Filipinos’ “Flawed” Culture? History Is Not A Closed Book

``It’s one thing to talk about ethics, but quite another to adhere to them. An ethical person consistently acts in accordance with his code of moral values. By contrast, a hypocritical person preaches a high standard of morality, but acts otherwise.” –Robert Ringer, A Wisdom-Filled Self-Eulogy, Part II

Price is a function of exchange subjectively valued by multivariate economic actors. And exchange is a function of markets, whose output (aggregate of production distribution, services, remittances, investments et. al) determines what is known in economics as your statistical GDP or GNI.

While academic textbook defines economics as a study of how forces of supply and demand allocate scarce resources, calculations to determine such resource allocations can ONLY BE done through the concept of pricing. The failure of the political paradigm known as “communism” was primarily an UNRESOLVED problem of economic calculation under centralized planned authorities or the inability to do away with pricing or with money. Who needs money in a Utopian society, anyway?

Financial markets or capital markets, serve as a mechanism of exchange for financial products; hence they operate under the same principle. Needless to say, today’s global economic environment have been dominated by so-called “paper shufflers” where financial assets overwhelm the real value of aggregate exchange of goods and services by about 3 to 1. As evidence we cite, McKinsey Quarterly’s estimate of the total global capital stock is $143 trillion whereas global output as about $44 trillion in 2005. In short, finance dominates today’s global economy.

Since value is determined by individual minds, then markets are basically psychologically driven. Having said so, in the realm of financial markets the psychological or emotional attributes of GREED, FEAR and HOPE serve as universal variables in determining value. So, whether you are long term investor, trader or a scalper, and REGARDLESS of color of the skin, culture, religious beliefs, political convictions and etc, such attributes accompanies the way decisions are made.

So whether we buy San Miguel Corp shares in the stock exchange or we buy a bottle of San Miguel Beer in a Bar, grocery or in the neighborhood Sari-sari store (as I did last night), (The difference being that of the platform of where the exchange is conducted.), essentially you are looking at the same operating principle; MARKETS AT WORK. My simple message is that MARKETS are the economy.

In the lay context, what is all so often labeled as “economic deprivation” translates effectively to AN INADEQUATE EXCHANGE MECHANISM that result to negative ramifications of poverty, inequality or low quality of living or simply said, DYSFUNCTIONAL markets (caused by distortion or underdevelopment).

For instance, how does our agricultural worker, representing the largest workforce in the Philippine labor pie, improve on their share of income when they continue to rely on the traditional channel (market), or in particular the “traders” (who gets a big chunk of their profits), for the exchange of their produce? In other countries, including our peers, they get not only full value of their produce (by bypassing middlemen) but have the ability to HEDGE their products from variable risks factors such as weather, seasonality and etc.

Therefore, the key question is HOW to resolve on what INHIBITS our markets from functioning at the optimum for the benefit of, what politicians and their factotums by nature call as the “common good”. Yet, media and celebrity pundits frequently tackle on tangential issues to becloud the perception of the public while politicians eagerly jump on controversies to use such opportunity to impose more “controls”. Again this reminds me of one popular quote by Dr. Samuel Johnson, one of England’s greatest literary figures, ``Patriotism is the last refuge of a scoundrel."

Since psychology drives capital deployment decision making, whether motivated on grounds of political (e.g. public institutions) or economic goals, we are inherently subject to heuristics (mental short cuts) or inherent biases. After all, we are merely humans, where our ancestors have basically shaped the functionality of our minds and biases operating under survivorship conditions then. As an example, fear leads to our natural defensive reaction (against predators) such as running!

We easily succumb to oversimplifying events based on our present knowledge giving us the “illusion of knowledge”. And because we think that we know the problem, hence we usually give out our “one-size-fit-all” remedies/panaceas out of the “illusion of control” on our perceived woes.

As examples, the recent circulating email describes of our “Flawed culture” (or “national inferiority complex”), which is no other than a recycled, resurrected makeover of the James Fallows’ Atlantic Monthly’s 1987 controversial piece “Damaged Culture”, or of common polemics on overpopulation, lack of education, cultural diversity, fragmented society, pervasive “corruption”, lack of “safety nets”, patronage politics, inadequate social spending, “unsophisticated” voters and others, all of which contribute to the lack of productivity or have been cited by different quarters as responsible to the present state of our depressed society.

While all of them may have SOME influence to the country’s downtrodden state, the weightings or relevance applied are different and will continue to shift as the landscape evolves.

Because these are ALSO elements to our living and breathing network of exchanges or markets, they are predominantly multi-dimensional variable based and NOT singular factor determined operating under the evolution of dynamic environments. When we say dynamic we mean changing micro and macro dynamics, such as new regulatory environments, shifting consumer/voter preferences, demographic and migratory trends, wealth changes, climate changes, capital flows, technologically and scientifically driven advances, inflationary driven psychology, et. al..

In other words, some problems contribute more than the others while some factors may nonetheless be rendered insignificant over the passage of time.

On the other hand, external factors have likewise been shown to have grown more in influence to the structural changes in our environment. For instance, how does one reckon with the so called “lack of national identity” dilemma operating in the FACE OF EXPLODING MIGRATORY TRENDS (UN says-about 191 million migrants in 2005 and growing) under the auspices of deepening trends of globalization?

No, the migratory trends today, which used to be driven mainly by seeking for “greener pasture” have now seen other sources of impetus; global demographic requirements, “ethnic reconsolidation” to quote the Economist, taxation, politics and et. al., have not been directed merely on labor skills (although they constitute the significant majority) but to growing trends even among the investor class. Hence, could we be at the cusp of the emergence of global citizenship?

Daniel Altman who writes for the International Herald Tribune and YaleGlobal (emphasis mine) says it best, ``...citizenship is becoming less and less about patriotism. In obtaining a second or even third nationality, earning a living is often a higher priority than confirming a sense of identity and belonging. Seeking a better deal from society can also be a prime motivation.”

The issue here is that market and economic environments are highly complex in nature and continually operate under fluid circumstances, where nothing is definitive except for change.

We also read of proposed simplistic solutions to our miseries, as being “Attitude” in nature, specifically, Ethics, Integrity, Responsibility, Respect to the laws & rules, Respect to the rights of other citizens, Work loving, Strive for saving & investment, Will-accompanied by super action, Punctuality and Community service, citing nations which have openly espoused such virtues as “progressive”. While I do not contest the INTENT of the message, as it is indeed IDEAL, the truth is HOW I WISH it were APPLICABLE or REAL.

For instance, while I would agree that Respect for Property rights and Personal Responsibility are key ingredients to functioning markets, the need for savings for instance would be an arguable topic. The others look like political gimcrackery.

Of course, through the Austrian persuasion I have learned that real savings are indispensable because they represent real wealth. However, practicing Keynesians would argue, “Huh? Who needs savings in the age of derivatives? With the combination of “money created from thin air” and the dawn of “digital money”, why save or produce when we can simply speculate? Have not savings today been represented by rising asset values?”

As we earlier mentioned today’s world is more of finance, ergo a Keynesian world. No country wants a STRONG currency and thus every country works to destroy or debase the value of their currency. These are manifestations of the inflationary proclivities. Nonetheless, beyond the knowledge of the public, inflationary policies serve to benefit special interest groups associated with the powers that be (for preservation). Yet, is it not a wonder why the widening worldwide inequality gap has been a consequence of collective INFLATIONARY POLICIES adopted by Keynesian protégés ensconced in central banks and in government bureaucracies?

One should also remember that today’s leaders maybe tomorrow’s mediocre performers or that Empires operate on their own CYCLES too. Have we not been colonized by Spain for over 300 years when they were yet at the helm of the world? Whereas the 19^th century belonged to the England, the United States took over the mantle in the 20^th century following the World War I.

One can have a short glimpse of the time intervals of shifting empires since Man’s civilization began, as illustrated by mapsofwar.com, as shown in the link below:

http://www.mapsofwar.com/ind/imperial-history.html

Do you think that history ends today?

To wit, such assertion of a simplified Utopian solution have been grounded on cognitive biases such as “framing” [wikipedia.org-cognitive heuristic in which people tend to reach conclusions based on the 'framework' within which a situation was presented], “representativeness” [James Montier of Dresdner Kleinwort--the judging of events by how they appear than they likely are] and “fallacy of composition” [wikipedia.org-one infers that something is true of the whole from the fact that it is true of some (or even every) part of the whole].

For instance Japan having been mentioned as one of such virtuous examples/practitioners. If they have been so puritanical, why have Yakuza’s (Japanese Mafias) thrived in such environment?

Or consider the suicide rates; among developed countries Japan has the most incidence of suicide statistics according to WHO, 36.5 for males and 14.5 for females for every 100,000. Compared to the Philippines, 2.5 and 1.7, or India 12.2 and 9.1, respectively. Should this imply that they are richer but we are happier (reword: appreciate life)? So which among these qualities should be highly valued? Or which should determine a nation’s success, a higher per capita GDP or lower suicide rates? (Now I pose to you a counter-FRAMING question.)

You might want to know that Japan’s credit rating is at the level of Botswana, an African nation, considering its about 160% public debt to GDP. Or of its declining or shrinking population from which if present trends persists, NO Japanese will be left standing by the next century (!), to paraphrase an official.

Who then pays for all of the debts incurred by them UNLESS they radically change, in terms of culture, i.e. to accept immigrants as part of society, empower female to close the gender gap and to increase fertility rates, and in politics, i.e. allow further ingress of immigrants? [Faced with Hobson’s choice, the inevitable reform path makes me bullish on Japan].

Morality, argues Steven Levitt and Stephen Dubner, ``represents the way that people would like the world to work-whereas economics how it actually does work.”

If history were likewise determined by such idealistic virtues, then John Lennon’s world of “Imagine” would possibly be realized on a pragmatist level and we would all be living in harmony with reduced conflicts. Yet as shown above history belies such utopian setting.

Yet the problem with moral solutions lies in its DEFINABILITY. The broad coverage makes them seem like motherhood statements mouthed by political demagogues. Another, moral solutions usually serve as cloak for more regulations or Spending Other People’s money (SPOM), which in most part have been the ROOT cause of the market asymmetries here or elsewhere.

In addition, we can argue about Switzerland’s success (specialization) or of Canada and Australia (market and commodity driven economies) or of Vietnam (China modeled-liberalization), but moralizers make the same predictive fallacies as that with typical market analysts; projecting past performances into the future.

For example, to argue that India is poor and imply to remain so (Oh yeah?), simply because they do not follow the said virtues, is predicated on the analogy that mechanical rotary telephones will never change.

Figure 1: Goldman Sachs: BRICs on the Run

The emerging markets phenomenon known as the Brazil, Russia, India and China or BRICs as labeled by Goldman Sachs shows if the present clip of growth rates were to persist, your unvirtuous paragon will SURPASS the virtuous ones as shown in Figure 1. Says the Goldman Sachs study in 2005 (emphasis mine),

``They suggest that if things go right, the BRICs could become a very important source of new global spending in the not too distant future. The chart below shows that India’s economy, for instance, could be larger than Japan’s by 2032, and China’s larger than the US by 2041 (and larger than everyone else as early as 2016). The BRICs economies taken together could be larger than the G6 by 2039.” The assumption here is for present conditions to maintain its pace which is a big IF going forward.

Yes, the meaningful transition in support of these evolving trends are becoming more apparent, this latest account on the convergence of global pay for managers, according to Financial Times (emphasis mine), ``Forecasts of wage increases in more than 50 countries, published by consultants Hay Group, reveal that real pay is predicted to race ahead in Asia and eastern Europe this year compared with the "developed old economies". Faster wage growth reflects "the wealth creation being generated by rapid economic acceleration in China, India, the former eastern bloc and the Baltic states," says Hay.”

Again, if such trend persists, the income levels for managers in today’s developing “POOR unvirtuous” countries (Philippines, India, Vietnam Egypt or others) and the developed world could reach near PARITY sometime in the distant future!

Nor is it limited to wages, Forbes list of billionaires shows of a growing trend of successful entrepreneurs from your unvirtuous countries, quoting William Pesek of Bloomberg (emphasis mine), ``Yet Forbes's latest tally says even more about what's happening within Asia. India wrestled the top spot in Asia from Japan, which held the title for two decades. India has 36 billionaires with a total of $191 billion; Japan has 24, with a total net worth of $64 billion....Following the money offers insights on the changing of the guard in world's most-vibrant economic region. Japan once dominated Asia, yet developing powers like India and China are moving to center stage. Expect more of the same in the years ahead.”

Before bringing this to a close, I’d like to show you another “human” cycle phenomenon which should affect the global markets, economies and or politics alike over the next few years or so.

Figure 2: Puru Saxena/ Barry Bannister, Stifel Nicolaus: Commodity Cycle

It’s called the commodity cycle. And the upturns of commodity cycles have been in the past associated with wars, simply because supply shortages create intense competition which eventually spillovers to the political arena, as shown in Figure 2.

As Dr. Marc Faber explains (emphasis mine), ``But it’s not only the commodity-importing nations that become more belligerent when shortages drive prices higher. The commodity producers themselves find they are in a sweet spot and become more aggressive in their relationship with their clients — the resource-importing nations. So, whereas we have seen that in the 1980s the balance of power in the world began to shift towards the industrialised nations as commodity prices fell, today it would appear that the balance of power has already shifted back to the resource producers — especially the oil producers. This shift of power to the resource producers is particularly pronounced when new countries and regions become involved in the “trade network”, as Kondratieff observed, because the demand from the traditional sources is, as a result of the entry of new countries into the global economy, gradually displaced by the incremental demand of nontraditional and new sources.”

Today’s upturn in the commodity cycle once again reveals of patterns of bellicosity as seen in the geopolitical developments of the Middle East (Iran, Iraq et. al.) and the rising tide of “nationalism” in Russia, Venezuela, Bolivia and others which are potential sources of future conflicts.

As historian Niall Ferguson warns in his War of the World: History’s Age of Hatred (emphasis mine), ``We shall avoid another century of conflict only if we understand the forces that caused the last one-dark forces that conjure up ethnic and imperial rivalry out of economic crisis, and in doing so negate our common humanity. They are the forces that stir within us still.”

In finale, since economies are the aggregates of functioning networks of exchanges or of markets, psychological underpinnings dictates on its cycles, most commonly characterized by greed, fear and hope.

Division of Labor enhances the exchange mechanism and allows for more social cooperation which leads to the so-called ATTITUDE “moral” solution. The successes or failures of economies have been ascertained by multi-dimensional variables which influence on the degree of the operativity of the markets.

In essence, the FUNCTIONALITY OF MARKETS ESSENTIALLY DETERMINES THE WEALTH TRANSMISSION. The so-called success formula has ONE coincident denominator, a market based economy.

Critiques or analysis of perceived inadequacies accompanied by “moral” solutions based on “selective” information reveal of MENTAL DISHONESTY and or the lack of understanding of the dynamics of market based cycles and evolutionary shifts in the global economic landscape to pass “undeserving” judgments.

The risk is such that we fall into the cognitive traps obviously laid by vested “political” interest or their functionaries to promote regressive policies camouflaged in the name of “common good”. Worst of all, is to repeat the same mistakes of our forebears.

Remember, today’s commodity cycle tell us that shortages and rising prices have tendencies for hawkish attitudes that may lead to undue “belligerency” or aggressiveness. It would be better for us to promote social cooperation via increased trade and work on to improve on our markets than to undergo violent upheavals brought about by the order of closed societies “nationalism” or “myopic” populism.

With regards to the Philippines being a “Damaged or Flawed” culture, history is not a closed book. Believing so, only imprisons one to corridors of the past.