Why Low Trust Countries are Cheap

Hey YouTube, Alex here and in today's video I'll answer the question, why are lowrust countries cheap?

This could also be said about lowrust cities or areas and cities.

And before we get into this, I want to define low trust uh country or city society or give you a general idea of how I perceive that and then we can get into some of the reasons why I think this is the case.

So the uh to me a low trust society or a low trust country is a place where generally people don't trust each other.

You think about this when it comes to certain big cities, neighborhoods in certain big cities or areas in certain big cities.

A lot of people have a top 10 list of most dangerous cities in the United States.

We think about places like Baltimore, Maryland, Memphis, Tennessee, um New Orleans, Louisiana.

These kinds of places are generally known to be places where people don't trust each other.

Crime is bad, theft is bad, people don't really trust their local institutions.

Uh, and they tend to be more economical than at least high trust parts of other places like you might call parts of Washington DC to be very high trust, very premium area to live.

Many of the wealthiest counties in the United States are actually in the DC metro.

Similar to parts of Southern California, Northern California, Silicon Valley, these places, people generally believe uh they're more high trust.

So anyway, let's go ahead and get into my reasons.

So the first reason that we have for you uh is that there's a weak rule of law and institutions.

So in a low trust country, people generally don't trust their government.

They don't trust the police.

They don't trust that uh property rights are protected, right?

They believe, hey, if somebody steals something from me and I try to get the situation addressed, it's not going to be addressed.

I'm just going to have to accept that I've been a victim of theft.

And uh basically what happens is this discourages investments, business growth, large-scale industries.

If I want to invest in a manufacturing plant, but I believe that my uh plant is just going to be stolen from me, then I'm not going to make that investment.

I'm not going to create the jobs there.

I'm going to select a different area where I have confidence and faith that my investment is going to be protected.

And uh a lot of these places tend to have fewer formal opportunities.

So uh when I was in Latin America, I talked to a friend about this and uh he mentioned, "Hey, do you notice how there's all these people just kind of like selling stuff on the street?" And I said, "What do you mean?" He said, "Well, that's a sign that there's not a lot of formal opportunities, right?

There's not a lot of corporate jobs.

There's not a lot of uh well-paid government jobs.

basically people are left to fend for themselves.

Um and so that leads into the next point which is corruption and informal economies.

So um when people basically believe that the system is corrupt or there's weak enforcement uh people rely on like cash bartering informal markets and it means that uh goods and services are cheaper because they're not taxed they're not regulated and uh they're generally low quality.

So, uh, people assume, you know, if I, uh, go to a health care provider, yeah, it's going to be cheap because if they make a mistake, I have no recourse.

I just have to accept a misdiagnosis.

I just have to accept poor quality medication.

Um, another example would be, uh, I have to accept like, hey, if I can't trust that if I build a house that the road is going to be put in, uh, then I'm going to have to basically pay for that separately.

So sometimes I think when it comes to this issue of corruption, uh, what looks like it's cheap at face value actually turns out to be very expensive.

Uh you see this when it comes to a city like Detroit, Michigan for example, where yeah, the houses might be at $10,000, but you're going to pay $500 a month in car insurance because most people don't have car insurance in Detroit.

Most people uh don't opt out of it because it's too expensive.

They there's not a strong jobs market where they can afford such high insurance costs.

um you may pay a heightened interest rate for wanting or not be able to qualify uh for ins uh for insurance at all.

Like so you have to pay for cash for properties in these distressed areas because banks don't have confidence that you're going to be able to they're going to be able to get their money back out for taking the risk to lend it to you.

Uh, another one would be that uh, you know, people um, they they're I want to say like kind of disheartened or they're kind of discouraged from uh, taking certain kinds of risks because it's like why would I want to start a business if my competitor is just going to be able to come in and stomp me out, right?

uh send me letters, nasty letters, uh you know, reach out to me saying, "Hey, if you don't go out of business, then I'm going to uh put a stop to your business." Maybe uh they they're bribing the supplier, so they tell the supplier, "Hey, raise their prices or quit uh quit serving them." So, you know, it's uh what seems like cheap upfront turns out to be actually just value for money, right?

So, uh you might find that because there's a lack of food inspections, uh you go and you you have to um deal with like poor hygiene quality.

I mean, these are all issues in low trust societies where you think, "Oh, man, it's so cheap." But it turns out that that lower cost comes with the price.

I think about like uh I've lived in some uh areas that are not so good and some areas that are quite nice.

And in areas that are not so good, I'm more worried about my car getting broken into.

I'm more worried about uh people stealing things that are left out in the open.

Where in a nicer area, I'm less worried about that.

I'm not so nervous about better lock every single door every single time.

better uh empty my car valuables because if I'm not paying attention, somebody's going to take out the window.

These are real issues in lower trust cities or or societies.

And a lot of these things apply to lower trust uh countries.

I'm not going to name a specific country because I think that's beyond the scope of this.

You can Google highrust places, high trust uh countries and low trust countries and read in between the lines.

So the next one would be uh limited demand for premium goods.

So if people feel that uh I'm not going to be able to uh trust a return policy like if I purchase something expensive and they don't have any consumer protections and I'm just if I get a faulty model it's on me.

Well then the market ends up being dominated by a lot of cheap knockoffs.

A lot of lowquality products.

I've seen this in certain places.

You even see this like uh if you're in a bad neighborhood and there's a Dollar General, okay, yeah, Dollar General is a little bit different.

It'll they have a return policy that's decent, but you go and look and they've got a lot of um cheap kind of knockoff brand phone chargers, right?

Like everything is some random madeup brand you've never heard of.

It looks like it's poorly constructed.

you know, it's not going to last as long as one direct from the manufacturer.

Uh, and this goes for clothes as well.

Like I've been in in certain countries where, man, the clothes are so cheap.

I'm going to buy uh some clothes and then they're falling apart after two or three uses.

They're frayed and they're worn out looking, the colors already fading, and you're thinking, man, like I'd rather just have a high quality shirt, even if it costs more.

It's going to last me a lot longer.

It's It's not going to fade as easily.

it's not going to be torn up as easily.

I'm actually going to get my money's worth.

And you see this with people who opt to purchase a more expensive version of an item.

They're knowing, well, I may pay more upfront, but I'm going to get a lot more uses out of it.

My cost per use is going to be a lot less.

But in a low trust society, people are afraid to take the risk.

uh they feel like, well, what if I purchase the item, pay the premium price for it, and then it turns off turns out that seller is selling a knockoff variety, and I have no recourse uh to get my money back or to get an exchange for a quality product.

So, um yeah, moving into number four, there's uh lower labor costs.

So when you have weak social safety nets, you have no minimum wage or very very low minimum wage, you don't have an arbitration system where employees that have issues uh with their employer can go to court uh like if somebody gets injured on the job.

Uh there's no union protections or where workers can get together and demand higher wages or certain kinds of like vacation benefits.

Then you don't have to pay for those things.

a country like the US, there's minimum wages throughout the country.

People have to be paid a certain amount and many people often work for more than minimum wage.

Uh but even for those people with that are working for minimum wage, they're entitled to like a lunch break.

They're entitled typically to a certain number of paid holidays per year, even if the employer doesn't want to grant those, the government will grant those, right?

There's federal holidays.

Uh and so you you raise the cost of doing business.

Uh but in in those countries where you don't have those then yeah like labor is really cheap.

Of course it's cheap to go out to a restaurant when all the staff are making 50 cents to a dollar an hour.

Um and they're they're able to get by with serving lower quality cuts of meat.

um maybe they're getting by with serving up older produce or frozen uh produce as opposed to fresh and people just accept, look, I'm paying a lower price, so I'm going to get what I pay for.

Now, often it's more expensive in relation to the average local wage.

Uh but this is where arbitrage comes in where you're coming from a country with a stronger currency.

uh you're willing to accept, ah man, like this fried chicken, the oil looks really bad, but I'm paying like $2 for it as opposed to $10 for it in my home country.

Or, oh, this piece of chicken doesn't have much meat on it, but you know what?

It's a lot cheaper.

So, lower labor cost is a big part of why low trust countries or societies are cheaper.

Uh you see this too in like inner city areas of the United States where the um The quality employer isn't going to be based in that bad area.

The quality employer is probably going to be in an upscale suburb, a nicer neighborhood of the city.

It's going to be in a safe place where employees don't feel in danger after work or going to work like commuting.

Uh people might feel even feel comfortable taking public transit as opposed to, well, man, this neighborhood's not very good.

I better drive in.

Um, and so, uh, when you have these lower quality employers, they're just not going to have as high value ad jobs.

They're going to typically pay less.

I think about like in certain rough parts of LA, for example, there's a lot of warehouse jobs.

And I'm not saying like the people are bad.

I'm not saying that uh, you know, anybody who works in a warehouse is bad.

I think there's definitely a lot of good, hardworking, honest people that work there.

But typically they're getting paid less than your attorneys, your medical professionals, your engineers, your uh people who are like maybe in their they're in the technology field.

Uh for example, uh the fifth one is going to be like risk premium for foreigners.

So uh if you're a foreign investor and you look at like, wow, it seems like people get ripped off going to business here.

uh it seems like they don't really want us to come and invest for capital, then you're not going to see people come in and make infrastructure improvements like, "Oh, I'm going to build a warehouse in uh Tennessee.

Well, I better make sure the roads are in good shape so my semitruckss that do deliveries can come through without worrying about damaging their wheels.

We're not going to have to do tire replacements.

Maybe we set up a security or we uh heavily fund the local police force to make sure we're not getting robbed.

Um when you don't have this like this protection for investment, then um you see a lot of like lowcale and low price options, right?

So, you see a lot of people um setting up little food stands, uh selling knickknacks, um just not really going for more complex business operations that are more capital intensive.

You're not going to see uh somebody build a car factory in a place where they feel like, man, once we get this after we get everything set up and going, somebody's just going to come in and take over the factory.

Now, we've lost millions of dollars.

So, uh, really the people that live in these places, um, the average people or the the lower income people, uh, tend to really suffer for this because they're not able to get those opportunities.

They're going to have a harder time moving up the ladder cuz now they've got to commute.

Like, if they do manage to get an education, they've got to commute a long distance to a decent area.

Uh, they have to, you know, spend more money on transportation.

they they just suffer all around.

There's a lot of economic consequences to this for them.

Uh the next one is going to be pretty insidious and that's short-term thinking.

Something I've noticed in rougher parts of the US is a lot more short-term thinking.

You see a lot of people act a lot more impulsively.

They may have a poor diet.

uh they may spend they may every you know like one thing I've commonly heard is you know in a bad area when payday is because everybody's down at the local lotto ticket store everybody's down at the local adult beverage store people are immediately going to go spend their money rather than saving it for a rainy day or investing it uh they don't trust that their investment is going to be protected or they believe that investing is a scam they believe in uh maybe if I go and I try to get a more expensive vehicle that's more reliable, then I'm going to get ripped off on the interest rate.

Um, so you see this a lot.

I mean, you see in in more rough areas, you see a lot more graffiti.

Uh, you see a lot more um a lot more issues.

And in some cases, it holds down prices.

Like, you're not going to see a fine dining restaurant in a bad area.

Um, so it's kind of nice if you're I guess if you're local, you don't make much money.

Well, it's cool.

I can go get cheap fast food.

or fast food that used to be cheap, it's still much cheaper than like a high-end restaurant or a high-end grocery store.

You're able to go and maybe you have a dollar store where you can get lowquality food at low prices.

Um, but these come with like costs, right?

If you eat a lot of unhealthy food, you're going to pay for it in productivity.

You're going to pay for it in medical bills.

It's just going to you're just going to pay on the back end.

It's just another form of a shortcut.

uh you see a lot of short-term thinking in lower trust areas because people don't have faith or confidence that long-term thinking is going to pay off.

Like, well, you know, one workout, why should I even work out if I'm if uh it's not going to turn into me being healthy when really it's like cumulative workouts help.

Cumulative saving and investing works out.

Um learning skills over the long term helps out.

But if you're in a low trust area, you don't have faith that any of these things are going to uh pan out in your favor.

Um, another one would be taking on short-term debt.

Like, I'm going to borrow money uh to buy some fancy clothes or I'm going to borrow money to um you know, upgrade my car when your car is perfectly fine, but they're thinking short term.

They don't believe in the system, and it's really unfortunate.

I I think the last one is there's just a a lack of global integration.

So with high trust societies, you see they produce goods for the world.

Um countries like Japan, everybody has probably seen if they've been out and about today, a Japanese car.

I drive a Japanese car.

Um and like American technology companies, right?

A lot of us, even if we're living overseas, we're probably using Netflix or have friends that use Netflix.

There Google is another example.

by like uh this platform right is owned by Google and it can be accessed anywhere in the world and so Google is able to make money and do business with many different countries.

Uh you see this with like Novo Nordesk that makes Ompic they're based in Denmark people trust Danish biotechnology.

Um and so this is very different than a low trust country, a low trust society where people are like I don't want to buy food from that country.

I don't trust that it's not going to make me sick.

uh I don't trust that it is what they say it is.

Uh those countries aren't able to get it together well enough to produce uh goods that are uh welcomed on a global scale because those those larger countries or higher trust societies are like well yeah every time we try to go check out the factory it's closed for the day.

Um there's all you know there's all kinds of ways in which these lower trust societies hamper their economies or uh their people are not able to really improve their lot in life because they're not able to do business globally.

I know a lot of people have uh claimed there's this rally against globalization but there's always going to be some amount of need for selling high product high quality products around the world.

You see this with like fashion brands from France and Italy.

people around the world trust that if it's a French or Italian brand.

I know there are knockoffs, but um if you're going into a proper store, like you're going to a Louis Vuitton store, the founder of of Louis Vuitton is actually one of the top wealthiest people in the world, if not the wealthiest, uh people trust.

He's using uh his manufacturers are using really high quality leather.

Uh they're handmade.

They're not just um machine making it in a factory where if they think of a country that's known for knockoffs, they're like, "Okay, I'll buy it, but I don't want to pay $400 or $500 for uh this shirt or wallet.

I'll pay like $5 or $10, but I'm certainly not going to pay that price premium that really uh creates a lot of skilled jobs." Um, another one would be cars, right?

Like there's quite a few places I could think of.

I don't want a car made in that place.

I just don't believe that they are capable of putting together a solid quality vehicle that's going to be reliable and at a good price point.

And you even saw this with American cars for a while.

I mean, there was a a a while and I think a lot of people or some people even today don't trust American vehicles.

Uh but they feel like, man, if I buy an American vehicle, it's liable to break down.

The maintenance is going to be expensive.

So, it can even vary by industry.

uh depending on what ind industry you're talking about, depending on the year, um there's a lot that goes into that.

So anyway, I'm going to go ahead and wrap it up here.

I think this is a solid start to discussion.

Let me know what you think down in the comments.

Are there any places that you think of as low trust?

Are there any places you think of as high trust?

Have you wondered why are these countries uh so cheap or why are these country these other countries so expensive?

What the reason for that is?

Uh, it always helps to generate interesting discussion.

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