible, bridging social capital must be developed in the society. It helps to build trust not only among different social groups but also between government and society, which is the most important point. It allows for the building of a  sensitive government, responding to the needs of the people. Bridging social capital also brings more freedom in the economic, cultural, and social life of the country. That’s why it’s crucially important to build this bridge of trust between a population and the government.

In the early stage of independence, citizens of the Kyrgyz Republic primarily experienced the bonding type of social capital, based on kinship. People created communities with extremely restricted ingress sharing all benefits only among members. Expanding democratic practices brought the ability to build and extend partner relationships with other communities and with the government. Nevertheless, this could not build a solid foundation of trust for the government and authorities from the perspective of the citizens. This statement is supported by the Index of National Trust, estimated every half-year in Kyrgyzstan. The Index of National Trust allows us to assess:

  • The personal trust of citizens for the government
  • The Personal picture of the corruption level in governmental bodies and local government institutions.
  • The work of government bodies and local government institutions.

 

1

Source: National Statistical Committee of KR

2

Source: National Statistical Committee of KR

3

Source: National Statistical Committee of KR

The index range of assessment varies from -100 to +100. Values above “0” indicate positive attitude and visa versa.

The general Index of public trust has declined for almost all regions over the period from second half of 2015 to first half of 2016, with the exception of the regions of Batken, Issyk-Kul, Naryn, Talas and Osh city.  Level of trust among the population of Bishkek dropped  by 3.4 times, during this period.

Personal trust of citizens for government has a similar decreasing trend. However, trust almost doubled in the Naryn and Issyk-Kul regions, increased by 10% in the Osh and Talas regions and in Osh city.

In terms of corruption perception, the situation in the regions improved and people changed their attitudes towards venal practices in governmental bodies in a positive way. The most outstanding result is observed in Naryn region: confidence there shifted from -5.4 to 23.8. Noticeable results are also seen in the Issyk-Kul and Talas regions. Bishkek shows an inverse dynamic–mistrust in terms of corruption increased almost twofold. Across Kyrgyzstan the situation worsened in comparison with the previous period.

Assessment of the work of governmental bodies shifted to the positive side in the Naryn, Issyk-Kul, Batken regions and decreased in rest of regions. Bishkek and Osh have opposite trends. In Osh, official bodies and local government institutions seemed to improve over the last 6 months and in Bishkek quality declined by 150%.

If looking at overall progress, the most well performing region for the last half of the year is Naryn and the runner up is Issyk-Kul. However, in the capital of Kyrgyzstan, the population tends to demonstrate increading mistrust toward the government. To some extent, it could be a result of the direct communication of government bodies with the population in regions and less an interaction with society in the capital.

5

Source: National Statistical Committee of KR

Thus overall, across the country, the most trusted government agencies are the State Communication Agency under the Government of KR, the State Agency for Youth Affairs, Physical Culture and Sports under the Government of KR and the Ministry of Emergency Situations. The least trusted bodies, with negative score, are the State Service for Drug Control under the Government of KR (-8.5) and the State Penitentiary Service under the Government of KR (-11.3).

Trust and economic development:

Public trust in Kyrgyz society is far from ideal (19.5) and lower then interpersonal level of trust (37.73). The most interesting thing is that the level of personal trust of citizens in Government (30.0) in Kyrgyzstan is even lower than interpersonal level of trust. The reason is a high level of corruption – as Transparency International reported – 28 points out of 100 in 2015.

Moreover, there is a strong correlation (0.91) between the level of trust for government and GDP per capita growth. According to Guiso et al. (2006), trust has a significant correlation with probability of becoming an entrepreneur as well, even after controlling for education, age, and individual income. However, in Kyrgyzstan, corruption, nepotism, and tribalism demolish any trust and don’t leave any chance for an entrepreneurship to thrive.

 

Recommendations:

To regain the trust of the population, the government should build a transparent and well managed system of governance. It requires improvement in following areas:

Honesty. It should be built on cultural values and intolerant to even to small lies. Honest behavior should be promoted by trainings and popularization in media as well as supported by legislation.  

Efficiency.  Population should see that Government provides the “value of money”. Citizens should be assured of the production of high quality goods and services from the government at the most inexpensive price.

Transparency. The population should know what is happening in the country and what stimulates more positive perception. Modern technologies have indeed made everything more reachable and made it possible to give rapid feedback, which enables the government to work efficiently and transparently at the same time.

Accountability. Government should simply tell people about its future plans and report about the work done to maintain transparency in its actions.

Good policy choices. Good policy choices should reflect public needs and result in strong, actionable strategy.

Positive outcomes. Positive outcomes will immediately follow as a result of implementation of the aforementioned requirements supported by relevant legislation base.

 

 

[1] Schuller, Baron, & Field, 2000

[2] Academic studies have shown that these measures of trust are generally weak predictors of actual trusting behavior. Questions about trusting attitudes do seem to predict trustworthiness. In other words, people who say they trust other people tend to be trustworthy themselves. (Glaeser, E. L., Laibson, D. I., Scheinkman, J. A., & Soutter, C. L. (2000). Measuring trust. Quarterly Journal of Economics, 811-846).

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