In 12 Little Things Every Filipino Can Do to Help Our Country, lawyer (and LP senatorial candidate) Alexander ‘Pinoy’ Lacson’s first imperative is: “Follow traffic rules. Follow the law.” In The Economics of Integrity, author Anna Bernasek points out that, with only 48 per cent of the world’s registered vehicles, low-income and middle-income countries (like the Philippines) account for over 90 per cent of fatalities in road mishaps.
This fact should not surprise us at all. In the Philippines, especially in Metro Manila, traffic lights are only advisory. Police vehicles routinely cross intersections despite red-light signals even when these are simply on patrol and not in hot pursuit. Ordinary citizens audaciously defy and disobey traffic lights, especially when there are no enforcers in sight.
Ms. Bernasek explains why, in more progressive countries where there is superior law enforcement, there is a higher level of discipline and adherence to the law. She points out: “From an economic perspective, the point of accountability is not to punish people. It’s to give the public the expectation that if they break the rules there will be consequences.” Hence, people will be convinced that they are more likely than not to be caught and punished, thereby discouraging misbehavior.
Adherence to traffic laws is only one of several interesting illustrations presented by the author to demonstrate the economics of integrity. Right on the book’s cover jacket, there is a comprehensive subtitle that reveals the essence of her message: “From dairy farmers to Toyota, how wealth is built on trust and what that means for the future.”
She was inspired to write the book after witnessing the sorry debacle of Wall Street in the aftermath of the 2008 financial crisis that, she said, made her “angry and pessimistic.” But after deeper reflection, she realized that, despite the scandals that brought down many erstwhile blue-chip business organizations, the entire economic system of the United States was built on a durable fabric of trust and integrity.
She began by analyzing how milk is produced and delivered to American homes. From the dairy farms to the milk plant and finally to the groceries and homes, there is a chain of trust among all the participants in the milk trade.
In sharp contrast, the melamine contamination issue has resulted in a dramatic plunge in the credibility of products made in China.
Another interesting example she provides is ATM transactions. While we can withdraw money or find out account balances almost instantaneously, she points out that there is, in fact, an intricate network of authorization which --- although facilitated electronically --- “involves thousands of people who don’t know you or even each other, working together to ensure that your transaction is successful”.
Toyota, now the world’s largest auto maker, is held up as the prime example of a company that built its reputation on integrity and trustworthiness. Toyota’s twin principles of respect for people and continuous improvement (another word for unflagging quality consciousness) have been implemented assiduously, thereby earning its customers’ abiding loyalty. Not even the recent spate of massive recalls in the US has dented this rock-solid image, writes Ms. Bernasek.
She cites Toyota’s Tacoma truck buy-back initiative in 2008. A problem of rust corrosion was discovered in 1995 to 2000 model trucks, especially in areas where “salt was used during the winter months to keep the roads clear.” Toyota offered to buy back all such trucks at 150% of the values indicated in the Kelley Blue Book, a respected industry reference of values of used vehicles. For instance, Toyota would pay $15,000 if the Kelley value were $10,000. More than 800,000 vehicles were eligible for this program.
What was the outcome? Ms. Bernasek reports: “Toyota’s went above and beyond the minimum required…(and) discovered that the response of its customers was very positive. More than a few of those truck owners who took part in the program took their check and immediately went to a Toyota dealer to buy another vehicle.”
Citing a Businessweek study, Ms. Bernasek says Toyota now ranks sixth in terms of 2009 brand value, behind four American icons, namely Coca-Cola, IBM, Microsoft and GE, and Finland’s Nokia.
Two other exemplary companies featured by Ms. Bernasek are L.L. Bean, the famous catalog company, and eBay, the leader in online auction trading. L.L. Bean, with more than 13 million customers worldwide, “trusts every single one of them” by carrying on with its unlimited return policy. Established in 1996 by 28-year old Pierre Omidyar, eBay’s total transactions reached the 60-billion dollar mark in 2008, with more than 100 million active users or participants in its vigorous auction trading activities. What is remarkable is that total strangers from different parts of the globe have learned to trust each other and consummate business transactions online.
Ms. Bernasek believes that it is eBay’s unique feedback system that has spawned transparency and credibility, two qualities that have motivated its users to behave well.
Despite the involvement of many of its players in the 2008 global financial crisis, the New York Stock Exchange is regarded by the author as the greatest example of an integrity system where “members and traders are well aware that if they break the rules they are likely to get caught and be expelled.” She also commends the Grameen Bank of Bangladesh headed by Nobel laureate Muhammad Yunus, the most successful bank for the poor that relies on peer pressure to ensure loan repayment.
Ms. Bernasek emphasizes the importance of the three vital elements of an integrity system: thorough disclosure, clear and well-founded rules, and an effective system for dealing with violators.” She observes: “the more integrity, the more wealth, leading to a virtuous circle” that creates wealth.
She concludes: “A mind-set that seeks to create lasting value will invest in integrity and yield a host of positive benefits for the economy. Well-designed systems that encourage people to act honestly do just that.”
This is a timely book for us that now stand at the threshold of change. Now that we have elected a new leader who is trustworthy and known for integrity, than we can begin to hope that we can, in fact, establish a new governance system. This will be the antithesis of the corrupt and decadent regime that an overwhelming majority of Filipinos repudiated soundly in the recent elections.
