Riding the Internet Wave to Trust

July 30, 2012


A recent report by the European Parliament on a pan-European trustmark for ecommerce is a reminder to policymakers that the Internet is indeed a game-changer: it creates a networked, information-rich and asymmetric world. Policymakers must learn to ride this wave. Working against the tide is at best fruitless and at worst harmful.

The European Parliament report is a study into the advantages and disadvantages of a pan-European trustmark – a long lingering idea with EU policymakers – and the potential need for legal changes to introduce it. The fundamental problem with the idea of a mandatory EU trustmark is that it attempts to impose trust top-down. This might undermine the way the Internet institutionalizes word-of-mouth. Through a variety of services and tools, trust is now created bottom-up and derived not from one but form a combination of sources: friends and family via social networks, experts via product tests, the wisdom of the crowd via user ratings, etc. Trust between buyers and sellers stems from multilayered and sophisticated networks of information accessible at any time thanks to smartphones and mobile solutions.

Importantly, such “networked trust” is available to traders of all sizes and thereby cost-efficiently facilitates cross-border transactions. Economic research shows that eBay’s trust system help users overcome concerns about contract enforcement: the higher ranked a seller is, the less buyers care about geographic distance and different rules of law.  

The European Parliament report warns that a mandatory EU trustmark system risks raising market entry barriers. In contrast, the economic research shows that the trust system eBay users contribute to and seek guidance from lowers market barriers. There is a lesson here for policymakers:

“Aid and encourage the forces and structures that help the system run itself.  Notice how many of those forces and structures are at the bottom of the hierarchy.  Don’t be an unthinking intervenor and destroy the system’s own self-maintenance capabilities.  Before you charge in to make things better, pay attention to the value of what’s already there.“ - Donella Meadows, leading system analysts, Prof. Dartmouth College