Who can we trust?

In trust: The social virtue and the creation of prosperity, Francis Fukuyama   talks extensively on the social virtue, Trust issue, as it relates to economic development and the creation of prosperity. It is not common to encounter an examination of a social virtue as it relates to the prosperity of a nation …hence, this interest.

Since I am not an economist, I will try not to engage in a detailed analysis of the economic theories but rather focus on the virtue as  it operates and  impacts on prosperity in our country today.

Presently, the issue of trust is an imperative  given the ongoing saga of corruption, greed, deceit and arrogance playing out among our “honorables’ and the highest institutions in our country today.

Is it our lack of trust in institutions that should facilitate the growth and prosperity in this country, a legitimate concern for thinking Filipinos? Is our inability to subordinate personal interests for the common good our greatest enemy?

In his book, Fukuyama, states that high-trust level societies prosper more than low-trust societies because Trust lowers the transaction cost of doing business. It likewise facilitates cooperation among individuals and institutions, creating an environment conducive to growth, hence, prosperity.

Fukuyama in his book begins by citing some basic  observations …

James Coleman, a sociologist, in analyzing the economic growth in selected countries observed that those who failed to progress were lacking in what he called “social capital” or the ability to work in groups and institutions towards the attainment of common goals.

Needless to say, the economy is the most crucial activity of any country and is the “most fundamental and dynamic arena of human sociability.” The economic life of a country and its ability to compete is based on a “single, pervasive cultural characteristic: The level of trust inherent in the society.”

More importantly, he adds that “economic life cannot be divorced from culture and that the ability to associate depends on the ability of individuals to subordinate their own interest to that of a larger community or organization.”

Out of these norms, a shared value must evolve that facilitate association with individuals and institutions that work for the greater good and eventually lead to long term economic success, the necessary, and hopefully, prosperity.

This seems to me to be the most pressing issue to examine as it relates to our country today. Do we have the necessary “social capital” or the ability to work with individuals and institutions and subordinate vested interests for the common good?

Fukuyama proves his point by comparing high-trust societies like Japan, the US and Germany against what he perceives to be low-trust societies like China and parts of France and Italy. While Japan and the US both have their share of economic challenges, their resiliency to withstand years, even decades, of recession attest to the strength of the institutions and relationships they have built through the years.

American businessmen today, specially in the financial sector, have mounting Trust issues as evidenced by Occupy Wall Street movement. They have always been highly individualistic society, generally resistant to government intervention with the private sector reigning supreme. However, its history shows a long and strong tradition of community organizations and institutions as in the church, professional group, the academe, mainly due to Protestant ethics.

Japan, on the other hand, while more open to government intervention, or a “state communitarian” society has been quick to move from being family centered to professionalizing early. This accounts for the giant zaibatsus and their strong links with their supply chain.

Fukuyama’s book, to a large extent, focuses on the virtue of trust operating in a culture where the family looms supreme against the intrusion or intervention of non-family members. His thesis seems to affirm the conclusion that for a business to grow, it must professionalize and trust institutions and individuals who share their values.

China, on the other hand, has been resistant to trusting outsiders or non-family members. While they have grown economically due to sheer size, their companies have remained small, unable to break into global brands or corporate giants, the likes of which exist in Japan, the US and Germany. They continue to rank low in the social progress index and fail in providing a better quality life for most of their citizens.

“When a Japanese executive goes to work, he works not just for himself, his family and his company but for the greater glory of the Japanese nation as a whole.”

Lin Yu Tang (Chinese writer, On the Importance of Living) said “. . . Japan society is like a piece of granite, while Chinese society was like a loose tray of sand.”

Can we ever hope to be a solid piece of granite or will we always be that loose tray of sand?

In 2013, EON The Stakeholder Relations Firm  partnered with the Ateneo Graduate School of Business to conduct the Second  Philippine Trust Index.

Its primary objective was to understand the trust landscape in the Philippines, identify the level of trust for six identified stakeholder groups, namely the church, media, government, business, the academe and non-government organizations or NGOs. They also tracked the key drivers of trust within and outside these institutions.

The survey was conducted among 1,575 respondents, both from general and informed, educated respondents residing in rural and urban areas.

The Philippine Trust Index showed that the Church continues to be the most trusted institution with a high rating of 68 percent, followed by the academe at 45.1 percent and media at 32.3 percent.

The three lowest in trust levels were government at 15 percent, and business and NGOs at 8.9 percent and 12 percent, respectively. What is glaring is the lowest ranking for business. There was a huge block of undecided respondents, about 30 percent who neither trusted or distrusted government, NGOs and business.

Trust in business even decreased from 10 percent to a low of 8.9 percent between the first and second Trust survey. It is unfortunate that the two institutions most responsible for economic growth are at the bottom of the trust index.

The only good news for government is the surge in the trust level of the Office of the President from 24.9 percent to 31 percent today. The House of Representatives and the Regional Trial Courts remain at the bottom of the rung.

It is unfortunate that the non-profit sector where I come, particularly the League of Corporate Foundations and the Association of Foundations, with decades of  professionalism and dedication, and hard work,  have been tainted by a few “rotten apples”.

The poor perception of business though is perplexing to me. The drivers of trust in business is their treatment of their internal stakeholders and their employees, whether they paid the correct wages, adequate benefits. Do they comply with the law? Concern for others and payment of taxes are the least of their concerns. This data is telling, since more than 99 percent of businesses in the country are SMEs, employing 70 percent of the labor force. Should we presume that they are the basis for the low trust rating of business?

Given the challenge of inclusive growth, it behooves our citizens to examine what the implications of these low trust levels mean for economic growth and the creation of prosperity for the majority of Filipinos.

Do our strong family ties prevent us from professionalizing and growing our companies? I should know, I come from a family conglomerate that started after the war and grew to later become one of the top 100 corporations in the country. But we were slow to professionalize and relied mostly on family members to grow the business. I do not want to say that they were not qualified, I only know that what our fathers built is no longer there.

How many of these SMEs will grow to become global brands, or even sustainable corporations without professionalizing, and contribute to lowering the 7.3 percent unemployment rate? Does the government truly support their growth or again, do we merely have slogans that do not actually work? If trust in government institutions remains low, this means higher transaction cost and uncompetitiveness for us, specially given the Asean integration.

What kind of a future do our more than half a million graduates each year look forward to? Will they join the exodus of one million Filipinos each year to go abroad in search of a better future?

And shall our economy be continuously buoyed by the P4 to P5 billion in OFW remittances?

Yes, our investment grade is attractive, our economic fundamentals sound but can we trust our institutions to be consistent, transparent and incorruptible. When will we stop giving “grease” money from the ordinary traffic enforcer to the clerk in the local government office to some of our “honorables.” All these cost add to our transaction cost and affect our competitiveness.

In the words of Sec. Arsenio Balisacan, Neda Director General, “economic growth is necessary but not enough to reduce poverty.” The Agri sector, where the majority of the poor are, has been begging, pleading for structural reforms in the Department of Agriculture. While they admit that Land Reform is good as a concept, we have failed to implement it properly resulting in more than two decades of weak investments in that sector. There is a plea for the private sector to step in but will they, given the uncertainty of land reform and the high transaction cost imposed by some local government units? The Management Association of the Philippines (MAP) continues to highlight these issues with its members. But they must likewise tackle this issue of low trust in business. We are after all the “engines of growth” and without this TRUST, our sustainability is greatly eroded.

Sure, it is MORE FUN IN THE PHILIPPINES, but is it more FUN only for those who can afford it.  These may sound like the angst of someone in midlife crisis (although I am way passed that), but really, WHO CAN WE TRUST? And how can we truly restore the trust our parents once had in our institutions and in each other, and move our country toward real prosperity?

(The article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines. The author previously served as MAP Governor and Chair of the MAP CSR Committee. She is a Member of the Advisory Council of the League of Corporate Foundations (LCF). Feedback at <[email protected]> and <[email protected]>.  For previous articles, please visit <map.org.ph>)