Cybertrust: An Economic Imperative(originally published by Booz & Company)
Trust may be the most underestimated asset in commerce. Almost all transactions involve some potential for misrepresentation, noncompliance, or fraud. To deal with those risks, parties to commercial transactions rely upon elaborate contracts, arrange to monitor performance, or turn to litigation.
These methods all work, but they are all costly. Mutual trust, when it exists, is a far better and more efficient alternative; it substantially lowers transaction costs, and it can offer a big competitive advantage. One World Bank study, using a regression analysis covering the 1980s, suggests that a 10 percent difference in the degree of generic trust among the citizens of a nation is reflected in a 0.8 percent variance in that country’s rate of economic growth. With average annual growth worldwide in the range of 1 to 3 percent during the same period, it is easy to see the payback in building trust.
Everyone, of course, is counting on the Internet to spur economic growth. The Congressional Budget Office in 2001 predicted that the U.S. economy would grow at 2.1 percent annually over the first decade of the new millennium; U.S. government economists now estimate that commerce on the Internet will account for about half of this expected increase. Optimistic, perhaps, but it’s clear nonetheless that trust in cyberspace is paramount. Indeed, a recent study by IBM confirmed what many of us intuitively know to be true: Internet usage growth will depend heavily on the willingness of “companies and citizens to accept the greater anonymity and associated possibilities for opportunism inherent in Web-based transactions.”
Any critical public infrastructure (and what else is the Internet?) requires a minimum level of public trust and confidence to function. Yet, in order to effectively transfer any large portion of our traditional commerce into cyberspace, we need to construct virtual equivalents for the complex and subtle mix of convention, policy, procedures, instinct, culture, and law that is employed when we exchange products and services for money or trade in financial instruments.
Technologies like electronic signatures — digital constructs that use cryptography to bind assertions of fact to transaction data — will be part of that vision. It is a mistake, however, to equate trust management with rigorous identity checks, or to elevate the importance of technical potential over that of management policy. Alternative modes of authentication — verifiable assertions of a person’s role, eligibility, credit, and reputation — might be less intrusive but achieve the same goal.
Today’s e-commerce environment — in which either the buyer or the seller is often at a severe disadvantage in terms of reliable information — is unstable. To successfully expand e-commerce beyond today’s beachheads, merchant pioneers must establish new norms to make the terms and context for online transactions more visible. The technical challenge is daunting; the idea of changing societal attitudes is even more so. Trust building in the context of e-commerce has less to do with the mechanics of a transaction than it does with the cultural mind-set and the information flow that allows each of the parties involved to reach a decision to execute a specific transaction.
Such trust building will not be easy. The proportion of Americans who believe that “most people” are trustworthy has fallen to just over 30 percent, about half of what it was in 1960, when the proportion of Americans willing to trust almost any other American was 55 percent, according to the DDB Needham Life Style Survey.
In other parts of the world, levels of trust vary widely. The World Bank says that 65 percent of Norwegians express a willingness to trust their fellow citizens, but in poverty-plagued Brazil, only 3 percent of those surveyed felt they could presume that most Brazilians would not seek to take advantage of them.
We must bring to cyberspace “social capital,” the notion popularized by the political philosophers James Coleman and Francis Fukuyama. Social capital represents the matrix of behavioral norms and reciprocal expectations that allow any social network to function. These informal constraints provide the essential context within which societies can establish formal institutions, procedures, and rules of law. The core of social capital’s process is self-restraint, a willingness to forgo potential advantage.
What will we have to do to embed trust in the design of 21st-century electronic commerce? The full implications of the question are only beginning to draw the attention they deserve. Reengineering the real world may be beyond us, but creating an explicit and effective capacity for managing trust in commerce online — however complex — is well within our capabilities.
Richard Wilhelm, firstname.lastname@example.org
Richard Wilhelm is a vice president with Booz Allen Hamilton based in Fairview Park, Va. He concentrates on infrastructure assurance and homeland security problems for government and commercial clients.