life satisfaction. the nordics are also high - tax countries. so far high taxes have been willingly paid, because the middle classes feel that they have benefited from the welfare state. the socio - economic position of the middle classes is currently threatened which may reduce the willingness to pay taxes implying a deterioration of trust in the process. the southern european countries, in turn, seem to be low - trust, economically less - inclusive countries with citizens enjoying a comparatively low life satisfaction. this result can be interpreted positively. implementing structural reforms in order to make the economies more competitive, improving the governance and the quality of institutions, and reducing corruption would help to build up trust and, over time, improve life satisfaction. it is of course true that these kinds of comparisons may suffer from a number of caveats. for example, the selection of countries, indicators and time periods may be arbitrary. the oecd index of product market regulation, the oecd index of employment protection legislation, the fraser institute index for economic freedom and the kof index of globalization. these four indicators are highly correlated. the eurobarometer survey is conducted by the european commission twice a year. the face - to - face interviews are made on a randomly selected population of around 1000 persons in each country. the results should be statistically significant. the correlation between these four indicators for trust in political institutions is high. bis central bankers ’ speeches trust, finance, and good society let me now turn to my final theme ; that is, the role of finance in a good society. some of you may wonder what in earth has finance to do with a good society, especially now when we all are witnessing the huge damage caused by the global financial crisis over the past few. the connecting factor between finance and the good society is trust. the whole monetary and financial system is based on trust. trust is the foundation for monetary exchange, and monetary exchange is the foundation of a market economy. paper money has value only as long as the money holders can be secure that all others believe that the money can be used for transactions at a future date. the emergence of the universally accepted means of payment, in turn, was precondition for multilateral exchange and thereby for the distribution of labour. the origin of the term credit word is a latin word credo, translated “ i believe ”. this illustrates the intimate relationship between trust and finance. no bank can operate if the depositors do not trust that money deposited at the bank can be withdrawn at

##a listed china, korea, france and italy as examples of low - trust societies, whereas japan and germany represented high - trust societies. he also argued that the united states has been a high - trust society historically, although this status had started to erode more recently. as indicated above, trust is not secured in societies beyond a simple tribal community. in more complex societies there is a need for rules and institutions that reduce the probability of an individual being cheated by another person. for these we need governments who define the rules and set up agencies to enforce legal and property rights, as well as to enforce contracts between contracting parties. people need be secure that if they own something it cannot be arbitrarily confiscated. they also need to be secure that cheating and stealing will not get unpunished. but how do we know that the rules will be applied and the institutions will function as intended? are the institutions themselves trustworthy? we know that very often this is not the case. this brings me to my main point. the essence of a good society is that the rules are the properly designed and institutions are trustworthy. a precondition for this is that those who define and implement the rules themselves respect the rules. in other words, they should be free from corruption. inclusive versus extractive institutions paying attention to trust and the trustworthiness of institution shifts the discussion on the goodness of a society to the quality of its institutions. daron acemoglu and james robinson make a distinction between inclusive and extractive institutions. inclusive economic institutions enforce property rights, create a level playing field, and encourage investment in new skills and technologies. extractive economic institutions, in contrast, are structured to extract resources from the few. inclusive economic institutions, in turn, support and are supported by inclusive political institutions. these institutions include citizens by distributing political power in a pluralistic and sufficiently centralized manner so as to be able to establish the law and order and secure property rights. extractive political institutions, in contrast, tend to concentrate power in the hands of a few reinforcing extractive economic institutions to hold power. the distinction between inclusive and extractive institutions is the key concept in a monumental book why nations fail? 6 it is not the culture, weather or geography which explains why some societies become rich and others remain poor. instead, it is man - made political and economic institutions that underlie economic success or the lack of it. a closer look at europe the inclusiveness of economic and political institutions