IN NO ONE WE TRUST.(Brief Article)

In December of 1995, a young Russian man named Mikhail Khodorkovsky rigged a state auction and bought a controlling stake in the Russian oil company Yukos. As David Hoffman recounts in "The Oligarchs," his superb new history of Russia's first decade of capitalism, Khodorkovsky funnelled profits from Yukos into a series of offshore accounts, shifted the real ownership of the company to offshore firms that he owned, and borrowed hundreds of millions of dollars that he knew he'd never repay. By 2000, he had exclusive control of a multibillion-dollar company and was, by many accounts, the richest man in Russia.

This was how enterprising biznesmeny conducted themselves in Russia during the nineteen-nineties. Khodorkovsky and his fellow-oligarchs essentially looted their country's fledgling economy. And who could blame them? Russia had neglected to put in place the rules and institutions that make mature market economies work. The state was too weak to enforce what regulations there were. And the country's capital markets were so underdeveloped that, as Hoffman says, "there was no mechanism to reward the good and punish the bad."

We Americans rolled our eyes at Russia's primitive, lawless brand of capitalism. In America, after all, we have sophisticated regulations, fair and enforceable laws, and highly developed capital markets. The Russians had mafiya and blat. So how did our oligarchs end up looking so much like theirs?

People have faulted our laws and regulations, which apparently weren't strict enough, and our enforcers, who clearly weren't forceful enough. Congress has voted to increase the S.E.C.'s budget and to lengthen prison sentences for fraud. All this is salutary, but it doesn't really cut to the heart of the matter. Catching and punishing crooks after they've already made off with the swag is not enough. You have to do more than that to restore what a healthy market economy needs most: trust.

In recent years, "trust" has become a buzzword in economics. The stereotypical capitalist has always been the greedy isolato who will do anything for a buck--cheat his neighbor, sue his partner, whatever. In fact, any economy made up of such people wouldn't function very well. If every deal were a swindle, buying and selling would cease. If every contract and every bill of sale wound up in court, doing business would be too expensive and too time-consuming. Trust reduces the friction in an economy. Without it, the gears grind to a halt.

To establish trust, you need to be able to identify those who are undeserving of it. You need institutions that serve as what the economist Daniel Klein calls "independent knowers." America is full of them. For consumers, groups like the Underwriters Laboratories and Consumers Union rate product safety and quality. For companies, Equifax and Experian rate ...