From CrimeReads:
The "Canadian Paradox" and the economic geography of fraud, as explained by an economist and author.
The Canadian Paradox
Some places in the world are what they call “low-trust societies.” The political institutions are fragile and corrupt, business practices are dodgy, debts are rarely repaid, and people, rightly, fear being ripped off on any transaction. In the “high-trust societies,” conversely, businesses are honest, laws are fair and consistently enforced, and the majority of people can go about their day in the knowledge that the overall level of integrity in economic life is very high. With that in mind, given what we know about the following two countries, why is it that the Canadian financial sector is so fraud-ridden that Joe Queenan, writing in Forbes magazine in 1985, nicknamed Vancouver the “Scam Capital of the World,” while shipowners in Greece will regularly do multimillion-dollar deals on a handshake?
We might call this the “Canadian Paradox.” There are different kinds of dishonesty in the world. The most profitable kind is commercial fraud, and commercial fraud is parasitical on the overall health of the business sector on which it preys. It is much more difficult to be a fraudster in a society in which people do business only with relatives or where commerce is based on family networks going back for centuries. It is much easier to carry out a securities fraud in a market where dishonesty is the rare exception rather than the everyday rule.
The existence of the Canadian Paradox suggests that there is a specifically economic dimension to a certain kind of crime of dishonesty. Trust—particularly between complete strangers, with no interactions besides relatively anonymous market transactions—is the basis of the modern industrial economy. And the story of the development of the modern economy is in large part the story of the invention and improvement of technologies and institutions for managing that trust. In other words, many things about the way the business world is organized make a lot more sense when you realize that they exist because of the constant drive for countries to become less like Greece and more like Canada.
And as industrial society develops, it becomes easier to be a victim. In The Wealth of Nations, Adam Smith described how prosperity derived from the division of labor—the eighteen distinct operations that went into the manufacture of a pin, for example. While this was going on, the modern world also saw a growing division of trust. In previous eras, when people set out across continents to discover new worlds, they had known that they were stepping out into the unknown, but Mr. Gauger was at the cutting edge of a new reality. Already, he belonged to a class of people whose natural assumption was to take things on trust, to assume that the fact that an offer was extended publicly meant that it was probably legitimate. Nearly two hundred years later, his equivalents in the ICO craze were no more likely to expend personal effort on checking things for fraud than to throw their own pots and sew their own trousers. The more a society benefits from the division of labor in checking up on things, the further you can go into a financial fever swamp before you realize that you’re in one....
....MUCH MORE
