The Tyrrany of Cousins

Altruism towards other people of the same blood-line is widely practiced and literally embedded in our DNA. The Hamilton Rule named after the British evolutionary biologist William Hamilton states that we are pre-disposed to behave altruistically to those with with whom we share a greater proportion of genes. This biological imperative to pass on our genetic code to the next generation is quite powerful.

Hunter gatherer societies tended to exhibit a high degree of inter-locking marriages based on kinship. Alliances between tribes were sealed through bridal exchange allowing genes to be distributed across a wider area. This had implications for early rulers and states. As agricultural societies gew within a defined space, its rulers found it more and more difficult to govern independently sufferering what is called the “tyranny of cousins” which puts the needs of the tribe above the rest.

China is credited with forming the first modern state to address this problem. The Qin and Han dynasties (221 BCE-220 CE) instituted a civil service staffed based on a rigorous examinations process. It was tasked with raising taxes used to secure the populace against enemy invasion or domestic exploitation as distinct from local lords who extracted rents from their serfs. China’s political history from then on can be told on the basis of how this tension arose between the state and elite families. Following a few “bad emperors” it eventually succumbed to repatrimonialization.

Medieval Islamic rulers sought to counteract tribal rivalry by erecting a warrior caste made up of slaves. The Mamluk slave warriors and their Ottoman Janissary counterparts were responsible for the administration and protection of Islamic civilization because they acted as a coherent ruling class looking after the broader interests of society and not any one particular tribe. Just as in China, however, the integrity of this institution began to erode over time.

Altruism based on reciprocal relationships rather than kinship played an active role in the modernization of East Asia. The Japanese keiretsus were organized on the basis of inter-locking boards led by former bureaucrats who were parachuted into senior executive positions. Korean chaebols had a reciprocal relationship with state finance and grew into large corporate family-owned entities with high debt-equity ratios. The management style of these conglomerates was based on consensus between parties. Life-time employment was the norm.

In communist China, investors partnered with local Township and Village Enterprises to gain access and participation in China’s economy. Going to bed with local governments protected assets from expropriation for as long as they continued to reciprocate with profitable performance. There was no formal recognition of property rights or an independent judiciary to enforce contracts, just a tacit agreement based on reciprocity and credible commitment based on mutual interest.

Guanxi a term denoting close networks has been behind informal credit markets supplying start-up capital to Chinese entrepreneurs the world over. Again, no formal agreements eforceable through the courts operates here. Trade and credit has been made possible through closely linked networks built on family and kin relations or reciprocal relationships based on one’s honor and reputation.

From trust to contracts

The West took a very different more protracted route. After the conversion of Germanic tribes to Christianity in the sixth century, the church promoted changes to interlocking marriages based on kinship. This tended to weaken in the long-run political and economic ties based on kin selection. They moved away from trust to contracts through the centuries.

In the twelfth century the English common law administered by the king’s court to which subjects could appeal the decisions of local lords established a system known as “the rule of law” to which eventually even the monarch was made subject by the nobles who feared expropriation by the state. Contracts became enforceable and property rights made more secure without the need for personal connections or networks.

Across the English Channel, the Dutch established the first stock exchange in the early seventeenth century. This made corporate management distinct from its owners and spread risk through tradable certificates lowering their average exposure and leading firms (such as the Dutch East India Company) to be less conservative in business expansion. Capital-raising went through an impersonal market rather than through personal networks.

Management in the West tended to be more individualistic than consensual motivated by incentives rather than trust. Short-term, risk-taking behavior leading to rich rewards and bonuses became more prevalent. Maintaining reputation continued to be important, but only in terms of improving one’s value in the impersonal labor market rather than protecting one’s “word of honor” within a tightly knit community.

Where to begin?

The Philippines is obviously stuck in transition. Many formal institutions have been transplanted from the West, but they remain weak and porous to the tyranny of cousins. It has been difficult for a strong central state to emerge where one’s loyalty to the country ends where one’s loyalty to one’s family begins. The thick network of kumpadres, kamag-anak, and kaibigan (now augmented by kaklase, kabarkada and kabarilan) makes it difficulty to determine where to even begin the reform process.

Getting to Denmark” is the problem to be grappled with: how to emulate Scandinavia which has the highest levels of human development and cleanest governments in the world. It almost sounds tautological. In order to gain the living standards of the West, we need to adopt their political and economic institutions including a strong state, rule of law and democratic accountability. If our society had the means to create and maintain such institutions, it wouldn’t be poor to begin with.

Earlier in a separate post, I commented on the preponderance of avowed bachelors or males with no offspring holding sensitive posts in the current government, the president being one of them. This harks back to the time of Mamluks, Jannisaries and Imperial Chinese eunuchs. This is purely coincidental and fleeting in the broad scheme of things.

Prescribing Western-style political institutions again might have its pitfalls. Public finance of parties does not necessarily weaken the influence of campaign donors even in the US where it is practiced. It might dampen but not eliminate it. And, at any rate, the need for donors features more at the national level. At the local level, political and economic dynasties are one and the same.

A majority of seats in Congress is dominated by dynasties including within the president’s Liberal Party (albeit by a smaller majority). Rather than decoupling the political from the economic classes or dismantling dynasties, shouldn’t we like Japan, Korea and Taiwan find a way to make this coupling work for our country by directing it to more productive ventures?

Yes, we can

The problem is not reform incapacity by our leaders. I would argue that under Mrs Aquino, the state exhibited a considerable degree of efficacy in achieving substantial economic reforms under difficult situations. From tax reform to foreign investments deregulation, flexible currency exchange to trade liberalization, wage decentralization to monetary independence, privatization to democratization, the list is quite impressive from a Western perspective.

The problem was that the agenda was perhaps too comprehensive instead of building one reform on the proven success of another. We shouldn’t blame Mrs Aquino for this. Her government was put in an institutional strait jacket by the IMF which today is imposing a heavy burden on some weak European countries. What EDSA-I demonstrated is that the country can achieve a consensus over a broad set of reforms and pursue it diligently.

The difficulty of governing in the shadow of one so revered as Mrs Aquino is much like the dilemma faced by the successor to Apple’s visionary CEO Steve Jobs. His mission now is not to “stuff up” the legacy. The overly cautious approach this breeds could prevent the sort of imaginative thinking that led to success in the first place.

East Asia didn’t buy into the comprehensive reform package that international donors, aid agencies and multilateral organizations were foisting on them. It opted to target areas that were more appropriate for its needs and developed its own recipe based on local ingredients. It caught up with Western living standards and then reformed some of its earlier idiosyncratic institutions which had by then become less useful.

Rather than applying the “second generation” reforms of the augmented Washington Consensus, following the “first generation” reforms tackled by Aquino I, the policymakers in advising Aquino II need to escape the poverty of ideas this represents. They should develop imaginative arrangements that will immediately unlock the productive capacity of our country. Only then can the son escape another sort of tyranny that seems to be afflicting us…the tyranny of low expectations.

Guanxi diagram courtesy of: China Australia consult

Doy Santos aka The Cusp

Doy Santos is an international development consultant who shuttles between Australia and the Philippines. He maintains a blog called The Cusp: A discussion of new thinking, new schools of thought and fresh ideas on public policy (www.thecusponline.org) and tweets as @thecusponline. He holds a Master in Development Economics from the University of the Philippines and an MS in Public Policy from Carnegie Mellon University.

  • J_ag

    Pinoy culture of self deprecation and lack of self esteem. All from years of dependency.

    I just read a column about the new Tourism Minister.  He accepts all the criticism about our third world country  but came out with the beaut. “WE ARE SPECIAL”

    The innate ability of the Pinoy is far superior to any country in Asia including the Japanese. However the lack of the political class that exists to marshall these forces to 
    create the mass base to counteract the overreaching side that is big business. You have to create the economic opportunity to marshall these abilities. Today big business lives of the fat created by the very export of these productive forces. There are no systems and structures to deploy them at home. 

    Markets have existed long before capitalism was invented. In the West it was rise of labor unions that counteracted and forced the state to act versus the flaws of capitalism. . 

     In Asia it was States that realized it needed to catch up and used state intervention to reverse engineer the technological advantage in engineering, administration and management of business and finance of the West. 

    Even the Federal government in the U.S. sponsorship of student loans was an offshoot of the need to produce more scientists and engineers for the military industrial complex. 

    The West climbed the ladder of economic development. Most of the successful Asian economies simply copied the ladder. 

    Here we do not realize that we need the build the ladder and some already believe that we do have one and we are near the top and need simple reforms on corruption to reach the top. The vast majority are simply fed up and look abroad.

    Very soon a retired champion boxer will be running for President. 

    • Or as Friedrich List (the German economist who once was more popular in Japan than Adam Smith) famously said, after scaling that ladder, it was in the interest of the already wealthy countries to “kick the ladder” away and preach the benefits of free trade to prevent those below from following their route to the top.

      • J_ag

        Yup which he learned from his American guru Alexander Hamilton, the father of U.S. industrial policy and Central Banking in the U.S. 

    • Manuelbuencamino

      “The innate ability of the Pinoy is far superior to any country in Asia including the Japanese.”
      Innate ability??? That’s  racist!!!  

      • J_ag

        “Groups of people develop different characteristics when they have evolved for thousands of years separately. Genetics and history interact. The Native American Indian is genetically of the same stock as the Mongoloids of East Asia — the Chinese, the Koreans and the Japanese. But one group got cut off after the Bering Straits melted away. Without that land bridge they were totally isolated in America for thousands of years. The other, in East Asia, met successive invading forces from Central Asia and interacted with waves of people moving back and forth. The two groups may share certain characteristics, for instance if you measure the shape of their skulls and so on, but if you start testing them you find that they are different, most particularly in their neurological development, and their cultural values.” Lee Kwan Yew. 
        The first drive for globalization on a scale unseen was led by Temujin. 

        Meanwhile our ancestors who were seafarers used the stars to guide them through the vessels they used as bridges across the oceans. They reached Hawaii and islands in the Indian ocean. They had no land bridges to connect to other places. 

        What drove this people then to discover and be open about new places? The Pinoy is open to new people and places. The islands were populated from the outside. 

        What changed the culture of the first Anglo Saxons in the U.S. from their ancestors the natives of what is now the U.K.

        They do teach evolutionary biology in schools and there is no doubt that genetics are affected by history. 

        Why has this not translated into a culture of success? 

        No small mind MB, historic reality and not racism… 

  • J_ag

    At the end of the 19th century Europe had most of the known lands on the planet as their colonies. The Europeans had implanted in varying degrees their economic political and societal culture on these colonies. The American and the Japanese off course started late. 

    The Philippines was considered the economy most likely to develop after Japan since the Americans had laid down the basis of their version of Anglo Saxon law.  Even the Chinese residents in the Philippines were given the right to challenge laws as they were considered American subjects per se. Their property rights were protected and they even sued and won the right to do their business accounts in their own language. Rule of law and the protection of property rights. 

    Monetary policy was under the Bell Trade Act directly under the purview of the U.S. President. So much for political independence.  That group think which governed monetary policy and later fiscal policy was later assumed by the IMF-WB. 

    However due to the ongoing Cold War the entrepreneurial class which were the Chinese were not allowed to engage in their trade in which they had prospered during the American time. Wash Sycip knew this was coming and he became a naturalized American because of his contributions during the war. Till today he remain one. Andres Soriano and Bill Quasha also Americans were stalwarts. 

     The story of the most famous American in political circles is noteworthy. Harry Stonehill. he brought Virginia Tobaco thought out the idea of competing with Soriano and his ideas of manufacturing actually propelled the Philippine economy in the old days. it was idea to reclaim land from the sea that is responsible for the reclaimed area. Most of the Luneta and Roxas Blvd area is actually reclaimed land from the sea done by the Americans. 

    Most of Manila and Makati was actually planed by Americans. 

    Unfortunately the nationalist provisions which were directed primarilly against the Chinese kept this class from pursuing their businesses in the open. So they had to curry favor with the politicos. When Marcos took over they prospered since Marcos preferred top do business with them. After we started liberalizing during the Cory years they came out of the shadows and took over. 

    There would have been no Lucio Tan without Stonehill and today it is the former Chinese immigrant during the Spanish times that in reality build up this country. 

    All over S.E. Asia it is this entrepreneurial force that is known as Greater China that drives ASEAN economies. 

    When I mentioned that Mr. Santos has had no experience I meant in the world of business as an entrepreneur across boundaries. It is exasperating doing business in this country after the ease of doing so in the U.S, HK, Singapore. 

    One of the greatest adjustments in the rule of law in the Philippines is the continuing clash between perspectives under the Spanish Civil Code (Roman law) and the ever evolving common law case law practice under the American/British system. 

    Unfortunately those institutions honed under colonial rule have broken down..
    The culture of Kamag-anak repressed during the American times came roaring back.

    The American did not address the economic class structure and they left it alone. The vast majority remained peasants under the Spanish system of agriculture. The country’s economic fortunes rose and fell based on the price of minerals and resources. .

    With the exception of export processing zones and the export of labor that system remains in place. Hence it creates so much room for arbitrage in finding loopholes in the myriad of rules and laws which the government itself is confused on. Discretionary power becomes the rule of law. 

    Just look at the Peace Bonds Issue. Connections at the top and they got a tax exemption for a zero coupon bond. The present DOF Secretary said that this kind of deal could never have passed muster under the present government. 

    How the hell could the BIR then grant an exemption. without the authority from Congress. They naturally reversed their decision on it in the past and now the guys that bought the bonds are howling? 

    Once again the kamaganak, kaibigan, kaklase and kagrupo comes shining through over the rule of law. 

    Opening up the economy would bring in more players and this would force reforms since it would bring more self interested parties to the fore. 

    The story of the ongoing EU crisis is a case in point. 27 countries are part of the EU community. However only 17 are part of the common currency area. When the common currency area was launched there were no institutional measures for resolving fiscal issues in the common currency area. 

    A secular crisis is now driving the creation of the very institutions that will be necessary to integrate fiscal issues within the same community. 

    Greece integrated its economy into the larger EU economies. Today it has to give its national sovereignty over fiscal policy as a price for getting deep in debt. They may be given a discount on 50% of their debt with external lenders. But the price for that haircut is their fiscal policy will be dictated by the EU community. 

    Here in the Philippines our fiscal policy is dictated by the multilateral’s already.  What are we waiting for?

    • Interesting, the book I am reading now by Dani Rodrik talks about how even with the advent of a globalized world where borderless transacting is possible, the flow of goods and money still does not happen as much as we expect despite the absence of restrictions. The reason? Different rules and legal systems under different jurisdictions creating fear over contract enforcement and the like. 

      My first job here in Australia involved managing international programs and projects across ASEAN, South Asia and the UK. My last job in the Philippines involved negotiating a deal with the Chinese, Australia, the UK and the US. It is quite frustrating to see how far off the Philippine business culture is from its neighbors in the region. Simple things like replying to emails and following rules just raises the cost of doing business despite the cheaper labor costs.

      At any rate, it is up to the developing countries today to push for as much policy space within the WTO framework to engage in industrial policy. East Asia created opportunities for massive rents to be earned by private enterprise. A bargain was struck whereby domestic firms (in the case of Japan and Taiwan) and foreign joint venture partners (in the case of Korea and China) could keep these rents as long as they met stringent export targets.

      Creating such opportunities for arbitrage rather than eliminating it and ensuring that the windfall generates even more jobs, exports and expansion in areas that could provide opportunities for national development is something our state has not been able to do very well in the past because I don’t think building an effective economic bureaucracy was ever seen as a priority by our political class.

      Eliminating the tyranny of cousins doesn’t necessarily have to precede economic takeoff. It can still work with either local or global elites as East Asia clearly demonstrates. We need to adopt a growth model that suits our local situation though.

  • Manuelbuencamino

    Doy,

    I guess the Scandinavians or northern europeans are the only ones who have successfully broken away from the tyranny of cousins. The US certainly has not. As far as I know family members of Kennedy, Nixon, Carter, and the two Bushes did business with government. I’m not too sure about Reagan and his wife or Bill Clinto and Obama. But the last I remembered was Dubya’s brother going to China and cutting deals. And we all know how the top leadership of China has divided up the pie. Hu’s son is involved in that company that sold those x-ray machines to Customs. That same company got in trouble in Africa for doing the same thing they did here – overprice, sold through chinese aid agencies etc. The same racket that big US firms do through AID etc. with presidential relatives acting as brokers.I think the difficulty for this administration is that it tries too hard to be the opposite of the previous administration. There’s this “I’m not like her” thing going on. And so except for CCT many of the otherwise good projects/programs of the previous administration have to be shelved, reviewed, and recast before they are adopted. What do you think?

    • Yes, I agree for the most part. The “equity of the incumbent” plays a major role in the US political system as in ours as shown by a number of empirical studies. I am also surprised by your final statement that the overly cautious nature of this administration is symptomatic of the anti-GMA mindset. This is truly amazing coming from you.

      • Manuelbuencamino

        Doy,

        “I am also surprised by your final statement that the overly cautious nature of this administration is symptomatic of the anti-GMA mindset. This is truly amazing coming from you.”

        May I out my statement in context?

        This administration has to live up to its campaign promises. The public will not settle for a grey difference. It was elected because it was anti-GMA. 

        But at the same time the administration also saw its mandate not in the limited sense of simply being against GMA the corrupt president, but in the broader sense of being against the culture that she represented. That’s why, for example, DPWH Sec Singson went beyond just canceling or reviewing contracts from the previous admin to overhauling the whole process from bidding to maintenance after project completion.

        There are short-term pluses and minuses to the administration’s Daan Matuwid, but overall,  the long-term benefits will produce a much better environment for business, investment, and raising families. And so I can rant once in a while against specific actions of the admin but I am one hundred percent behind Daan Matuwid.

        • I accept your contextualization, but that  mini *rant*, slip of the tongue, Freudian slip or whatever you wish to call it, represents to me an acknowledgement however small or qualified that the administration actually “tripped on itself” (sticking to the same analogy) in walking down the Righteous Path.

          • Manuelbuencamino

            it does and when it does we must point it out. 

      • Anonymous

        I still can not believe that no one could explain to PresiNOY about money velocity and that the economic engine has to keep humming  —- no one was able to explain to Noynoy that stepping on the brakes was so nonsensical especially with shallow reasoning about some suspicion, a religious belief and then the fervor to deny make kurakot from road-highways or construction-this or construction-that contract to GMA-and-her-circle-of-BFF’s.

        It is uncanny the resemblance to  “… thou shalt not read Lady Chatterley’s Lover  or The KamaSutra” to teen-age sex-inquisitives (with sorry na lang to 30-year-olds and older).  Religious fanatics really want life simple and rules strict —   did Doy mention the word eunuchs somewhere?

    • There are of course some theories as to why the divergence between Scandinavia and Anglo-American political development occurred. 

      The English or “Whig” narrative of a nobility increasingly represented by parliament constraining the impunity of the crown to raise taxes and confiscate property to wage war along with an independent judiciary giving rise to a modern but “weak” state. Citizens became richer by virtue of the Industrial Revolution before gaining a voice through social mobilization.On the other hand Scandinavia approached things differently.

      There was a more egalitarian society highly educated based on the king’s desire to strengthen the common man’s position versus the nobility (also based on the Lutheran emphasis on literacy to allow for individual reading of the Bible). The monarch then built a strong central bureaucracy. The “poor sophisticate” became literate and educated before becoming rich. This led to a social democratic state where the benefits of democracy were felt from the bottom-up, whereas the Anglo-Saxon model was more of a trickle down sort of scenario.