Conscious Choice Seattle: The Business of Trust

April 2006 | Back Words

The Business of Trust

As U.S. corporations bail on pensions, a region in Italy demonstrates the importance of working in harmony with each other. The bumblebee would be proud.

By Ellie Winninghoff

With major corporations routinely going to court to get rid of their pension obligations, it’s no secret the social contract in America is falling apart.

But those companies are missing a larger and critical point.

Italian economist Stefano Zamagni, a professor at the University of Bologna and arguably the top civil economist in the world, says contracts are a key aspect to a market economy. No CEO would disagree. Yet, contracts, in turn, are based on a foundation of social trust.

That is where the business-speak gets garbled. Zamagni would like to clear the smokescreen by emphasizing social trust and, of all things, the bumblebee.

Social trust (or social capital) is the trust between strangers. When social trust breaks down, Zamagni says, you have to pay for it—with high transaction costs such as insurance or legal fees.

An economy with high transaction costs, of course, is inefficient. And if social trust disappears altogether, an economy may not work at all.

According to Zamagni, social trust hinges on what he calls reciprocity. He does not define the term as Webster’s does—as an exchange of equivalents. Instead, reciprocity means that A gives to B with the expectation that B will give something to C—and the chain will continue.

A town in Italy, the civil economist says, provides a perfect example. Imola is located in the Emilia-Romagna region of Italy. The region is celebrated for its food history throughout the culinary world, but its economic democracies might be even more nurturing to our financial future.

Our story begins in 1874, the year of Italy’s unification. Life was such a struggle that by l960, 25 million Italians emigrated. Many Italian emigrants participated in the American dream. But those who stayed in Italy chose to create another dream—a dream of survival, based on cooperation.

That’s when Giuseppe Bucci, an idealist whose health was failing, turned over his family-owned ceramics firm to 32 workers. Fitting enough because the firm boasted artisan roots harkening all the way back to the Renaissance

The 32 workers formed Cooperativa Ceramica D’Imola, or La Ceramica. Its symbol is the bumblebee, nature’s example of working in perfect harmony.

The conversion to a co-op would never have happened without discounts from the Italian bank, Banco Populare of Imola. Formed in l871, it provided loans to workers and mutual associations in order to combat usury and encourage small and medium-sized businesses.

The co-op was generous with its workers. It gave advances and loans for medical bills and emergencies—and even provided one worker with a loan so that he could produce dolls to sell in the local market as a supplement his income. Its by-laws included the principle of rehabilitation, which meant that a fired worker could get his job back a year later if he had perfect behavior. The co-op’s fairness was legendary and that goodwill no doubt fueled sales.

What’s more, La Ceramica helped finance other co-ops in the region—including competing ceramics cooperatives in the nearby towns of Forli and Colignola.

In the early 1920s, La Ceramica came to the aid of SACMI (Societa Cooperativa Meccanici Imola), a fledgling co-op formed by nine unemployed mechanical workers. Today SACMI, with more than $500 million in sales, is the world leader in the manufacture of machinery and equipment for the ceramics industry and the largest production co-op in Italy. It remains built on social trust.

At the end of World War I, SACMI’s founders began work in an empty gym provided by the municipality of Imola. In l922, the Fascists took over Italy and SACMI’s workers were beaten and imprisoned. Eventually, the municipality (under the Fascists) evicted the co-op from the gym. Its future seemed dark. But La Ceramica stood strong and saved the day-—first by renting and later selling a building to SACMI that it no longer needed.

Fast forward to l944. After SACMI lost three members of its staff fighting the Nazis, the company dismantled its plant and hid machinery from the Germans in haystacks and barns in the countryside.

On May 13th, the same year, the city of Imola was bombed. La Ceramica’s premises were left in ruins. Two months later, the city was bombed three more times, rendering it impossible for the company to keep working.

In l947, it was SACMI that came to rescue La Ceramica. Using the machinery and tools it had hidden during the war, SACMI equipped La Ceramica’s plant.

You might argue this was not reciprocity as Professor Zamagni defines it, but rather the repayment of a debt that SACMI had incurred a generation before. But while the companies were the same, the people were different. A had helped B with the expectation that B would help C.

To Zamagni—and more and more of the rest of us—social trust or social capital seems even more important than natural capital in determining wealth. Case in point: Argentina has the highest percentage of natural resources in the world but 35 percent of its population lives in poverty. Japan has no natural capital and scant poverty.

“Social capital goes deeper,” Zamagni says. “It captures the real force of progress: human relations.”

Ellie Winninghoff is a Seattle based journalist who spent three weeks in Emilia-Romagna during the summer of 200 4.

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