When I crossed through Checkpoint Charlie from West Berlin to East Berlin nearly 30 years ago, the failures of former East Germany were immediately obvious. The grey unkempt landscape and dilapidated buildings looked as though that country hadn't been repaired since American and Soviet tanks faced off yards apart decades earlier in one of the most tense nuclear showdowns.

While there, I witnessed the dismantling of the Berlin Wall and observed the first free parliamentary elections held in that region since 1933. Although these historic events marked the end of Soviet-dominated Communism, that system began collapsing several years earlier.

Michael Novak, the author of dozens of books on the philosophy and theology of culture, stressed that checks and balances are to the political order what competition is to capitalism. The former Soviet Union, East Germany and other Soviet-controlled countries did not have a system of checks and balances or real competition, and failed miserably.

Even today, China has not designed a system with these critical functions. Consequently, its brand of one-party capitalism is undergoing difficulties that are likely to become more severe in the years ahead.

The American system of checks and balances is part of a critically important formula that prevents any one group from permanently imposing its will on others. It shepherds constant changes — some good, some bad — but always allows for self correction.

Combined with American free-market capitalism, which promotes dynamic and healthy competition, as well as a brilliant Constitution, the rule of law, and separation of church and state, these factors have improved the lives of millions of people. They also have attracted the world’s brightest entrepreneurs, engineers and scientists, and empowered people to unleash their creativity, take risks, and start new businesses.

But to continue to succeed, this American experiment also requires trust in important American institutions, like good government, a well functioning electoral system, a fair judiciary, and sound property rights that protect investments. And herein lies a big problem: faith in many American institutions is declining, especially in government.

Stated in a recent report by the Pew Research Center, “Long running surveys show that public confidence in the government fell precipitously in the 1960s and ‘70s, recovered somewhat in the ‘80s and early 2000s, and is near historic lows today.” The report also indicates that only 37% of those interviewed have at least a “fair amount” of confidence in elected officials to act in the best interests of the public, and 63% have “not too much” or “no confidence at all.”

According to the report, “Why Institutions Matter for Economic Growth,” published by the World Economic Forum, a Geneva-based non-profit organization best known for its annual meeting in Davos, Switzerland, institutions play an important role in a country’s economic health. When trust declines, economies can fail.

A country’s institutions, sometimes referred to as rules of the game, shape behavior. If, for example, citizens don’t believe the legal system will protect their farm or company from being stolen, then their incentive to work hard and invest in a farm or company will be limited.

Only 25 miles apart, there are many differences between San Diego and Tijuana, Mexico. One has a relatively high standard of living, the other doesn’t. One big factor is the strength and level of trust in the institutions they operate under. For a simpler example, look no further than North and South Korea. One country has a vibrant economy, the other can barely feed its people. One has relatively strong institutions, the other doesn’t.

How do we reverse the decline in trust in our institutions? The answer isn’t simple. But support for American institutions — not today’s constant assault on our electoral system, the independent judiciary, the rule of law, and the media — would help. Although the erosion in trust began years ago, it needs to be addressed before the damage mounts.

Many Americans say they are happy with the performance of their stock portfolios and the U.S. economy. But keep in mind that declining trust in American institutions is tantamount to chipping away at the building blocks that make America great and support our wealth creation model. And for me, this brings images of Berliners chipping away at the Berlin Wall.

About The Author John Manzella [Full Bio]

John Manzella, founder of the Manzella Report, is a world-recognized speaker, author of several books, and an international columnist on global business, trade policy, labor, and the latest economic trends. His valuable insight, analysis and strategic direction have been vital to many of the world's largest corporations, associations and universities preparing for the business, economic and political challenges ahead.




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