Trust does not reside in integrated circuits or fiber-optic cables

From Trust: The Social Virtues and the Creation of Prosperity by Francis Fukuyama. Page 25.

More important, when the information age's most enthusiastic apostles celebrate the breakdown of hierarchy and authority, they neglect one critical factor: trust, and the shared ethical norms that underlie it. Communities depend on mutual trust and will not arise spontaneously without it. Hierarchies are necessary because not all people within a community can be relied upon to live by tacit ethical rules alone. A small number may be actively asocial, seeking to undermine or exploit the group through fraud or simple mischievousness. A much larger number will tend to be free riders, willing to benefit from membership in the group while contributing as little as possible to the common cause. Hierarchies are necessary because all people cannot be trusted at all times to live by internalized ethical rules and do their fair share. They must ultimately be coerced by explicit rules and sanctions in the event they do not live up to them. This is true in the economy as well as in society more broadly: large corporations have their origins in the fact that it is very costly to contract out for goods or services with people one does not know well or trust. Consequently, firms found it more economical to bring outside contractors into their own organization, where they could be supervised directly.

Trust does not reside in integrated circuits or fiber-optic cables. Although it involves an exchange of information, trust is not reducible to information. A "virtual" firm can have abundant information coming through network wires about its suppliers and contractors. But if they are all crooks or frauds, dealing with them will remain a costly process involving complex contracts and time-consuming enforcement. Without trust, it will be a strong incentive to bring these activities in-house and restore the old hierarchies.

Thus, it is far from clear that the information revolution makes large, hierarchical organizations obsolete or that spontaneous community will emerge once hierarchy has been undermined. Since community depends on trust, and trust in turn is culturally determined, it follows that spontaneous community will emerge in differing degrees in different cultures. The ability of companies to move from large hierarchies to flexible networks of smaller firms will depend, in other words, on the degree of trust and social capital present in the broader society. A high-trust society like Japan created networks well before the information revolution got into high gear; a low-trust society may never be able to take advantage of the efficiencies information technology offers.