Psychology and international trade

is the subject of my Trade Tripper column in the Friday-Saturday issue of BusinessWorld:

Last week I discussed some points regarding the Philippines’ creeping “entitlement culture,” as well as our long held paternalistic political culture (some say “maternalistic” but let’s not get into that right now). This week I’d like to examine how such cultures and our own psychology as a people might affect our ability to engage in international trade.

It’s a subject I’ve long been interested in and oft recommended that people more capable than I take a deeper and more scientific look into. The premise is simple: if international trade works on the idea of competition, which doubtless entails making certain demands on its participants, then how does our culture enable or hinder us in meeting those demands? Put another way, if international trade requires that a country gives its best in a concerted and sustained manner, then how does that square with the Philippines’ seeming entitlement and paternalistic cultures, where people are encouraged to abandon the need to think because our government will “take care of them” anyway?

It’s a question worth asking. Because if seniority and not merit is what counts, or family and connections rather than talent, if promotions are based not on abilities but on who would least offend the feelings (or “loss of face”) of those constituting the established order, then how does that allow us to meet the demands of today’s international economic realities?

First of all, forgetting momentarily the need to compete with other countries, does our culture even allow us to progress as a country? As Forbes magazine noted in 2010, “the easiest route to the top is to be born into the clique of families that have controlled the country for generations, including under a half-century of US colonialism... Decades of mismanagement and dynastic rule have left the Philippines, once ranked second to Japan in postwar Asia, lagging far behind neighbors like Thailand and Indonesia. Foreign investors chasing growth gave a wide berth to the Sick Man of Asia, as the country became known.”

Which makes sense. The Philippine’s insistence on seniority (as well as deference and sentiment) rather than talent resulted in the Philippines scoring poorly in the Power Distance Index (a standard mentioned in Malcolm Gladwell’s The Outliers). The Index “measures the extent to which the less powerful members of organizations and institutions (like the family) accept and expect that power is distributed unequally. It suggests that a society’s level of inequality is endorsed by the followers as much as by the leaders.” Socially and economically developed countries score well, while the Philippines posted the fourth worse score (amongst the likes of Panama and Guatemala).

Also, before we think of competing, is the question of whether our people actually welcome the idea of competition itself. Note that we don’t have a word for “competitive,” which would’ve indicated we value that trait akin to ambition, of the need to excel, of elevating oneself over others, succeeding by merit without having to drag others down. “Paligsahan” (for “competition”) is not really the same as it connotes games more than anything. “Pataasan” (for “competitiveness”) perhaps even illustrates our distaste for the idea, with its rather negative tone.

With this in mind, the findings of Simon Kemp (“Psychology And Opposition To Free Trade,” World Trade Review, Feb. 16, 2007) are relevant: “... the enthusiasm of the general public for free international trade might be less than that of the economist. Six specific reasons are advanced: (1) lay views of utility emphasize employment over consumption; (2) status quo bias results from loss aversion; (3) people think altruistically but parochially; (4) people often consider fairness in bargaining situations; (5) people may hold inappropriate fixed pie beliefs; and (6) people may misunderstand Ricardo’s principle of comparative advantage.”

Finally, international trade logically requires that a people trust each other and their country’s institutions. So ask ourselves: how truly do we trust our fellow countrymen as Filipinos (rather than merely regionally) and our institutions? As Karl Kaltenthaler and William J. Miller (“Social Psychology and Public Support for Trade Liberalization,” International Studies Quarterly, June 4, 2013) states: “The level of social trust an individual has will condition the degree to which an individual wants to open her country to imports from other countries. Those individuals with lower relative levels of social trust are less likely to support the notion of freer trade.”

The foregoing should be read in complement with John Nye’s “What Determines Trust? Human Capital vs. Social Institutions: Evidence from Manila and Moscow” (National Research University, 2012): “It is now well established that highly developed countries tend to score well on measures of social capital and have higher levels of generalized trust. In turn, the willingness to trust has been shown to be correlated with various social and environmental factors (e.g. institutions, culture) on one hand, and accumulated human capital on the other.”

All the foregoing illustrates the first rule of competing in any arena: know oneself.