Trust and Economic Progress – Francis Fukuyama ’ S Work Re - Examined

In my view, contemporary economics is in a state of considerable ferment and change. The crisis academic economics faces today is partly reflected in a decline in the influence of economists on public discourse and economic policymaking. The failure of academic economics to satisfactorily address issues related to transitional economies and to produce a satisfactory explanation of the East Asian economic crisis has added to the discipline’s image problem. Our inexplicable attachment to mathematics frequently inhibits appropriate analysis. It also has created strains within the profession and hurt the image of the discipline in the minds of students and the ordinary citizen. Given this state of the discipline, it is especially relevant that we read and understand the critique of our models made by those outside the economist’s club. This paper uses Francis Fukuyama’s critique of the neoclassical model to discuss these issues. In his book, Trust: The Social Virtues and the Creation of Prosperity, Fukuyama present’s insightful perspective on several topics economist’s have long considered their domain. He makes the sensible claim that there are many issues related to economic development and progress that cannot be satisfactorily explained by the ruling neoclassical paradigm based on the assumption of rational behavior. He goes on to present social capital, ignored in economic models, as a major determinant in economic success. These arguments are extended in the more recent book The Great Disruption where he discusses the idea that in recent decades, the United States and other developed nations have undergone a profound transformation from an industrial society to the information or knowledge-based society. Once again dynamic changes in the social structure and economic forces have conspired to bring these changes and these must not be studied in isolation.