By Denitsa Gancheva
Student № 6274242
Social Policy and Social Work in Urban Areas
29/08/2011
MASTER THESIS
Supervisors:
Rineke van Daalen
Patrick Brown
UNIVERSITEIT VAN AMSTERDAM
OPINIONS OF ENTREPRENEURS ON THE
CURRENT SETTING FOR DEVELOPMENT
OF SMALL- AND MEDIUM-SIZED
ENTERPRISES IN BULGARIA
A STUDY OF GOVERNMENTAL
~ Table of Contents ~
INTRODUCTION ...……… 2 CHAPTER 1: BULGARIAN INSTITUTIONAL SETTING …...……….……. 4 - 17
I. Country Overview ………...……….. 4 II. Entrepreneurship Pre- and Post-1989 ………. 5 III. Current Institutional Setting for Operation of SMEs in Bulgaria …….…….. 8
3.1.The Investment Compact ……….………. 9 3.2.National Strategy for Encouragement of SME Development ………. 11
3.2.1. European Employment Strategy and
Entrepreneurship at European Level …………...…...………… 11 3.2.2. Employment in Bulgaria and the National Strategy
for Encouragement of SME Development ……….…. 13
CHAPTER 2: TRUST ……….……… 17 - 32
I. Explaining Trust ……….………… 17 II. Trust and SMEs in Post-Communism ………..…….…………... 21 III. Trust and SMEs in Bulgaria ……….. 27
CHAPTER 3: TRUST OF BULGARIAN ENTREPRENEURS ……… 33 – 52
I. Interviews’ Background ……...………….………. 33 II. Opinions of Entrepreneurs on the Institutional Setting in Bulgaria ……….. 34 III. Institutional and Interpersonal Trust of Bulgarian Entrepreneurs ……..…. 43
CONCLUSION ………...………...……… 51 Bibliography ………..…………..……… 54
[ABSTRACT]
The aim of this study is to provide an overview of the Bulgarian institutional environment for small- and medium-sized enterprises. A description of the institutional setting in the country is presented. It
reveals that there are numerous factors remaining as a legacy from the communist regime that negatively affect the SME performance of the country and its societal reformation as a whole. However, the core of this study lies in the opinions of small- and medium-sized enterprises owners. Their viewpoints have only rarely been presented, like in the current study, as an assessment of the performance of Bulgarian institutions. The interviewed entrepreneurs reveal that despite the numerous
successful reforms that have been introduced, there are still serious issues that curb any further development and demand attention. Among the most important is the rebuilding of trust in the society.
According to this study, it has to be done through a well-targeted to the needs of SMEs institutional framework of rules and regulations. It is furthermore essential for these rules and regulations to be properly implemented, without constant change in direction or application, which is currently the case. It is argued that these actions will be able to reshape the deeply-rooted distrusting attitudes of
the population and to diminish the negative effects of the communist legacy.
INTRODUCTION
This study is dedicated to the evaluation of the business environment for small- and medium-sized enterprises (SMEs) in Bulgaria. On the one hand, this assessment will be conducted through the use of official indicators pointing at the condition of the institutional setting in which Bulgarian SMEs thrive. On the other hand, the assessment will rely on the opinions of the entrepreneurs themselves as an indicator of the factors that significantly affect the way their enterprises function. Throughout the study, two aspects assert the most influence on the way the institutional framework is perceived by the entrepreneurs. The first one is the way rules and regulations are implemented and functioning and the second is the role of trust.
The first chapter will formulate the main institutional framework around which the topic will unfold. The institutional environment in the country is an important factor that determines the growth rate of SMEs. In this chapter the history of Bulgarian SMEs will be presented in terms of the most significant political, economic and social events. Before turning to entrepreneurship development, the initial process of “intrapreneurship” (Punchev, 1989) will
be introduced. It is characterized with the creation of small, barely autonomous units within the already existing big governmental establishments during the communist regime. The reasons for the current relative underperformance of SMEs when compared to the Western societies will also be discussed. In order to deliver a better description of the current efforts for improving the business environment, two programmes will be introduced – the Investment Compact and the National Strategy for the Encouragement of SME Development. The latter has established the main framework around which changes in the Bulgarian SME sector are pursued. For this reason the National Strategy will represent an important aspect of the research. The reports on the Bulgarian progress point to a certain degree of improvement, especially in the financial and regulatory frameworks. However they also stress the immediacy of further advancements the lack of which could stultify the achieved progress.
The second chapter will take up the matter of trust. The concept is highly complex but specific definitions, relevant to the research topic, will be discussed. This chapter will furthermore present some of the most important schools of thought dealing with the origins and types of trust. Following that, the attention will first move to the specific forms of trust in post-communist societies and later on it will focus on the levels of trust in Bulgaria. It will be examined to what extent the deeply-rooted attitudes from the communist era and the destroyed civil society affect the degrees of trusting.
The last chapter of the study will examine the opinions of 17 interviewed entrepreneurs from Bulgaria. Their answers will help draw conclusions on the two important aspects of the research. First, to what extent the Bulgarian institutional setting is properly arranged to meet the needs of small enterprises. And second, what levels of trust are exhibited towards the institutions, but also towards other entities and how those levels of trust affect the development of the business. This chapter will also investigate the question of how trust can be restored – whether it is a matter of values and norms based on Bulgarian history and culture or whether trust has to be earned through well-targeted and successful institutional performance.
CHAPTER 1
BULGARIAN INSTITUTIONAL SETTING
I.
COUNTRY OVERVIEW
Bulgaria is located in South-eastern Europe and its population is slightly over 7.5 million people (European Commission, 2011(B)). A former communist country that entered the European Union in January 2007, it averaged more than 6% annual growth from 2004 to 2008. However the global downturn sharply reduced domestic demand, exports, production and capital inflow and as a result the GDP of the country contracted by approximately 5% in 2009 and stagnated in 2010 (CIA: The World Factbook, 2011).
Due to the Bulgarian communist rule from 1944 until 1989, the country is still transitioning to a market economy and is therefore most commonly defined by a significantly lower level of economic development when compared to the mature market economies of the West. The slow and difficult transition is due to the early years of transformation that brought economic crises unlike anything experienced under socialism. Runaway inflation, sudden and widespread losses of jobs, and expanding poverty among those of working age created an urgent need for new forms of societal functioning (Fultz, 2002).
The former presence of communism explains the still existent high governmental influence and intervention in certain areas. This, coupled with corruption in the public administration, a weak judiciary, and the presence of organized crimes, remain significant challenges (CIA: The World Factbook, 2011). Nonetheless, the accession into the European Union has accelerated the reform process, which resulted in Bulgaria becoming one of the “leading reformers” in South East Europe (Organisation for Economic Co-operation and Development, 2006, p. 15). The country is assessed as having completed the first phase of policy elaboration and institutional (re-)building and being currently engaged in policy implementation. The challenge is now in ensuring the stability and sustainability of the reform process (Organisation for Economic Co-operation and Development, 2006).
II.
ENTREPRENEURSHIP PRE- AND POST-1989
In Bulgaria the process of entrepreneurship started off as the so-called “intrapreneurship” (Punchev, 1989). “Intrapreneurship” was officially legitimized by Arrangement No.12, issued by the government in 1982. Its purpose was “to more completely meet the need for additional consumer goods and to provide for an increased spectrum of services from the state-owned sector” (Punchev, 1989, p. 73). In other words, as Smallbone & Welter (2001) suggest, a somewhat entrepreneurial behavior during the communist period was a necessary response to the constant shortage of materials. The process is termed “intrapreneurship” since small and medium-sized units were created almost entirely within already existing governmental establishments on the country’s territory. Furthermore, there was virtually no independence and freedom of action for these units. The full, direct control over them was assigned to the Bulgarian Industrial Association (BIA) and legislative basis for preferential treatment was also present, among other governmental interferences (Punchev, 1989).
Despite the number of restrictions the performance of these units proved quite strong – “between 1984 and 1988, the mean labor productivity of small units was between 1.4 and 2.7 times greater than that of their larger counterparts […]” (Punchev, 1989, p. 74). Therefore already in 1988 there were reasons to seriously consider whether the continued development of SMEs was not one of the key factors in succeeding in the challenges posed by the Western world.
Entrepreneurship can be therefore classified as one of the first positive trends that started with the societal transformation in Bulgaria. Since citizens had to compensate for the withdrawn state services, entrepreneurship was a natural alternative for self-support. The resulted investment into private ownership was seen as a key factor leading to economic growth, innovations and market competition. The emerging strong private sector and the creation of numerous small- and medium-sized enterprises (SMEs) furthermore provided employment opportunities for citizens which alleviated the worsened employment situation of the country. Despite these positive effects “until 1997 the public policies in Bulgaria did not prioritize the development of the SME sector […]. [U]ntil that period the Bulgarian government perceived the development of the SMEs as rather “self-evident” (Kirov & Stoeva, 2005, p. 102). In 1997 the government initiated two National strategies for the encouragement of the SME sector. However only in 1999 when issuing the Law on Small and Medium-Sized Enterprises the three categories (micro, small and medium enterprises) and the three criteria (number of
personnel, annual turnover/assets value and independence) were introduced for the first time (Kirov & Stoeva, 2005). This accounted for a late legislative start of entrepreneurial development and even though Bulgaria experienced a rapid growth of SMEs as the alternative of governmentally supported employment, it is presently lagging behind when compared to some of the other EU member states (Figure 1).
Figure 1. Number of SMEs per 1000 Inhabitants, 2003
In terms of economic growth however, the country continues to “register high GDP and employment growth rates in spite of the international financial markets turmoil and the high food and oil prices” (European Employment Strategy, 2008, p. 5). The real GDP growth in 2007 reached 6.2% (Figure 2).
Figure 2. Real GDP Growth
The high levels of GDP and employment growth should not be confused with already achieved high GDP and employment among the working age population. Due to the ongoing transitional process in Bulgaria these are logically still not up to the respective indicators in other Western European countries but the exhibited positive growth is nonetheless an important aspect. Despite the evidence that Bulgarian SMEs are underperforming when compared to their Western counterparts, they still remain a key contributing factor to the country’s growth. For the current state of country transformation, SMEs are a main unit of innovation and job creation, contributing with around 74% to the total employment in Bulgaria, which is a higher rate than the EU-27 average one (Figure 3) and representing 99.7% of all enterprises in the country (Figure 4) (European Commission: Enterprise and Industry, 2009). These factors serve as an illustration of how SMEs actively participate in the economic growth of the country.
Figure 3. Share of SMEs (%) in Total Employment in Bulgaria and EU-27, 2008 ENTERPRISES BULGARIA EU-27 Micro 27.9% 29.7% Small 23.2% 20.7% Medium-sized 23.0% 17.0% TOTAL: SMEs 74.1% 67.4%
Figure 4. Number of SMEs and Their Share in All Enterprises in Bulgaria and EU-27, 20081
ENTERPRISES
BULGARIA EU-27
Number Share Share
Micro 255 697 89.3% 91.8%
Small 24 890 8.7% 6.9%
Medium-sized 4 897 1.7% 1.1%
TOTAL: SMEs 285 484 99.7% 99.8%
III.
CURRENT INSTITUTIONAL SETTING FOR OPERATION OF
SMEs IN BULGARIA
“In all countries the government and its agencies have a fundamental lead role to play in providing an environment favourable to business operations and conducive to private investment. This is especially true for small business. Small and medium-sized enterprises are the backbone of most economies today. In order to flourish and grow they need an environment that facilitates and enables business start-up, does not hamper them with
1
According to the EU: micro enterprises have up to 10 employees; small enterprises – up to 50 and medium-sized – up to 250 (European Commission, 2011)
Source: European Commission, 2009 Source: European Commission, 2009
excessive and costly regulations and facilitates access to finance and business services. In this respect there is an urgent need in South East Europe (SEE) to design and implement an effective enterprise policy, as the level of private investment still lags behind that of advanced countries” (Organization for Economic Co-operation and Development, 2005, p. 3). This summarizes the expectations set by the European-level organizations and the challenges faced by the Bulgarian governmental structures. The EU accession has accelerated the reform process in the country, which resulted in Bulgaria becoming one of the “leading reformers” in South East Europe (Organisation for Economic Co-operation and Development, 2006, p. 15). However Bulgaria has completed only the first level of policy reformation and institutional building. The challenge now is to further improve the institutional context by alleviating the regulatory framework from burdensome regulations and most importantly, by ensuring the sustainability of the reform process.
In order to exemplify the country’s reform process in terms of SMEs, two programs for encouraging their development are exemplary. First is the Investment Compact adopted in 1999 under the auspices of the OECD. Afterwards comes the National Strategy for Encouragement of SME Development which started operating in 2007 and is closely associated with the Small Business Act for Europe triggered by the European Union’s Commission. In this study, the National Strategy is viewed as the more influential because it started operating relatively simultaneously with the Bulgarian EU accession. Furthermore its objectives and terms of achieving them are very much in line with the EU model and requirements. For these reasons, the National Strategy will also be included in later parts, where its effectiveness will be discussed and seen in the light of the opinions of the interviewed entrepreneurs.
3.1. The Investment Compact
The South East Europe Compact for Reform, Investment, Integrity and Growth or The Investment Compact is a key component of the Stability Pact under the Organization for Economic Co-operation and Development (OECD). The Stability Pact for South Eastern Europe was adopted in June 1999 with the aim to encourage co-operation among the countries of South East Europe (SEE) and to facilitate the stability and economic growth in the region (Organization for Economic Co-operation and Development, 2005).
The main purpose of the Investment Compact is to encourage private investment since this is an essential factor in the transition to a market economy structure and when strengthening the country’s social and economic position. The objectives set by the program are to (Organization for Economic Co-operation and Development, 2005, p. 2):
Improve the climate for business and investment Attract and encourage private investment
Ensure private sector involvement in the reform process Instigate and monitor the implementation of reform
The Investment Compact’s overall assessment of the Bulgarian institutional framework suggests that progress is present but uneven across the different enterprise policy areas. Main improvements have been noted in the financial and regulatory frameworks (Organization for Economic Co-operation and Development, 2005, p. 12). The financial environment improved with a significant growth in bank loans extended to the private sector, including to SMEs. Furthermore the tax policy became more favorable with a reduction of the corporate tax rate and introduction of serious incentives for investment. In addition, starting in 2003, the new Law for Restricting the Administrative Regulation and Control over the Economic Activity provided a general framework for improvement of the regulatory environment for enterprises. Subsequently a detailed review of all administrative regimes was carried in order to identify and eliminate those most burdensome for business (Organization for Economic Co-operation and Development, 2005, p. 12).
Actions for improvement should now be directed to the process of information gathering and dissemination; practical guidance for SMEs and co-ordination. As a result it is essential to intensify the cooperation and dialogue with the civic society and entrepreneurs in particular, in order to successfully formulate and implement the Bulgarian enterprise policy (Organization for Economic Co-operation and Development, 2005, p. 16). To successfully cooperate and reach a wider range of enterprises the more effective use of regional networks, especially in the remote regions of the country, is desirable (Organization for Economic Co-operation and Development, 2005, p. 16). Establishing such closer coCo-operation will furthermore be beneficial for SMEs when policy measures are being formulated since there will be a higher chance that the opinion of the entrepreneurs will be taken into serious consideration.
Another important point here is that the reforms that have already been introduced in the financial and regulatory frameworks could not be considered as neither the only ones needed, nor as completely finished successfully. Much more still remains to be done. For example, many concerns have been raised (cf. Ministry of Economy, Energy and Tourism, 2010) warning that increased amount of granted bank credits to SMEs has been only a short-term phenomenon that could be accounted to Bulgaria’s EU accession. Furthermore, in the light of the current economic downturn, credit granting has become immensely more difficult (Organization for Economic Co-operation and Development, 2005). These factors point to the importance of actively promoting alternative financial resources for SMEs. Later in this paper the opinions of the interviewed entrepreneurs will provide further examples of reform attempts that have not been perceived as carried out properly and effectively enough.
3.2. National Strategy for Encouragement of SME Development
3.2.1. European Employment Strategy and Entrepreneurship at the European Level Unemployment is among the most serious problems in almost all countries in Europe. Employment rate on the continent is 61%, which is nearly 10% below this in the US and Japan. Population groups mostly endangered of unemployment are long-term unemployed, young and older jobseekers, people with disabilities, ethnic minorities and women. As of 2000 the employment rate of women has been estimated at around 20% below the rate of men (European Commission, 2000).
The European Union has recognized these issues and in order to overcome them, the European Employment Strategy (EES) emerged after the Amsterdam Treaty of 1997. The first set of employment guidelines of the 1997 Luxembourg summit aimed at the development of a more active labor market policy by the use of four pillars (European Commission, 2000, p. 9):
Employability of jobseekers Entrepreneurship
The adaptability of businesses and employees to economic and technological change Equal opportunities for men and women and for people with disabilities
Since the EES was created as more than just a theoretical framework, an action plan was developed where at the beginning of each year, certain priority areas for action are identified
and in line with them the employment guidelines are formulated. From there on, each country has to provide a national action plan which is supposed to implement the guidelines in accordance with the country’s specifics. Subsequently a joint employment report is prepared by the European Commission and a set of recommendations are formulated by the European Council (European Commission, 2000).
The development of the EES continued with the 2000 Lisbon summit at which a new strategic goal to be fulfilled by 2010 was agreed on, namely “[for the EU] to become the most competitive and dynamic knowledge-based economy in the world, capable of sustaining economic growth with more and better jobs and greater social cohesion” (European Commission, 2000, p. 30). In 2010 the successor of Lisbon: Europe 2020 was held which acknowledged that the aims of the Lisbon summit have not been met and thus established new goals to be reached by 2020. These included a new strategy for jobs and smart, sustainable and inclusive growth (European Commission, 2011(A)).
I will narrow down this overview to the subject of concern in the study – entrepreneurship, which is also one of the four main pillars of the EES. According to the European Commission (2010, p. 88) “[t]he typical European firm is a micro-enterprise (less than 10 people) and accounts for more than 90% of all firms in the EU and 95% of newly created companies. [...] Given that many of the entrepreneurs themselves employ people, these newly-created firms contribute significantly to job creation and therefore to achieving the European Union’s goal of more growth and jobs”. Immediately after the Luxembourg summit of 1997 concrete action was taken in order to support the development of small and medium-sized enterprises (SMEs), since they were found to be highly innovative and creating more jobs than other businesses (European Commission, 2000, p. 12). The intention of the EU was to make it easier to set up a new business by:
Indentifying existing obstacles to the creation of SMEs and making any necessary changes
Reducing the tax and contributions burden on labor
Looking at how more jobs can be created in the social sphere
The efforts to improve the conditions for the existence of SMEs have been reflected in the Small Business Act for Europe (SBA) established in 2008. The Bulgarian government’s policy to SMEs is defined by the European Commission’s guidelines in this area and by the
Small Business Act in particular. The Bulgarian National Strategy for Encouragement of SME Development and more in-depth information on the employment and entrepreneurial situation in the country will be discussed in the following subsection.
3.2.2 Employment in Bulgaria and the National Strategy for Encouragement of SME Development
The global financial crisis that started in 2008 has resulted in one of the most severe recessions since the Second World War. It has negatively affected the labor market in the EU by nearly wiping out the steady increase in economic growth and decrease in unemployment witnessed over the last decade (European Commission, 2010). As Figures 5 and 6 suggest, the economic recession has significantly and negatively influenced the Bulgarian economic situation, resulting in unemployment rate that has kept increasing even over the first half of 2010.
Figure 5. Change in Unemployment Rates for the EU, March 2008 – March 2009 and March 2009 – March 2010
Figure 6. Recent Developments in Unemployment Rates for the EU, 12.2009 – 07.2010
One of the direct measures of the Bulgarian government against the economic crisis and rising unemployment has been the temporary increase of unemployment benefits for 2009 (Figure 7). Following the example of other EU members, the Bulgarian government has furthermore adjusted to the economic crisis via reduced employment and productivity per hour rather than reduced average working hours. The downturn has also served as a catalyst for improving the flexibility of training services by providing more training opportunities and granting vouchers to participate in such to all employees from end-2009 until end-2012 (European Commission, 2010).
Figure 7. Stock of Recipients of Short-term Working Benefits in Bulgaria, 04.2009 – 02.2010
The National Strategy for SME Development was adopted in 2007. Its priorities, in line with the Small Business Act, are aimed at “supporting the entrepreneurial spirit, improving access to financing and providing financial support to SMEs (including support from EU programs), simplifying the regulatory environment, achieving sustainable development, the internationalization of SMEs, creating incentives for research and innovation, and protection of intellectual property” (Ministry of Economy, Energy and Tourism, 2010, p. 11).
The main purpose of the scheme is for entrepreneurs “to have more time and financial resources available for production and innovations, not for filling in forms, reports etc., as is normally the practice in a bureaucratic environment” (Ministry of Economy, Energy and Tourism, 2010, p. 60). One of the areas in which improvement has been noted has been the financial setting. Over the past years there has been improved access to financial resources. SMEs have benefitted from the situation with about 95% of them relying on external sources Source: European Commission, 2010
of funds. It should be noted nonetheless that the improved access to financing might be a one-time effect attributable to the accession of Bulgaria to the European Union (Ministry of Economy, Energy and Tourism, 2010).
In another area, reduced levels of employment have been observed in Bulgaria between 2008 and 2010 (Figure 8). This can be attributed to the transitional state of Bulgaria but the recent economic recession has furthermore added to the lagging behind of the country. It has also significantly destabilized the fragile positive development observed during the past decade.
Figure 8. Change in Employment in the EU, 2008 (quarter 2) – 2010 (quarter 2)
The aim of this chapter was to provide the necessary framework in which the study can be subsequently placed. The institutional setting in Bulgaria is of significant importance to the development of its SMEs. The relatively late start of active support for entrepreneurship and the current state of transition are key factors explaining the still present underperformance of SMEs when compared to the more advanced Western market economies. There was no entrepreneurship, the way it is currently perceived, existing under the communist rule. Rather a phenomenon termed “intrapreneurship” was present but strictly controlled and restricted in
its freedom of action. With the change of regimes in 1989, entrepreneurship emerged as a strong sector that helped the population overcome the difficulties of the seized social benefits. Then it was experienced how entrepreneurship could result in innovation, competitiveness, opening of working positions and in the end, lead to economic growth. Because the process was more or less triggered naturally out of the needs of the population, until the late 1990s entrepreneurship was perceived as self-present and self-developing, so no specific measures to stimulate it were taken. This explains why despite its strong growth rates, the SME sector in Bulgaria is still lagging behind when compared to the Western market economies. Nonetheless two important strategies are currently operating in Bulgaria with the aim of encouraging the development of SMEs – the Investment Compact and the National Strategy for the Encouragement of SME Development. Their reports point to improvements mostly in the financial and regulatory frameworks but nonetheless also stress the necessity of further efforts to improve the institutional setting for SMEs within the country.
In the following chapter the attention will shift towards the concept of trust. First its definition will be clarified and positioned in respect to the aims of the research. Following, the concept will be put in the perspective of the post-socialist world and its small- and medium-sized enterprises. The section will explore the ways in which communist regimes have affected and transformed trust and the societal structures as a whole. Lastly, the focus will move to Bulgaria, a specific example of a post-communist country, and the role of trust in the country and in its SME sector.
CHAPTER 2
TRUST
I.
Explaining Trust
Trust is one of the guiding forces behind societal interaction. However its importance goes beyond the everyday experience. In recent decades, trust has been noted for its significant influence in a number of fields. It has been the center of debates, research and investigation in psychology, sociology and economics. As a result, trust is now seen in respect to every society’s political system, societal structures, liberal, democratic and economic development,
interpersonal, interorganizational and institutional relations; it has entered research fields in all micro-, meso- and macro-levels of life. For example, it is used as a prominent predictor for job performance and satisfaction (Robinson, 1996; Dirks & Ferrin, 2001); organizational revenue and profit (Davis, Schoorman, Mayer, & Tan, 2000; Simons & McLean Parks, 2002) and economic development in general (Arrow, 1973; Granovetter, 1985) to name a few.
In the current chapter, the following section will focus on clarifying the general definitions and distinctions of trust by relating to the different schools of thought. The subsequent section will deal with the context of post-communist societies and will aim at explaining why trust has been low during communism and is still low nowadays. Different features of the communist regime that still remain today form the so called “communist legacy” which nowadays negatively affects the process of transformation of these societies into market economies and democratic regimes. Finally this framework will be transferred to the specific country of the research – Bulgaria – and the effect of distrust and skepticism will be viewed not only in the light of impeding the rebuilding of the civil structure and society in the country, but also as negatively affecting the business environment for SMEs.
The flourishing of trust as a research topic in a relatively short time span has been triggered by a widely acknowledged concern on its alarmingly lowered levels (cf. Putnam, 2000). The broad focus on trust however resulted in no universal agreement on its definition. Another factor contributing to this is that trust has turned into a word of everyday use and thus everyone knows what it is but no one seems to be able to term just one, most important, essence of it. In the words of Niklas Luhmann (as quoted by Hoehmann & Malieva, 2002, p.11): “It is worth serious consideration whether one wants to advise sociology to use words of everyday usage and concepts of the traditional ethic world of ideas”. Despite its many meanings, most concepts of trust share some common elements. First, there is the assumption of a degree of interdependence between trustee and trustor since the concept of trustworthiness only becomes relevant if one actor depends to a certain extent on another. Second is the assumption that trust is a coping mechanism against existing risk and uncertainty arising from the chance of opportunistic behavior of the other party. Third is the assumption that such opportunistic behavior will not be employed by the other party in a way as to take advantage of the trusting actor (Lane, 2001). Therefore, most broadly, trust can be defined as the positive expectation that a partnering actor will not behave opportunistically
and thus against the interest of the trustee (cf. Bradach & Eccles, 1989; Misztal, 1996; Nuissl, 2005).
The sources and types of trust are as numerous as its definitions. Distinguishing between them is proven as a useful academic affair that helps to define different ideal types of trust but nonetheless in reality trust is the outcome of a far more blurred process where the different sources and types intermingle. Only the most relevant for the purpose of this study types will be presented here. Even though they will be described as separate influences, their interplay should not be neglected.
Among the first scholars to argue that trust cannot develop unless individuals share common norms and values has been Talcott Parsons (1951), followed most prominently by Francis Fukuyama (1995). In the words of the latter, all liberal and economic institutions depend on a healthy civil society for their existence. The civil society, in its turn, depends on people’s habits, customs, and ethics and it has been defined as the “[…] complex welter of intermediate institutions, including businesses, voluntary associations, educational institutions, clubs, unions, media, charities, and churches […]” (Fukuyama, 1995, p. 4). A key element here is the fact that the civil society is formed through the constant and continuous interactions between its elements, thus trust cannot form out of individual efforts alone but is rather stemming from the overarching societal efforts and virtues. According to Fukuyama (1995, p. 11) “[l]aw, contract, and economic rationality provide a necessary but not sufficient basis for both the stability and prosperity of postindustrial societies; they must as well be leavened with reciprocity, moral obligation, duty toward community, and trust, which are based in habit rather than rational calculation”. This socially oriented type of trust creates collective capital, which “contributes to the integration both of the local division of labour and of contextual skills with new codified knowledge” (Dei Ottati, 2002, p. 29).
This type of trust can however be not effective enough when the concern is the creation of new entities for further societal and economic innovation and development, like for example small- and medium-sized enterprises. Collective trust does not automatically trigger personal motivation since it mostly relies on established moral obligations to better the society. This supports the existence of trust existence but does not result in further improvement. An alternative is personal capital, which is the calculative or self-interested trust that enables the actor to estimate the possible benefits of a trust relationship. The distinguishing feature here is that behavior is motivated by the expectation that the future benefits of cooperating based on
trust will outweigh the immediate gain of an opportunistic behavior and distrust. This idea of future gains is what is seen as detrimental for the further societal and economic improvement since individuals will selfishly try to maximize these gains by trying their best to create a better environment to enhance that (cf. Lyons & Mehta, 1997; Dei Ottati, 2002). The mechanism that makes sure that society will not be torn apart by dominating but opposing self-interests is not values and habits but rather control measures implemented by firms and institutions to standardize the processes and determine the ways of ensuring that certain obligations are followed (Brunetto & Farr-Wharton, 2007). Some authors (cf. Braun, 2002), argue that as long as such controlling mechanisms are properly in place, alliances between partners can well be established without the presence of trust. However, it is important to balance trust and control since enforcing too many formal control mechanisms can dilute the levels of trust and the clear expectations between actors, thus leaving all situations to be handled by the certain formal entity imposing the control. It is essential for each actor to have the possibility to act independently to a certain extent. Therefore, trust in this case is the outcome of the combination of formal and social control mechanisms (Das & Teng, 1998). And here, once again, the intertwining of individual self-interest that leads to formal ways of controlling and social mechanisms that establish certain norms and obligations becomes obvious.
Regarding the types of trust, the most broadly used ones are (inter)personal and institutional. The former one is based on the perception that other agents will behave in a certain way that can be predicted and is therefore dealing with calculation and risk assessment (Gambetta, 1988). It is also present when actors are unwilling to rely solely on institutional arrangements (Granovetter, 1985; Smallbone & Lyon, 2002). Institutional trust, on the other hand is when individuals have confidence in the economic, political and social institutions that they have to deal with. It can be established only when there is “a critical mass of individuals trusting in the system” (Smallbone & Lyon, 2002, p. 22). The two types of trust cannot be distinguished in a clear-cut manner because institutional trust can also be viewed as a type of interpersonal trust. The reason for that is that the former originates not only from the way of functioning of institutions as a whole but also from the personal experience with the institutional representatives on a day-to-day basis. Therefore we need to examine the individual and institutional levels as interconnected and failure to properly establish the link between the “micro and macro levels is inaccurate as it tends to anthropomorphize the organization” (Zaheer, McEvily, & Perrone, 1998, p. 142). Norms and taken-for-granted routines from one
of the two types of trust can very well be translated into the second one. For example, if there is a strong general trend for interpersonal trust, this can in turn positively affect the trust orientation of the population towards its institutions. At the same time, if there is a long history of successful institutional performance, the trust that this would have established would be internalized by the people and transferred to their everyday interpersonal behavior. However, interpersonal trust cannot be used as a proxy to institutional trust since many additional factors also play a role during the formation of institutional trust. In line with the aims of this study, a primary topic of interest will be institutional trust but it will not be examined as occurring independently from interpersonal trust.
On another axis, according to Lane (2001) trust can be divided into calculative, value- or norm-based and trust based on common cognitions. Calculative trusting involves expectations about another actor, “based on calculations which weigh the cost and benefits of certain courses of action to either the trustor or the trustee” (Lane, 2001, p. 5). This type goes in line with the concept that examines trust as originating from the self-interested, rational actors that try to maximize their gains by calculating the possible benefits of a trusting relationship. Value-based trust goes in line with the theories of Parsons (1951) and Fukuyama (1995) and is therefore based on the expectation that both parties will meet their social obligations and will act responsibly, without violating the trusting relationship and taking advantage of opportunistic behavior. Here, once again, the moral aspect of trust and its expected influence are given prime emphasis. Lastly, there is the trust based on common cognitions. It sits as a hybrid form between the main two concepts on the origins of trust. Common cognitions are seen as the common expectations we hold “both about the social order in general and about specific interactions with others” (Lane, 2001, p. 10). In this sense the basis of trust could be found in the expectations in common societal structures but also in the certain predictable ways of personal behavior. By looking into the empirical results of this study, the question of which of these three types of trust is mostly present among the Bulgarian SME owners will be investigated.
II.
TRUST AND SMEs IN POST-COMMUNISM
According to Rose-Ackerman (2001), two conflicting stories are told about the impact of the past on societies making a transition from socialism to a market economy. The first one
“recognizes the overall failures of the planned economies but points to cooperation between family and friends as a means of coping with a dysfunctional system. This sense of community has been broken up by the move to the market and to democracy leading to a loss of trust and to an increase in opportunism” (Rose-Ackerman, 2001, p. 415). This story recommends the establishment of policies that would reinforce interpersonal trust. The second story “stresses the socialist governments’ lack of legitimacy – a fact that led citizens to assume that official state actors were self-serving and that rules were irrational” (Rose-Ackerman, 2001, p. 415). This story argues for policies that develop trust in the competence of the state.
As was already pointed in the previous part, the best description of trust and its origins could be provided after combining the different characteristics of opposing theories. In this section, this is once again the case. It will be insisted that the topic of trust in post-socialist societies sits exactly at the intersection of institutional and legal analysis, on the one hand, and the study of interpersonal relations, on the other. Therefore, in order to best examine and understand how trust occurs in such societies, both perspectives should be observed.
According to Mishler & Rose (1997, p. 418): “No government enjoys the absolute trust of its citizens; arguably, none should”. Trust in leaders is integrally related to the capacity to predict and affect their behavior. Leaders however have little motivation to be responsive or even trustworthy toward those to whom they have no direct connection. Thus by reducing drastically the number of paths from any leader to his potential followers, trust in such leaders would be inhibited (Granovetter, 1973, p. 1374). Resulting from low trust, governments cannot govern effectively, trust is further undermined and a vicious cycle is created (Mishler & Rose, Trust, Distrust and Skepticism: Popular Evaluations of Civil and Political Institutions in Post-Communist Societies, 1997, p. 419). This spiral of low trust, reinforcing the low-trust attitude, has been termed as “low-trust dynamics” (Fox, 1973). Consequently, one of the major problems of post-socialist societies is the mismatch between the trust potential of these societies, on the one hand and the ever increasing need for trust, on the other (Nuissl, 2005).
Stemming from this, it becomes obvious that trust is not only in shortage in post-communist societies but also that it is absolutely essential for their proper overall societal functioning. This is especially so in democracies since only there is trust a rational gamble. In totalitarian societies, it is irrational to trust anyone but your family and your closest friends. In authoritarian societies, you might trust a somewhat larger circle. But only in democracies –
and not even all of them – will you give trust to strangers (Uslaner, 1994 as quoted by Letki & Evans, 2005, p.517). Giving trust to strangers who are in the institutions intended to represent the ordinary citizens, is supposed to ultimately result in enhancing both the legitimacy and the effectiveness of democratic government.
But where does trust in institutions stem from? Like with general trust, there are two theories on the matter. Cultural theories on the one hand hypothesize that trust in political institutions is exogenous or originating outside of the political sphere in long-standing beliefs rooted in the cultural norms of societies (Putnam, 1993; Inglehart, 1997; Mishler & Rose, 2001). Connecting to that, communism is seen as having “created many habits – excessive dependence on the state, leading to an absence of entrepreneurial energy, an inability to compromise, and a disinclination to cooperate voluntarily in groups like companies or political parties – that have greatly slowed the consolidation of either democracy or a market economy” (Fukuyama, 1995, p. 40). According to Fukuyama (1995), people might have successfully dedicated themselves to the replacement of communism with democracy and capitalism but they will nonetheless lack the social habits necessary to make these work. The lack of “firms, entrepreneurs, markets, and competition not only perpetuates poverty, it fails to provide critical forms of social support for the proper functioning of democratic institutions” (Fukuyama, 1995, p. 356). In this sense, the thorough destruction of civil society that took place during communism could be seen as one of the most devastating consequences of the regime.
Institutional theories, by contrast, see political trust as politically endogenous. Therefore institutional trust is the expected consequence of the satisfactory performance of institutions (Coleman, 1990; Mishler & Rose, 2001). As a result it can be argued that institutional performance holds the key to developing trust and that “[g]overnments can generate public trust the old-fashioned way: they can earn it […]” (Mishler & Rose, 2001, p.56). This suggests that institutional trust should stem mainly from the visible control and performances, rather than from the internal workings of the institution as such (Moellering, 2006). Therefore the behavior of leaders could also be considered as a determinant of trust. After the fall of communism, citizens became especially sensitive to institutions, which were then highly pressured by expectations to provide all that people were deprived of during communism (Mishler & Rose, 2001 as quoted by Kostadinova, 2007, p.823). In order to (re)build trust leaders were expected to engage in different forms of fairness, support and participative
decision-making. In post-communist countries however the absence of such steps together with the lack of reliable information and publicity over the deeds of public officials contributed to the image of the institutions as corrupt, catering to selfish needs and not deserving trust. And since earning trust is a relatively long and difficult process, distrust continued to be inherited generation after generation with the expectation of a change towards a more trusting state. These statements will later on be further reiterated through the opinions of the interviewed entrepreneurs.
This is the reason why this research suggests that since communist rule in Bulgaria was operating until the end of 1989, there is still the communist rule legacy present which leads to skepticism and lack of trust. These phenomena are attributed to the communist period and are not seen as being already present before its start. This is justified by the ample examples of voluntarily organizations and the lively civil society that was present in Bulgaria prior to the communist rule (Valkov, 2009). So despite some views that the Eastern European region is generally more prone to low levels of trust, irrespective of the communist regime (Colton, 1995; Rose, Mishler, & Haerpfer, 1997), there is evidence that Bulgaria does not fall into this category. Therefore with a degree of certainty the destruction of trust and civil society can indeed be attributed to the regime. The communist legacy could be found in a number of areas but it is most prominently visible in the weak civil society that remained after the regime and in the ineffective institutions currently present that in their turn, result in a weekly organized society. When focusing on entrepreneurship and SMEs, the consequences of the abovementioned factors are also expressed by the negative feedback to the governmental initiatives in the sphere, even if these are seen as successful by the Bulgarian ruling institutions and the international organizations. The legacy of the past is nonetheless subject to periodic revisions based on more recent experiences. Therefore the Bulgarian government should strive for providing individual and collective good, in general and improving its entrepreneurship policies, in particular if it is to successfully finish the transition process and establish a stable democracy with high trust levels. Such efforts, if replicated in other Eastern countries, could potentially close the gap between Western and Eastern European societies in economic development and institutional quality. This still remains to be investigated but what should be agreed upon is that the relationship between successfully operating official institutions and trust is not a straightforward one, where one triggers the other but rather they should be seen as complementing each other and each as being vital for the existence of the other. In the words of Moellering (2006, p. 365) “institutions can be seen as bases, carriers
and objects of trust: trust between actors can be based on institutions, trust can be institutionalized, and institutions themselves can only be effective if they are trusted”.
What should also be clear at this point is the argument that trust enhances the economic performance of a society. Small- and medium-sized enterprises have also proven to be an important factor to economic growth. Stemming from causality then, trust within SMEs is also essential.Niklas Luhmann concentrated on its role in terms of the importance it plays in modern societies for reducing the complexity of everyday life. He argues that trust acts as the substitute for risks inherent in decisions and situations. For an entrepreneur, this would then suggest that not all business relationships have to be regulated via contracts (Luhmann, 2000 as quoted by Welter & Smallbone, 2006). Consequently, a reduction of the transaction costs of the relationship follows since the process of gathering information about the other party can be minimized and the signing of contracts can be avoided where possible. Lowering transaction costs through the ability to trust results in many other positive by-products. One of the most important among them is the fact that SME owners and managers will be more likely to seize opportunities which will help stepping up to their full potential and innovative capabilities. The reason for that is that they would have maximized their efficiency by not spending too much time on unnecessary safeguarding. Furthermore, the ability to trust will highly affect the networking of the given small or medium enterprise and networking is an essential skill for the survival of SMEs in general. According to Saxenian (1994), those SME owners that have difficulties trusting new parties may turn into a liability for their enterprises. This is because establishing the correct networks with others might present new opportunities to add value to the enterprise and what is even more important – clustering for SMEs has so far proven to be the most successful way for them to cope with competition from bigger companies. It could therefore be claimed that “low levels of trust constrain market entry, enterprise growth and competition whilst encouraging unproductive forms of entrepreneurship. High levels of trust, on the other hand, encourage open and dynamic competition structures and foster enterprise growth” (Hoehmann, Kautonen, Lageman, & Welter, 2002, p. 4).
In terms of entrepreneurship and SMEs, in order to reach the trusting position, trust first needs to be won and sustained through mutual effort. The literature agrees that “interpersonal trust in business relations is rarely offered spontaneously but requires an extended period of experience. During this time, knowledge about the exchange partner is accumulated through
direct contact or is acquired indirectly through reliable third parties. The search for trustworthy partners is eased by the fact that it is in the interest of such potential partners to make their trustworthiness known by sending out signals of trustworthiness” (Lane, 2001, p. 21). A basic prerequisite before trust can be established through mutual interaction is for both actors to exhibit reciprocal interest; for both to be aware of the opportunities and benefits that an existing trusting relationship could bring (Nuissl, 2005). These statements point to an endogenous character of interpersonal trust as well, where the performance and trustworthiness of the partner are what eventually results in trust.
As strong a motivator as self-interest could be, enterprise behavior results from a dynamic inter-relationship between not only internal or endogenous but also external or exogenous conditions. External ones “gain importance in transformation contexts where the institutional reforms have not yet been thoroughly implemented and where the socialist legacy influences the attitudes and behavior of individuals” (Hoehmann, Kautonen, Lageman, & Welter, 2002). This emphasizes the importance of seeing entrepreneurship in the perspective of its social context, despite the “tendency to underestimate the influence of external factors and overestimate the influence of internal or personal factors when making judgments about the behavior of other individuals” (Gartner, 1996). In linking the social context to entrepreneurship, trust plays a complementing sanctioning role to the overall institutional framework.
One of the main problems of post-socialist states is that there is an increased need for entrepreneurial trust in order to restore the societal and economic order but the conditions are such as to often discourage the creation of trust. Although barriers as such no longer exist and entrepreneurs are free to run SMEs, connect with each other and engage in different forms of cooperation, the process of trust development might prove to be more difficult than elsewhere. The reasons for that can be attributed to the “legacies of socialism” (Nuissl, 2005) which still affect people’s attitudes and behavior. The communist state “set about deliberately to destroy all possible competitors to its power, from the “commanding heights” of the economy down through the innumerable farms, small businesses, unions, churches, newspapers, voluntary associations, and the like, to the family itself” (Fukuyama, 1995, p. 55). It can be argued that “the state-managed neglect of elements of civil society on the one hand, and the necessity to organize informal supply networks prompted by an economy of scarcity on the other hand (both typical characteristics of “socialism as it existed in reality”), has a lasting influence on
attitudes and behavior patterns. Consequently, a pushy or opportunistic mentality is said to have been released as soon as the ideology of equality and social welfare had vanished together with the legally enforced norms which backed up this ideology, such as guaranteed full employment” (Nuissl, 2005, p. 71). Therefore, the post-socialist societies have been caught in the developmental trap of widespread distrust stemming from their communist legacy. Increasing the effect of this legacy is the perception among entrepreneurs themselves of the existence of such difficulties. Once it has been established, it discourages people from engaging in trusting relationships with other actors. The low levels of trust do not however only stem from past experiences. As it was suggested already, the past and the mind set associated with it are subjects to reformulation based on the present situation. If people are witnessing their official institutions working in their benefit, the citizens’ behavior will change towards a more trusting state. Unfortunately, nowadays in the economies that are in transition from centrally planned to market-based systems, the formal institutions which should cater to the needs of entrepreneurs and stimulate their progress are either non-existent or only minimally focused on that goal. This results in distrust, which is further amplified by the still existent communist legacy and the slow pace of reformations that have followed the fall of communism (cf. Raiser, 1999; Rose-Ackerman, 2001; Smallbone & Lyon, 2002).
III. TRUST AND SMEs IN BULGARIA
Post-communist Bulgaria has experienced decreasing trust levels following the fall of the communist regime. This development could be explained by the dictatorship theory of Paldam & Svendsen (2001) which has a lot in common with the suggested by Nuissl (2005) “legacies of socialism” and which suggests that trust levels have deteriorated due to the oppressive behavior of the communist dictatorship. During the communist rule, intelligence agencies with internalized informers existed and thus it has been entirely rational to trust only one’s family and closest circle of friends. It therefore seems safe to conclude that communism destroyed generalized trust as conjectured in Paldam and Svendson’s theory (Bjornskov, 2007, p. 17) . As a result the most immediate problem in the Bulgarian post-communist system was to overcome the distrust, remaining as a legacy of the communist rule. The changes in the levels of trust of Bulgarians are indicated below (Table 1), using data from the World Values Survey providing the most widely accepted measure of generalized trust by asking the question: “In general, do you think that most people can be trusted, or can’t you be
too careful in dealing with people?”. The data available clearly indicates a drop in the levels of trust despite the overruling of the communist regime and entering a period of transition with a new democratic government.
Table 1. Levels of Trust among Bulgarians, WVS 1990 - 2006
WVS 1990 WVS 1997 WVS 1999 WVS 2006 Trust in
Bulgaria (%)
30.4% 28.6% 26.9% 22.2%
According to the New Democracies Barometer V (Mishler & Rose, 2001) the greatest lack of trust among Bulgarians is almost exclusively found towards the political institutions in the country and especially towards the parties (2.7%) and the parliament (3.1%).
These trends of development may present an additional perspective on why, in the opinion of entrepreneurs, “over the past year there was no major improvement in the business environment, and with respect to some of its elements there has been deterioration” (Ministry of Economy, Energy and Tourism, 2010, p. 61). The majority of concerns are related to the Bulgarian institutional framework, as exemplified by the figure below.
Under the current transition economy, merit is supposed to be the determinant of success (Koford, 2003). As a result the institutions responsible for allowing the start-up of private enterprises are expected to act objectively. Nonetheless, “most Bulgarians expect decisions to be made on the basis of “connections” (vruski)” (Koford, 2003). This perception is further strengthened by the fact that even though 52% of Bulgarian entrepreneurs, according to the OECD (2005, p. 22), are aware of the existence of a clearly identified organization, responsible for the SME policy development, they are not familiar with its goals, functions, as well as the results of its activities. This continues the culture of low trust towards official institutions.
On the local level the situation is similar with a rather discouraging attitude towards SMEs and favoritism towards bigger enterprises. This creates an important gap between the central level, where the policy is developed and the local level – the closest to SMEs – where it should be implemented. Entrepreneurs tend to believe that the government policies are only pursued at the central level and negatively assess the involvement of regional governmental representatives. This lack of proper communication with business, especially at the local level, could be treated as one of the highly unsuccessful consequences of the governmental efforts to transform its institutional setting and to lower its barriers to SMEs (Organization for Economic Co-operation and Development, 2005, p. 24).
Figure 9. Average Ratings by SME Owners and Managers of the Seven Dimensions of Good Practice, 2002 - 2004
The absence of effective institutional setting that is adapted to the needs of entrepreneurs, leads to a general skepticism and distrust and form doubts whether the institutions are in truth working for the benefit of the private sector. However the way institutions function is not the most important factor affecting the trust levels of entrepreneurs. Rather it is the factor that is preventing the currently existing low levels of trust to transform into a more trusting state. As was already mentioned, in order for entrepreneurs to put their trust into another entity, they first need to be convinced in the capabilities and honesty of the party. Following they can shift their trust levels accordingly. However in the current relationship between the government and the entrepreneurs, the existing environment does not foster trust generation, which results in stable or increased levels of distrust.
The factors that create the underlying low levels of trust remain in the broader societal perceptions and norms. Following the communist fall, Bulgaria was left with a destroyed civil society in which distrust could easily strive. This process was enhanced during communism when the state created an excessive reliance of its control and the population had difficulties trusting anyone outside of a small circle of family and relatives. After the collapse of the regime not much effort was put into restoring the active civil society and voluntary activities and thus increasing trust again.
This brings up again the endogenous and exogenous types of institutional trust and which of the two is more important when building up trust in institutions. In the case of Bulgaria it seems that the exogenous type of institutional trust, as suggested by Putnam (1993) and Inglehart (1997) is the underlying reason for the current institutional distrust in the country. The norms and attitudes that have been artificially imposed during the communist regime have destroyed the previous lively civil society and have made it difficult to rebuild trust since the process of values re-adjustment is slow and very much dependent on the endogenous type of institutional trust. In order for people to start trusting their institutions again, the latter need to perform accordingly and in the best interest of their people. Trust then can be earned, as suggested by Mishler & Rose (2001) and values slowly can shape around the new environment in the country. In conclusion it can be observed that while the exogenous character of institutional performance provides the basic source of distrust, the endogenous one holds the key to earning trust through successful performance and as a result to re-shaping the previously existing norms and attitudes.
The first section of this chapter was dedicated to the description of trust and its main characteristics. Trust is a highly complicated to define but essential component not only of everyday life but also of almost every other realm and scientific area. Based on some common features of the existing definitions, the phenomenon was defined as the positive expectation one party holds that another party would not act opportunistically but according to some accepted line of behavior that will eventually benefit both actors.
Numerous theories also exist on the origins and types of trust. In terms of the origins, Parsons (1951) and Fukuyama (1995) put forward the theory of collective norms and values through which trust is nurtured and spread with the help of a lively civil society. Opposite of that is the suggestion that trust is created by the self-interested efforts of individuals. Because people try to maximize their benefits they will establish trusting relationships in order to achieve that more effectively. In this case additional controls should be introduced in order to prevent the society from falling apart due to strong but opposing interests. Existing norms and values in this case cannot act as mitigating forces.
In terms of the types of trust, most commonly we have a distinction between interpersonal and institutional. However, it has been argued that the latter could be examined as a form of interpersonal trust since most often people develop their levels of trust towards their institutions, based on the experiences they share with the official representatives on a day-to-day basis. On another axis, trust can be calculative, value-based or based on common cognitions. The first type goes in line with the theory suggesting that trust stems from self-interest; the second is in line with the cultural theory on trust origin, while the third lies in between.
Following the basic introduction of the trust concept, the attention was shifted towards trust in post-communist societies. It was examined how the regime has destructed and even after its collapse, its legacy has prevented the existence of high levels of trust. More broadly, the extensive periods of communist regime have negatively affected and greatly slowed down the consolidation of the society, the reconstruction of civil life and the move towards market economy and democracy. It was presented that an essential feature for the rebuilding of post-communist societies is the presence of trust.
Institutional trust has been presented as possessing exogenous and endogenous characteristics. The former concerns the role of common values and attitudes and suggests that institutional
