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Trust and trade

April 1, 2013

Trust is certainly an influential factor in the world of trade, especially on the nature of associated terms. But of course it is not essential that the trading parties have trust in each other. Their willingness to trade may be underpinned by a mutual reliance upon a third party intermediary or their confidence in the underpinning legal system.  Or it could be that the potential economic benefits outweigh the risks associated with the possible areas of ‘untrustworthy’ behavior.

The increased volume of global trade, coupled with the involvement of more and more individual markets, have pushed this issue of trust further into the limelight. Perspectives on who can and cannot be trusted tend to vary widely depending on where the stories are being written. The truth is, physical distance and unreliable legal systems tend to make all involved parties less honorable. Many corporations do whatever is expedient, rather than what is honorable. But increasingly, since international trade is extremely important to economic wealth and world politics, there are methods and principles being adopted that can increase confidence.

A simple example is the way that Alibaba (poised to become the world’s largest e-commerce platform) introduced an escrow-based online payment system which now handles more than half of China’s on-line trade. In the West, e-Bay and Paypal have been similarly successful in creating a trusted intermediary that enables mushrooming trade between individuals and companies that would historically have never connected.

But is trust always critical to trading relationships and the overall growth of economic wealth? CREATe.org (the Center for Responsible Enterprise and Trade) has produced an excellent paper that bemoans the detrimental impact of  trade secret theft on the development of the world economy. It suggests that companies lose revenues and profits, that jobs are lost and the future of entire industries potentially threatened. And for the developed world, there is some truth in these assertions. But what the article fails to highlight is the extent to which those ‘thefts’ also result in new business start-ups and increasing wealth in another part of the world.

Back in the 1800’s, there are documented cases of US entrepreneurs sending their workers to Europe to steal the ideas, methods and ‘intellectual property’ of their more advanced rivals. That theft underpinned the rapid growth of a new, low cost economy that in turn drove global wealth creation.  I struggle to understand why that was an acceptable and apparently beneficial practise, yet somehow today’s ‘trade secret thefts’ are not.  Might this perhaps have more to do with wealth transfer (from large Western corporations to newly developed companies in emerging markets) than with wealth creation?

The CREATe.org paper rightly sets out some practical steps that companies can take to protect their assets. It seems to me that this is precisely where responsibility should lie and I applaud its efforts in that regard. However, the paper also suggests that current levels of trade secret theft are ‘a threat to the expansion of prosperity’ – but on this point, it fails to offer any evidence to support its assertion.

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