Globalization and its Challenges 355
as the subjective probability that individuals attribute to the possibility of
being cheated. Based on the analysis of cross - country data, where the level
of trust is high, investment in equities in general, and in the stock market in
particular, is also high. In low - trust countries, equity participation depends
on observance of the rule of law and the existence of legal institutions that
protect property and investor rights and those that enforce contracts. It sug-
gests that in low - performing economies not only is the level of trust low, but
property and investor rights are poorly protected, and legal enforcement of
contracts is weak. Consequently, in these countries, corporations either do
not form or, if they do, they resort to debt fi nancing. The policy implica-
tions for these economies are that they should strengthen legal institutions,
improve transparency, accountability, and governance — in both private and
public sectors — and provide the public with a greater amount of informa-
tion and education on risk/reward - sharing fi nance, particularly in equity
markets.
The results of this recent research are a wake - up call for Muslim coun-
tries, since, as we have seen, trust is considered the most important element
of social capital in Islam, and the cornerstone of the relationship of individ-
uals with the Supreme Creator and with others in society. In short, Islam has
made trust and trustworthiness obligatory — as well as keeping faith with
contracts and promises — and has rendered them inviolable without explic-
itly permissible justifi cation.
The reason for the poor economic performance of some countries is a
low level of trust, combined with weak legal institutions protecting property
and investor rights and poor contract enforcement. In the case of Muslim
countries, Chapra (2000) has argued that this is attributable to weak adher-
ence to the rules, norms, and values demanded by Islam. There is hope that
as Muslim societies continue the process of strengthening legal institutions,
their economic performance will improve. Efforts at reforming education,
concentrating on adherence to Islamic values, norms and rules should
strengthen the social capital — including, importantly, the level of trust — in
these countries. One result of this will be the adoption of Islamic fi nan-
cial techniques of sharing risk/reward. Consequently, a global convergence
process may be already at work toward risk sharing in the West and in
the Islamic world. As the risks of globalization are shared more equita-
bly, so will be its rewards, at least in respect of fi nancial transactions and
investment.
While the present low economic performance in Muslim societies,
attributable to the low level of trust, is discouraging, signs are emerging that
the future is more hopeful. The governments of these countries are imple-
menting policies to strengthen the institutional structure of society, even if
it is clear that the required level of trust will take a prolonged and sustained
effort to achieve the strength commensurate with Islamic teachings. These
policies include:
■ (^) Strengthening transparency, accountability, and good governance for
public and private sectors