Economic optimism is collapsing worldwide, and Latin America has recorded one of the biggest declines amid widespread polarization, according to the 2023 Edelman Trust Barometer. For financial services in the region, this presents a unique and important opportunity for executives to enhance trust by emphasizing the resilience of the system, strengthening stable geopolitical relationships, creating regional opportunities, and collaborating with the government to address societal issues.
2023: The Year of Polarization in Latin America
We measure economic optimism by the number of people who believe they or their families will be better off in the next five years. Our Trust Barometer 2023, with field surveys conducted in November, revealed that economic optimism is collapsing worldwide, with 24 out of 28 countries surveyed showing all-time lows. Latin America had one of the largest drops observed in our global research, from 71 percent in 2022 to 54 percent in 2023. In the region, individuals are particularly concerned about job loss (93% of employees), inflation (83%), climate change (83%), food shortages (80%), and nuclear war (76%).
The trust gap existing between government and business in Latin American countries is more than two times higher than the global average. Also of note, countries surveyed in Latin America (Argentina, Brazil, Colombia and Mexico) are among the most polarized in the world. Sixty percent of Latin American respondents believe that their countries are more divided today than in the past; this percentage reached an alarming 78% in Brazil.
The high level of polarization we are seeing in the region can be attributed to various underlying factors. Our research identified distrust in government, a lack of shared identity (referred to as the social fabric), and systemic unfairness as the main drivers of a polarized environment. These factors create a pervasive cyclical relationship where distrust leads to polarization, and in turn, polarization further fuels distrust.
The research also highlighted a clear divide between the low income and the upper class in most countries surveyed. Even as individuals in the top income quartile exhibited higher levels of trust compared with those in lower income cohorts, respondents reported a weakening of the social fabric in their countries. In Latin America, 73% of those surveyed mentioned that the lack of civility and mutual respect today is the worst they have ever seen. Sixty-five percent think the social fabric that once held their country together has grown too weak to serve as a foundation for unity and common purpose.
This divide has been characterized by deepening divisions within countries and by individuals’ ideologies becoming their identity. In the region, only 32% of individuals who feel strongly about an issue stated they would help someone in need if the person strongly disagreed with their point of view.
In this complex environment, the majority of respondents expressed a desire for businesses to do more to address societal issues. On average, nearly half want to see more collaboration between business and government to address societal issues such as climate change, discrimination, immigration, employee treatment and income inequality.
Financial Services Sector and Trust
Low levels of trust played a critical role in the recent upheaval in the financial services sector. Edelman Smithfield has previously reported the research reveals that the financial services industry is globally one of the least trusted sectors, second only to social media.
According to the 2023 Edelman Trust Barometer, only 38% of global respondents believe that financial services firms prioritize the interests of everyone equally and fairly. Furthermore, central banks, which have been at the center of recent regional bank failures, are not trusted in four out of the five global financial centers, namely the U.S., UK, Germany, and Japan.
Latin America has seen similar macro challenges to other countries around the globe, related to lower growth expectations driven by higher interest rates, a slowing job market and softer consumer spending. Falling commodity prices also negatively impacted government revenue sources and expectations for economic prosperity. Latin America was also hurt by increased poverty levels and food insecurity associated with the Covid-19 pandemic.
That said, the region has faced economic volatility for decades, and individuals and institutions have demonstrated resilience and experience dealing with crisis. The financial sector in Latin America also successfully mitigated volatility from recent financial turmoil in the U.S. and Europe, but it is not immune to future crisis of confidence in part because it is well-integrated with the global financial system. As the middle class and small businesses in the region struggle with inflation, potential social unrest and wavering political progress are exacerbated by declining trust and polarization. This fallout could slow positive economic development achieved by countries in the region over the past few years.
The Role of Business
In Latin America, similarly to the rest of the world, business stood out as the most trusted institution, leading with 64 percent. Trust in business was nearly 20 points higher than trust in media (45 percent), and close to 30 points higher than the government (37 percent). Trust in NGOs tracked business closely at 60 percent trust.
Business in general is widely perceived as both competent and ethical and is also likely to be recognized as a reliable source of information. The survey found that 80% of employed respondents in the region trust their employer, although more than half of respondents believe that government is a source of false or misleading information.
As society places a high degree of trust in business, their leaders have been quietly handed significant responsibilities. Brands and companies increasingly are expected to take action to solve for, or at least mitigate, the drivers of polarization. Our study revealed that people believe brands can contribute to solving the growing lack of shared identity, which is one of the drivers of polarization. A striking 76% of respondents in Latin America expressed their belief that brands celebrating common interests and emphasizing unity would strengthen the social fabric. Also, 63% of respondents globally would buy or advocate for brands based on their beliefs and values, while an average of 69% of employees globally consider a company's societal impact to be a strong expectation or a determining factor when considering a job.
When it comes to unifying factors, teachers (63% say this group is a unifying force), NGO leaders (51%) and business leaders (40%) are more likely to be seen as unifiers than dividers. The responsibility for fostering trust also lies with CEOs. The survey found that 65% of employed respondents trust their CEOs, placing them behind only their coworkers (73% of employees) and scientists (79%). Furthermore, people believe that CEOs have an obligation to combat misinformation and fake news. A significant 66% of respondents in LATAM stated that CEOs are obligated to defend facts and expose questionable science used to justify bad social policies, while 67% believe that CEOs are obligated to pull advertising funding from platforms that spread misinformation.
Takeaways for Leaders in Latin America
As the most trusted institution, the business sector in Latin America can help restore economic optimism and temper polarization by investing in fair compensation, training, and focusing on local communities to address the mass-class divide.
Businesses must work together with governments to build consensus and collaboration on policies and best practices. Furthermore, businesses must be advocates for the truth, as they play an essential role in the information ecosystem, becoming a source of reliable information to promote positive discourse between stakeholders.
Both businesses and governments must take into account tactical considerations regarding communications and not be afraid of over-communicating. To build trust, business leaders must make information easily accessible for stakeholders, building communications tools and channels that reach key stakeholders quickly and with a simple message.
Lastly, it is critical that business leaders create action-packed narratives that emphasize the initiatives taken to maintain or strengthen the company’s position. This can help build trust among the various consumer cohorts that have the power of becoming fierce activists for their products and brands.
Juan Carlos Gomez Stolk, Vice President, Strategic Situations and Investor Relations, Edelman Smithfield (Juancarlos.Gomezstolk@edelmansmithfield.com)
Regina Carapeto, Financial Services Communications Lead, Edelman Latin America (Regina.Carapeto@edelman.com)