Free Trade: Closing the Cultural Gap

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If the direct feedback from social interactions can help facilitate morality and positive social relations, how can this be done on a larger scale? Corporations, nations, communities, coalitions, etc. are institutions comprised of many individuals. Staying within the framework of methodological individualism, we assume that the collective action of a single institution represents the unanimous will of all the individual agents affiliated with the organization. In a sense, the collective action “speaks” for the group. How does social distance influence the interaction between various institutions, nations, collectives, etc.? Per the insights in Smith’s book The Theory of Moral Sentiments (1759), a person’s socialization and moral development are shaped by their peers. How would we go about socializing an entire culture? What factors enable us to peacefully co-exist with our neighbors? There certainly are not any clear-cut answers to these vast questions. The best we can do is hone in on the variables that help support human flourishing and social stability.

Some people assert that a common cultural identity is a cohesive glue that keeps the fibers of society together. There may be some veracity to this opinion as possessing a common culture can reduce the potential for conflict. However, there are some profound issues with holding culture as the variable that unites mankind as a whole. For one, commerce is global. Anyone in the business world cannot merely associate with people sharing the same cultural experience. In theory, you can, however, you would be severely limiting the potential reach of your business. Due to globalization and technological advancements, clinging to cultural identity has become more futile. Another consideration is that associating with people of a similar cultural background (closer social distance) is detrimental to our ongoing moral development. Demonstrating the fallacy of nationalism from both practical and moral perspectives.

If the cultural distance is inevitable what is one way we can bring people of various cultures together? Many people may suggest the use of international treaties. The parameters of such an agreement serve as nothing more than a compulsive obligation. Outside of state-sanctioned compulsory inclusion (which is not limited to treaties, but also pertains to sections of The Civil Rights Act of 1964), there is also social pressure to force the association between different cultural groups. We see this in the aggressive push for multiculturalism. The intentions of some proponents may be laudable, however, too often it is utilized as Trojan Horse for political opportunists. It should also be mentioned that does not arrive at cultural diversity through voluntary association. But rather from a form of informal social cohesion. While Smith may point out that conforming to this new norm would be an example of our peers shaping our moral development, this simply is not the case. Most of this rhetoric comes from the deepest fringes of academia. These norms are enforced through immense social pressure by a small minority of people who are out of touch with the real world. Cultural diversity is not something that can be forced by legal statutes nor by social cohesion. Rather it exists through the voluntary movement of people, which is a spontaneous phenomenon that cannot be artificially manufactured.

It is evident what fails to bridge the gulf between different cultures and societies. However, what can succeed at this seemingly insurmountable task? Here is where the themes of  The Theory of Moral Sentiments (1759) and the Wealth of Nations (1776)  converge. The social arrangement that keeps the appropriate distance for peaceful relations between strangers is commercial societies (p.13). Please keep in mind that this is not the recipe for sustained and eternal peace. No thinker has been able to formulate a tried-and-true solution for eradicating violent conflicts. Our propensity for violence may be an unfortunate proclivity of human nature that cannot be contained by reason or by institutional means. Providing validation of David Hume’s assertion that we are essential “slaves to our passions”. Voluntary trade may reduce the frequency of armed conflict between nations. In commerce, we do need to maintain a certain level of professionalism (self-command) to establish an effective working relationship (p.14).

To perceive free trade as a magic bullet would be a complete fallacy. For one, if it was the key to enduring peace, world peace would have been achieved back in 1776. Ultimately, Smith viewed trade as a potential source of tensions between nations. It has been argued that Regan/Thatcher-era proponents of Neo-Liberalism overstated the role free trade plays in facilitating peaceful relations. If the tides of economic nationalism are not stifled international trade continues to serve as a weapon against rival countries (p.4). The growth of military strength tends to coincide with an expansion of the division of labor (p.5). Economic development reduces the perceived costs of entering armed conflicts (p.2 &5). Smith contended that the root of international conflict was power imbalances among nations (p.34). The prospect of an imbalance of economic power in global trade is the core assumption behind mercantilism. Exemplified in the rhetoric surrounding trade imbalances.

Even though Smith did see trade as a potential source of tension, does that mean that free trade could not reduce the social distance between different culturally distinct nations? No. It may not be the cure for global conflict, but it can reduce the instance of it occurring. There is something of a reciprocal relationship between social stability and economic advancement. The “violence trap” of the feudal era stymied economic growth due to instability in property rights (p.41). Coping with the constant upheaval of violent conflict is destabilizing enough to inhibit economic flourishing. While the prosperity of neighboring countries may conjure the envy of less fortunate nations, Smith suggested that the better-off countries should act as a model of what to aspire to. Rather than an adversary to hold in contempt (p.31). The rise of government and free trade may not conclusively prevent war, per Smith’s treatises that balance power and foster respect among nations helps reduce the instance of armed conflicts (p.32). Such agreements help align interests among different countries. From an economic perspective, unilateral trade agreements help balance the concentration of economic power among trading partners. Loosening the barriers to international trade not only broadens the market for domestic production but also works to reduce hostilities (p.33). Providing the power gap isn’t too wide and nationalistic sentiments can be dispensed with.

“By opening a more extensive market for whatever part of the produce of their labor may exceed the home consumption, it encourages them to improve its productive powers, and to augment its annual produce to the utmost, and thereby to increase1 the real revenue and wealth of the society. These great and important services foreign trade is continually occupied in performing, to all the different countries between which it is carried on. They all derive great benefit from it, though that in which the merchant resides generally derives the greatest, as he is generally more employed in supplying the wants, and carrying out the superfluities of his own, than of any other particular country. To import the gold and silver which may be wanted, into the countries which have no mines, is, no doubt, a part of the business of foreign commerce. It is, however, a most insignificant part of it. A country which carried on foreign trade merely upon this account could scarce have occasion to freight a ship in a century. (Wealth of Nations, p.358-359)”.

While voluntary exchange may not bring about world peace, it does help close the gap between different nations. Resources that could theoretically be dedicated to warfare are reallocated to production for the global consumer market. Providing a practical example of Frédéric Bastiat’s Broken Window Fallacy.  War does not generate wealth, but rather rearranges the disposal of resources. Wealth may be correlated with the advancement of military technology. The development of military technology does not necessarily generate wealth. Beyond free trade re-directing resources from armed conflict to the consumer market, there are also other intangible effects. When we engage in trade with foreign countries we are also exchanging culture and ideas. Attending a business meeting in Japan, American executives may consume food that they are not accustomed to. May even learn some of the subtleties of Japanese business etiquette. Through their Japanese counterparts providing the social ques imperative in business transactions in Japan. Talk about challenging a person’s impartial spectator. The American businessmen walk away with more than a new business partner. They are also exporting cultural traditions, new business practices, and even new types of food when they arrive back home. When we have more familiarity with another culture we are less apt to fear them. In turn meaning, we are less apt to bomb them. Closing the cultural gap requires not only a certain degree of openness but also an effective working relationship.

Calibrating Our Impartial Spectator is An Ongoing Process

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In my previous blog post, I address the role of social distance in moral development. Per Paganelli’s interpretation of Smith’s TMS (1759), we reduced our self-command when we are around people we are emotionally attached to (p.12-13). Much of our moral development arise from socialization. Making our self-restraint a combination of learned behavior and social conformity. The schoolyard may be the proper environment for individuals to fine-tune their social awareness. Does our moral development stop once are no longer school age? I would suggest not. If anything it a continual and lifelong process that is always in progress. If anything as we grow older, the expectation of others and social norms become much more intricate. Some of the basic principles learned on the playground are social conventions that are applicable in any social dynamic. The etiquette learned in the schoolyard is too rudimentary to comprehensively cover all the social nuisances of professional situations.

For instance, what is the proper attire for a job interview? How do I politely reject my boss’s dinner invitation? These are just a few examples of social scenarios of greater complexity that cannot be learned even in High School (arguably even in college). The reserved awkwardness of new hires fresh out of college exemplifies this deficit in workplace social skills. Outside of there being a likely age gap between the new employee and the rest of their co-workers, they are afraid of making a faux-pas. They are deathly afraid of being the person who takes the last of the breakroom coffee without making more (this individual is universally hated). They do not want to be disliked by their new pool of peers. To not look like a self-absorbed young person, it going to take time. The new employee will go through an acclimation process. The primary drive of this adjustment is going to be the feedback of their co-workers.

I would go so far as to even suggest that each new social environment requires some duration of social learning. The phrase “.. reading the room..” comes to mind. For example, even if an individual has worked as a salesperson for twenty years, as soon as they take a job at another company they now become the “new guy”. A new job entails new co-workers, a new boss, new corporate policies, new corporate culture. Despite this individual’s extensive experience they still need to go through an adjustment period. This seasoned salesperson now has to learn to adapt to the personalities, culture, and rules in their new work environment. Even in social situations where we are familiar with the location and the people, various factors lead us to constantly adjust to the feedback from others. If you were attending a dinner party at your brother’s house (only family members were in attendance) you would still have to mold yourself to the social conditions of the moment. You will taper your behavior to the dispositions of the other dinner guests. Social settings are dynamic and even the slightest change to one variable can profoundly alter the course of events. To a certain extent, we are always fine-tuning our Impartial Spectator to maintain social harmony. Social situations much like all complex systems have a loose structure with a set of informal rules. Although there is a resolute structure the one altered variable can drastically change the trajectory of the interaction. As the expression goes “high school never ends”, actually we never leave the playground.

Social Distance: The Foundation of Our Morality

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Adam Smith is arguably one of the most misunderstood thinkers in all of philosophy. The public reduces the corpus of his work to a one-dimensional caricature of The Wealth of Nations (1776). Such characterizations of Smith’s work are carelessly painting with a broad brush. It can be suggested that when to draw new insights from Smith’s work we should be even more cautious. So much has been written on the body of his work, as Donald Boudreaux keenly points out, it is difficult to formulate any new meaningful insights (p.487). This issue is only compounded by the fact that new interpretations of Smith’s work run the risk of misrepresenting his brand of moral philosophy. Which is equally as shameful as representing a shallow representation of his insights.

One development springing from modern interpretations of Smith’s philosophical ideas comes from professor Maria Pia Paganelli. Back in 2010, she wrote a paper entitled The Moralizing Distance in Adam Smith: The Theory of Moral Sentiments as Possible Praise of Commerce. In her paper, professor Paganelli analyzes smith’s emphasis on the impact of relational distance and moral development. As Smith points out in The Theory of Moral Sentiments because we are subject to “self-deception” due to our immense self-love (Paganelli [TMS III.4.2–6], 2010, p.6). Due to human nature, who wants to view their conduct in a negative light? In many regards, the moral tuning of our impartial spectator occurs due to social influences (Coase, 1976, p.5-7) It exceedingly difficult to admit when we are wrong. Never mind disclosing an outrageous oversight or a profound moment of weakness. Both are humiliating and are the kind gaffs we attempt to bury. The true interest insight from Paganelli is the fact that Smith contended that if our relationship is too close to a person, we do a poor job of shaping their moral development.

Surely, this does not apply to parents? After all, aren’t parents one of the greatest impetuses of moral development of children? Per Paganel’s research Smith’s TMS does emphasize that socialization is a byproduct of the impressions of others (p.7). It is unquestionably true that our emotional attachment to an individual has the potential of skewing our impartiality. The more emotionally attached we are to a person there is greater the aptitude we will perceive the course of events from a similar perspective (p.8). Paganel points out that Smith believed that parents were too “partial and indulgent” of their children to be the prime mover in facilitating their moral maturity (p.9). There is some qualitative validity to this observation. Anecdotally we have all heard a parent proclaim “… not my child..” in regards to the potential of their son or daughter engaging in unruly behavior. Most parents want to hold their children in high regard and implicitly view them as a genetic extension of themselves. To acknowledge the unpleasant truth little Johnnie is capable of stealing Mr. Johnson’s car is excruciatingly painful on two accounts. First, there is the discomfort of acquiescing your child’s capacity to engaging in morally abject behavior (despite years of the parents’ efforts to socialize their child). The second and more damaging pressure point is a sense of having failed as a parent. This extension of yourself is presenting you with challenges that could easily be interpreted as a sign of personal failure.

The emotional distance to aid children in developing moral precepts also cannot be too far. Helicopter parents fail to help their children erect a strong moral foundation. Smith also observed the same being true of children that are sent away to boarding schools. A parent being too aloof can have the same effect as being too indulgent, a child with a lack of respect (p.9). This phenomenon parallels what happens in foreign countries with opposing interests. If there is too much social distance between the two nations, factions will form (p.10). Creating a self-congratulatory echo chamber where there is not any room for negotiations or compromise. Rather the ire is driven by unconstrainted passions shouting the valiant chants and battle cries of nationalism. Too often nationalist fervor results in actual battle cries. Firmly illustrating how social distance has an impact on both the micro and macro scale of social interaction. Achieving the precarious balance of the correct social distance between various groups and individuals is key in achieving stable relations.

According to Smith what is precisely the correct amount of social distance? It is too herculean of a task to determine this balance at the level of nations. If this could have been achieved in a philosophic treatise back in 1759, wars would become a relic of the eighteenth century. Smith does suggest that the best platform for moral development is a child’s peers. Through a child adjusting themselves to the expectation of their fellow playmates, they gain a sense of self-command (p.11). Above all, we tend to have better deportment around strangers than we do our own family (p.12). This goes right back to the concept of social distance. When we are closer to someone on an emotional level we exhibit less self-command. One example would be a small business that attempts to foster a family-like dynamic. Most observers’ prima facie impression would be that such an ethos would create a “hospitable work environment”. Even though the idea of a workplace that creates a culture of close-knit comfort may sound endearing, it possesses a lot of pitfalls. For example, if an employee makes an error the business owner may take it personally. Since the business proprietor is not constrained by the formality of a corporate environment, they are free to curse and scold the offending employee. Like how a parent censures a misbehaving child. Demonstrating how the voice of the impartial spectator becomes more salient when others are in the room. A CEO of a company has their conduct limited to the expected deportment that the employees and board of directors find to be acceptable. Behavior outside of these norms will result in disapproval.