Does unregulated capitalism look like China?

[AskNott]

I'm not firmly on either side of this, but I'd like to hear your positions.

You've seen the trail of poisonous and/or adulterated products from China in the news. I don't mean accidentally contaminated food. I mean intentional decisions to put melamine in animal food instead of protein, and intentional decisions to paint toys with lead paint. Well, you've seen the rest of the list.

There has always been a debate between free market business and government protection of consumers. This spate of awful goods from the budding, nearly unregulated capitalism in China is worrisome. Sometimes it seems to show what happens when untrammeled greed is allowed to run wild.

Is this what America was like before the government began to ride on the businessman's back?

[Mangetout]

I don't know. I think it can be quite reasonably argued that manufacturing defective or dangerous products could harm future custom - so that's an incentive for businesses to avoid doing it. Except that in this case, it would appear that the desire for short-term profit overrode such concerns.

[Giles]

Is this what America was like before the government began to ride on the businessman's back?
On the whole, yes. China is playing catch-up with the industrialised West, and so it's going throught the dark side of the industrial revolution.

But China is regulated: just not regulated in the same way as North America and Western Europe are. Firstly, all aspects of politics are regulated, so there's no utside challenge to the ruling party. That includes things that don't look like politics to us westerners, such as Falun Gong (http://en.wikipedia.org/wiki/Falun_Gong)

Secondly, the government is encouraging the industrialisation of China, and not just taking a neutral stance. It's doing this by such means as controlling the exchange rate of the renminbi against the US dollar, and by setting up Special Economic Zones such as Shenzhen. And it's encouraging industry knowing that mean burning lots of polluting coal, etc.

[gonzomax]

Toys designed by Disney in America have been recalled for lead base paint. Poisonous toothpaste ,defective tires etc . Yep it is just dandy.

[AskNott]

Toys designed by Disney in America have been recalled for lead base paint. Poisonous toothpaste ,defective tires etc . Yep it is just dandy.
Designed by Disney, but built where? The latest Fisher-Price recall is of toys made in China to F-P designs. As for the toothpaste (?) and tires, were there decisions to intentionally make faulty goods? My question is about greed, not mistakes by the manufacturers.

Fisher-Price, btw, is now part of Mattel.

[redtail23]

Pretty much, yes.

The various regulatory agencies in the US and Europe that help prevent such things are a direct result of the same sorts of problems.

[tagos]

Pretty much, yes.

The various regulatory agencies in the US and Europe that help prevent such things are a direct result of the same sorts of problems.

But ... but ... the Libertarians here have assured me that, contrary to what that alarmist old hack Dickens would have us believe, capitalists wouldn't even begin to think about dreaming about considering putting short term profits above he safety and well being of workers or customers.

No need for all that regulation. It just gets in the way of the market's benevolent hand.

[JohnBckWLD]

It can't be classified as "unregulated" until every last bureaucrat is harshly punished (http://blogrunner.com/snapshot/news/6/3/465C6AD30CC1E263/) for dereliction of duties.

[Cervaise]

the desire for short-term profit overrode such concernsIsn't that always the case, though?

Free market evangelists claim that, absent regulatory pressure, a business will make a rational decision not to cut its own legs out from under itself by engaging in harmful practices. If the business injures or kills the consumer today, it will be frozen out of the marketplace tomorrow — not because a government shuts it down but because free consumers choose not to buy its goods.

The problem with this is that businesses don't make decisions: people do. And it's entirely rational for a person to say, "I don't care if I injure or kill a consumer today, because I got their money today, and tomorrow I will have retired to a tropical country without extradition." Further, it's entirely rational for a consumer to say, "I know there's a one-in-fifty chance I'll get sick from this product but I will choose to accept the relatively small risk as a tradeoff for saving a few coins. And I neither know nor care about that guy a hundred miles away who died, so I will not make an emotional decision to punish the company for its wrongdoing. Give me the cheap goods and let me deal with the risk." And that's assuming the consumer actually has information about the business's practices, and has sufficient data on which to base a rational decision.

Free market evangelists will argue that all of this is true, but that, counterintuitively, these apparent negative effects really aren't all that bad in the long term — because, in the current system, government regulation is distorting the assignment of responsibility, and short-circuiting what should be the market's rational analysis. If consumers were forced to bear the risk of poor decision making, they would become much more involved with evaluating the wisdom of their purchases, and they would avoid business that do not freely make disclosures about their practices. When government steps in as a protector, the marketplace is blanketed with an artificial sense of safety, and there's a feeling that goods can be purchased without any concern or personal responsibility.

The problem there is the same as in the previous paragraph: Just as businesses don't make decisions, neither does the marketplace, collectively. In both cases, individual people are making choices, and if we've learned anything in the last couple of hundred years it's that most people are really bad at weighing short-term interests against long-term needs. And what we're seeing in China, I think, is a pretty overwhelming argument against the unregulated-market model, for exactly those reasons. That the Chinese government is now being forced to execute officials for corruption demonstrates a failure of analysis and decision-making, and speaks strongly for an official oversight role somewhere along the line.

(The cold-blooded among us might argue that a system in which people are punished for bad analysis is actually desirable, and would gradually cause the crummy thinkers to be weeded out, thereby strengthening the civilization in the long term. I recognize the intellectual basis of that position but I will not advocate it.)

[Ravenman]

But ... but ... the Libertarians here have assured me that, contrary to what that alarmist old hack Dickens would have us believe, capitalists wouldn't even begin to think about dreaming about considering putting short term profits above he safety and well being of workers or customers.But... but... the market HAS worked, because now all the people with dead pets from poisoned cat food know not to buy from that one company that made all the terrible food. Everything is okay and back to normal thanks to the market, the companies have learned their lesson, so nobody has anything to complain about. And the pet cemeteries even managed to drum up a little business, so everyone wins!

[Lemur866]

Eh, a couple of misconceptions here.

One is that capitalism can exist without regulation. Trouble is, capitalism requires certain institutions or it can't work. It might be possible for those institutions to not be government controlled institutions, but you can't have capitalism unless you have a method for enforcing contracts, a method for recovering damages, a method for protecting property rights, and even a method for protecting human rights. If Bill Gates can send private soldiers over to the Google offices and burn it down and kill everyone there, what you have is not capitalism but feudalism. Bill Gates isn't a capitalist businessman then, but rather a feudal warlord.

The other misconception is that China is "unregulated". It certainly isn't unregulated. People get executed for violating the law over there. It's just that the regulations have different purposes over there than they do over here, try criticizing the ruling party and see what happens to you.

[dropzone]

In the 19th century dairies routinely diluted milk with water and covered that up by adding chalkdust (which, I suppose, could be seen as fortifying its calcium content), pickles were dyed green with copper compounds, and catsup was reddened with iron compounds. It got worse. (http://leda.law.harvard.edu/leda/data/758/Burrows06_redacted.html#fnB32) Manufacturers loaded up confections with poisonous chemicals, seeking to appeal to children through bright colors. Accum documented sweets colored with vermillion (contains mercury), red lead, white lead, verdigris (a copper salt), blue vitriol (contains copper), and Scheele’s green (contains copper and arsenic). That was mostly ended by the Pure Food and Drugs Act of 1906. And lead paint wasn't finally banned until 1978. (http://www.cpsc.gov/CPSCPUB/PREREL/prhtml77/77096.html)

[AskNott]

Eh, a couple of misconceptions here. ...

The other misconception is that China is "unregulated". It certainly isn't unregulated. People get executed for violating the law over there. It's just that the regulations have different purposes over there than they do over here, try criticizing the ruling party and see what happens to you.
They executed the man in charge of the Chinese equivalent of the FDA. I've seen no reports of lesser bribe-takers or the folks responsible for the melamine scandals being executed.

Ravenman may have been joking when he said the market has worked. The market hasn't worked, though. I don't know the name of the Chinese company that made melamine-laced food, and I don't know the name of the crooked manager who made that profit-making decision. My own reaction is to not buy any Chinese-made food for the time being. I'm distrusting the entire country's goods because of a few crooked greed-heads. That's a shame, because most of China's food products are probably safe.

[tomndebb]

I don't know. I think it can be quite reasonably argued that manufacturing defective or dangerous products could harm future custom - so that's an incentive for businesses to avoid doing it. Except that in this case, it would appear that the desire for short-term profit overrode such concerns.Unfortunately, it appears that the desire for short-term profits is an overriding concern for a lot of people who manage industries.

(I'm not sure that "unregulated" Capitalism is what we are actually seeing, so much as ineffective regulation. The Chinese are quite willing to administer capital punishment for white collar crime if it involves corruption and they have been executing inspectors and company managers who have sought to circumvent the inspection process with a certain regularity. It seems, however, that the opportunity for high gain makes the risk attractive in China.)

[mswas]

China is highly regulated. It's just huge and ineffecient.

[AskNott]

I'm getting more deeply involved in this thread than I had intended. I need to stand back a bit. Sorry.

[Voyager]

Unfortunately, it appears that the desire for short-term profits is an overriding concern for a lot of people who manage industries.

(I'm not sure that "unregulated" Capitalism is what we are actually seeing, so much as ineffective regulation. The Chinese are quite willing to administer capital punishment for white collar crime if it involves corruption and they have been executing inspectors and company managers who have sought to circumvent the inspection process with a certain regularity. It seems, however, that the opportunity for high gain makes the risk attractive in China.)
True, but would any of the punishments have happened if it were not for the reaction of the West? The Chinese have been suffering from this for quite some time, but the lack of a free press, and corrupt local officials, have prevented any action. Thanks to the corruption, Chinese industries are regulated in the same sense that the Soviet Union was a democracy. They have regulations about the theft of IP also - every so often there is some high profile confiscation of pirated material, but the stuff still seems to get sold freely on the streets.

We can see the reaction of the government also - first denying the problem, second saying it is a Western conspiracy, and thirdly banning Western goods in retaliation. Only then do they punish some high profile officials.

Since any Chinese Upton Sinclair would get tossed into the pokey, perhaps we should make the importers of goods from China pay for the increased level of inspections needed. That might force them to pay the true costs of their products.

[tomndebb]

They executed the man in charge of the Chinese equivalent of the FDA. I've seen no reports of lesser bribe-takers or the folks responsible for the melamine scandals being executed.I'm having trouble finding it, (I can't recall whether it was on Marketplace or Fresh Air), but one analyst I heard in the last two days indicated that the number of officials executed for various versions of corruption among inspectors and QA professionals in China has run into the hundreds.

[gonzomax]

Designed by Disney, but built where? The latest Fisher-Price recall is of toys made in China to F-P designs. As for the toothpaste (?) and tires, were there decisions to intentionally make faulty goods? My question is about greed, not mistakes by the manufacturers.

Fisher-Price, btw, is now part of Mattel.
China

[gonzomax]

http://www.breitbart.com/article.php?id=070802141728.aj3ewlf8&show_article=1 Capitalism fights all regulation. We have to be vigilant.

[Lemur866]

And note another problem. China doesn't have a free press. And since the government policy is to promote exports, any non-governmental reporting of problems are treated as threats that must be suppressed. So a Chinese Upton Sinclair isn't going to be able to publish a Chinese version of "The Jungle" because the government won't let him.

So non-governmental methods of regulation of businesses that work over here aren't allowed to work in China. You can't threaten to call the newspapers over corporate crimes, because the government protects the businesses rather than the consumers or employees.

[Ludovic]

If Bill Gates can send private soldiers over to the Google offices and burn it down and kill everyone there, what you have is not capitalism but feudalism."Okay, boys, buy him out!" It had to be said.

[mazinger_z]

http://www.breitbart.com/article.php?id=070802141728.aj3ewlf8&show_article=1 Capitalism fights all regulation. We have to be vigilant. I'm bored sitting in an airport while my DS re-charges....so, I will ask the following: WTF does this link have to do with your supposed "argument?" Capitalism requires regulation. When people say "free market" they mean, as at least one poster has eluded to: enforced property laws, equal protection under the law (that is, a means by enforcing contractual relations, however, capitalism can probably exist without this requirement, it just wouldn't be very efficient); privately owned means of production/resources; etc.

[Freddy the Pig]

Holding up a Communist dictatorship as an example of unregulated capitalism gives "strawman" a new definition.

China practices a heavily regulated, corrupt form of crony capitalism that looks about as much like a free market as I look like Barry Bonds. The state still has a stake in thousands of enterprises, especially in utilities and heavy industry, where obsolete plant holds little attraction for private buyers and the state fears layoffs. The state-run banking system is forced to prop up these enterprises with billions of yuan in non-performing loans. Many such government-run industrial plants are among the worst polluters in the world.

China recognizes no rule of law other than the dictates of the Communist Party, so even so-called "private" businesses are dependent upon clout and connections for permission to operate, for access to raw materials and capital, and for contract enforcement. Persons without such connections can be exploited and ripped off with impunity. Labor organization is forbidden. The "hukou" system ( http://home.wangjianshuo.com/archives/20060610_hukou_system_in_china.htm), although administered less oppressively than in past decades, still restricts access to education and government services for people moving without official approval, and the ability to grant and withdraw such permission grants employers a huge coercive advantage over employees.

Personally, I see China as an example of the dangers of oppressive government, not of unregulated capitalism.

[XT]

Personally, I see China as an example of the dangers of oppressive government, not of unregulated capitalism.

Exactly. Its a strawman to even attempt to compare what China has to free market capitalism...and its laughable to claim that Chinese industry is unregulated! Even at our worst, in the dark old days of crony capitalism here in the US we never dreamed of the levels of corruption and government nose sticking that they have in China today.

-XT

[AskNott]

If China has such an oppressive government and heavy regulation, from a business viewpoint, how did all these defective products get exported? As you may have read in The World Is Flat, today's China is not the Red China of old. It is a shell of communism over a burgeoning capitalist China.

Now, about that Strawman charge. I'm not trained in debate, but from my looking around in the last half hour, I think you are stretching the term. At the start of this thread, I didn't have an opponent. While it may be inaccurate to call China's manufacturing base unregulated capitalism (badly regulated is more like it,) I did not attack that premise, nor did I declare myself the winner.

I have to go now, to a family event. I'll be back later.

[Capt. Ridley's Shooting Party]

But ... but ... the Libertarians here have assured me that, contrary to what that alarmist old hack Dickens would have us believe, capitalists wouldn't even begin to think about dreaming about considering putting short term profits above he safety and well being of workers or customers.

No need for all that regulation. It just gets in the way of the market's benevolent hand.

The irony being, one of the men they routinely call upon to vindicate their crackpot economic fantasies, Adam Smith, was not averse to having the government interfere in the market when he thought it necessary (and that was pretty often).


I'm not trained in debate, but from my looking around in the last half hour, I think you are stretching the term.


Don't sweat it, the term's already almost as misused as ad hominem :p

[XT]

If China has such an oppressive government and heavy regulation, from a business viewpoint, how did all these defective products get exported?

Um...were you under the impression that totalitarian governments lack corruption? What gave you that impression out of curiosity? Defective products got exported despite an oppressive government and heavy regulation because the government officials (some of which have recently been posing for gunfire if you hadn't noticed) were corrupt....and since they in effect run and control everything, who was going to stop them (well, now that they've gotten such bad press over it I suppose those bullets are whats stopping them atm).

As you may have read in The World Is Flat, today's China is not the Red China of old. It is a shell of communism over a burgeoning capitalist China.

I haven't read The World Is Flat, so I can't comment on it. However, if they are claiming that the Communist government in China doesn't continue to have a strangle hold on business in China, well they are full of shit is all I can say...or grossly mis-informed. Business in China is certainly allowed a lot more leash room than in the old days...but the leash is definitely still there and can be jerked up anytime the government wants too do so.

-XT

[Lemur866]

If China has such an oppressive government and heavy regulation, from a business viewpoint, how did all these defective products get exported? As you may have read in The World Is Flat, today's China is not the Red China of old. It is a shell of communism over a burgeoning capitalist China.

China has an oppressive government. I wouldn't say it has "heavy" regulation, because the reality is that nobody in the government gives two shits whether your factory produces goods that are up to spec, or if it pollutes, or if the workers are safe, or if your goods are poisonous. They don't regulate that stuff because their goals are different. They want China's economy to grow, they want to get rich themselves, they their piece of the pie.

What China has isn't heavy regulation but rather arbitrary regulation. Make the right person shareholder in your company, pay off the right official, and you can do whatever you like unless your corruption comes to public attention. But if you fail to pay off the correct people, then you'll be shut down, your suppliers will dry up, you will be unable to get permits for anything, and so forth. And if your actions result in embarressing stories in western newspapers, you get a bullet in the brain.

The Chinese government has the power to shut down any business for any reason. They don't exercise that power because they are content to take the golden eggs rather than kill the goose. You can shear a sheep every year, but only skin it once. Of course, such a course is unsustainable in the long run, but for now everyone is happy...people have jobs, the party officials get rich, China's economy grows, and the prospects for future growth are good.

[Cervaise]

What China has isn't heavy regulation but rather arbitrary regulation.Beat me to it, I was going to say much the same thing. I would make the distinction slightly differently, though: China does not have regulation, in the sense of formal, well-disseminated rules and metrics with which industry must comply; rather, it has authoritarian control, in the sense that agents of the government can do pretty much whatever the hell they want in the name of whatever larger goal has been put forward by the state. In a regulated system, business can do what it wants as long as it follows the official ground rules; in the unregulated but highly authoritarian system, there is no comprehensive set of rules, except whatever the officials say they are whenever something unfortunate or unpleasant happens. Two very different things.

[AskNott]

I got the phrases "oppressive government" and "heavily regulated" from Freddy the Pig in the post where he said I was purveying straw.

Then xtisme, after also calling me a strawmonger, comes to a mysterious conclusion.
Um...were you under the impression that totalitarian governments lack corruption? What gave you that impression out of curiosity?
I never said any such thing. xtisme conjured this "impression" of mine out of thin air, then argued against it. That style of argument sounds almost like...no, it couldn't be that! :rolleyes: Could it? Naw.

[David Simmons]

Is this what America was like before the government began to ride on the businessman's back?More or less. Read up on the late 1800's and ealy 1900's and the food industry before passage of the Pure Food and Drug acts.

Great Britain is another example. Read Charles Dickens.

[Voyager]

Exactly. Its a strawman to even attempt to compare what China has to free market capitalism...and its laughable to claim that Chinese industry is unregulated! Even at our worst, in the dark old days of crony capitalism here in the US we never dreamed of the levels of corruption and government nose sticking that they have in China today.

-XT
There can be no corruption in capitalism? News to me.

In many rural areas, the factories own the government, not the other way around. It's done with bribes, but also with jobs. Sure the central government can crush anyone if it cares to, but for the most part they either don't know or don't want to know.

A few weeks back a Times reporter asking about the poison pet food was held prisoner by a factory owner for six hours. That's the sign of an autocratic government.

Having rules on the books and having them enforced are two different things.

[Sam Stone]

If the Pure Food and Drug act is what saved people from the horrors of run-amok capitalism, would any of you like to explain why we don't see endless shoddy products in industries that are largely unregulated? Say, computer hardware?

Perhaps you could explain why businesses seek out voluntary quality certifications like ISO9001 and PAY auditors to come in and evaluate their quality systems? Government doesn't mandate it.

This notion that products in a Capitalist society will be defective unless the government tightly controls their quality is simply a load of crap. The vast majority of traits of modern products that we associate with high quality have absolutely zero to do with government regulation. From the quality of the stitching in your jeans to the easy-open food containers you buy, you are surrunded by products of high quality, where the quality of the product was the result of great effort and cost, done voluntarily to meet the demands of the marketplace.

And by the way, it's a hell of a lot easier to bribe a government official than it is to pull the wool over the eyes of your customers for any length of time. And in many regulated industries, the phenomenon of 'regulatory capture' has allowed regulated industries to twist regulations to their benefit and shield them from the dictates of the market.

There will always be shoddy products. There will always be people who skirt the law, lie to their customers, or bribe regulators. But whenever this happens in an unregulated industry, people scream for more regulation. When it happens in a regulated industry... people scream for more regulation. It's the true constant.

[Capt. Ridley's Shooting Party]

If the Pure Food and Drug act is what saved people from the horrors of run-amok capitalism, would any of you like to explain why we don't see endless shoddy products in industries that are largely unregulated? Say, computer hardware?


For a start, I'd argue that food and computer hardware are qualitively different, in that it's obvious when hardware is faulty, whereas it's not obvious when, for instance, your food is tinged with arsenic.

But largely unregulated? Every piece of hardware sold in the UK (for example) has to meet, at a minimum, the British Standards ("BS") , as well as European Standards ("CE"), as well as meet the minimum requirements of consumer protection laws (the product is fit for purpose) etc. The days of unregulated industry are long gone in any industrialised nation.

[mks57]

If the Pure Food and Drug act is what saved people from the horrors of run-amok capitalism, would any of you like to explain why we don't see endless shoddy products in industries that are largely unregulated? Say, computer hardware?

Bad example. There is a large amount of "shoddy products" in the low-end of the computer hardware market, not to mention outright fraud and counterfeiting. There's never a shortage of people who are willing to do anything to make a buck.

[Ravenman]

This notion that products in a Capitalist society will be defective unless the government tightly controls their quality is simply a load of crap. Sam, you constantly bring this point up, but nobody is arguing that every consumer product must be regulated ten ways to Sunday. You've often talked about how heights of desks and chairs aren't regulated by the government, and yet the market takes care of that.

I have yet to see anyone argue that there ought to be government regulation of the heights of tables and chairs. Or what memory works with what computer, or the quality of golf clubs, the stitching on jeans, or whatever. When we talk about regulation, we're generally talking about protecting the health and safety of consumers: Barbie dolls should not be made with lead paint, noxious chemicals shouldn't be dumped into mountain streams, and so on.

It is pretty clear that China does not have a functioning system of regulatory controls to keep unscrupulous companies from making extremely dangerous products (eg, toothpaste and cat food) or dumping toxic waste willy-nilly into the environment. Perhaps if you could address how the market proactively protects people from real dangers -- either in China or elsewhere -- (as opposed to annoying, low quality products) better than government regulation, then you might have a point.

[XT]

I never said any such thing. xtisme conjured this "impression" of mine out of thin air, then argued against it. That style of argument sounds almost like...no, it couldn't be that! Could it? Naw.

If China has such an oppressive government and heavy regulation, from a business viewpoint, how did all these defective products get exported?

Um...were you under the impression that totalitarian governments lack corruption? What gave you that impression out of curiosity?

I'm asking you a question...one that seems pretty relevant to your post above. You asked how an oppressive government would allow defects to be exported. I'm asking you if you really don't understand that oppressive governments have corruption. Seems pretty cut and dried to me. Maybe you should go back and re-read it again in light of what you wrote, ehe?

-XT

[Sam Stone]

Sam, you constantly bring this point up, but nobody is arguing that every consumer product must be regulated ten ways to Sunday. You've often talked about how heights of desks and chairs aren't regulated by the government, and yet the market takes care of that.

I have yet to see anyone argue that there ought to be government regulation of the heights of tables and chairs. Or what memory works with what computer, or the quality of golf clubs, the stitching on jeans, or whatever. When we talk about regulation, we're generally talking about protecting the health and safety of consumers: Barbie dolls should not be made with lead paint, noxious chemicals shouldn't be dumped into mountain streams, and so on.

But my point is that even absent any regulation, these other industries still produce goods of high quality and low defect rates. Which would seem to be a good counter-argument to the idea that if the government doesn't regulate business, business runs amok and floods the market with crappy goods.

In fact, the vast majority of products are largely unregulated. Sure, a computer might have to meet some regulations on electrical safety and RFI emissions. But those are only two characteristics of computers. Why doesn't industry create computers that are electrically safe yet pieces of crap in every other way?

It is pretty clear that China does not have a functioning system of regulatory controls to keep unscrupulous companies from making extremely dangerous products (eg, toothpaste and cat food) or dumping toxic waste willy-nilly into the environment. Perhaps if you could address how the market proactively protects people from real dangers -- either in China or elsewhere -- (as opposed to annoying, low quality products) better than government regulation, then you might have a point.

I've probably explained the mechanism a hundred times on this board. No one listens. I don't have time to go through it again, but you might ponder this: After Enron went down, the government prosecuted a handful of people. The market punished the whole company and every other company that looked like it. Companies like GE that had capital divisions with fingers in many pies bent over backwards to open their books, submitting to voluntary audits, and restructuring their businesses to remove any questionable relationships, to avoid having their stocks hammered by the market. The market did a far more effective job of 'cleaning house' than did government regulators.

[Ravenman]

Why doesn't industry create computers that are electrically safe yet pieces of crap in every other way? Again, nobody is arguing against the fact that market forces tend to make products better, cheaper, and more reliable. What I am saying is that the market sometimes does a poor job of balancing short-term profit with the interests of workers, customers, and the public, and that people cannot necessarily rely on long-term market forces to continually guarantee the safety or efficacy of any one particular product, in the same way that our continually growing economy doesn't guarantee that nobody will lose their job.

Let's get a little less abstract: China's mine safety practices are just simply abysmal. Due to regulation, somewhere around two dozen US miners are killed in accidents each year. I believe China averages something like 4,000 mine deaths a year. There's also all sorts of other dangerous business practices that have caused scandals, like unregulated fireworks industries employing underage children and having the factories blow up killing scores.

Then, of course, there's the toothpaste and cat food. I'm just not clear what you're arguing specifically in regards to those examples: are you saying that it simply doesn't matter that Chinese businesses produced these terribly dangerous goods, because in the long run, the market will take care of those businesses? Why did the market fail to encourage these companies not to do seriously dangerous things? With respect to mine safety, isn't it possible that the lack of regulations combine with market forces to make the situation even worse, since labor is so cheap that there is no incentive for businesses to adopt safer working conditions?The market did a far more effective job of 'cleaning house' than did government regulators.I think we're speaking different languages here. When I talk about regulation of business, I'm not talking about ex post facto punishment of poor business practices or criminal activity. I'm talking about standards enforced by the government that stop dangerous products or practices before the public is harmed by them. In the example you bring up, the market response may have encouraged businesses to clean up their act, but the market didn't lift a finger to stop the life savings of many thousands of people being wiped out by Enron.

Before you misinterpret what I'm saying, I am not saying that the responsibility of government is to prohibit investment schemes that are on the up-and-up but may carry great risk. But clearly Enron was not on the up-and-up, and we have regulators that are supposed to investigate those kinds of practices to that people don't have their money wiped out by con men in expensive suits. That is the kind of system that China is completely lacking. The only question is, are the truly irresponsible features of China's business community caused by its place in a corrupt climate of business and politics, or because that is the way businesses tend to act when nobody is watching and enforcing?

[Cervaise]

Regulation has almost nothing to do with the quality of goods. It has a lot to do with their safety.

The computer industry example is actually a very good one. The government doesn't give a shit if Windows crashes ten times a day or if Intel's chips are faster than AMD's.

However: There is substantial, and growing, regulation in the area of disposal of computer hardware, because it contains potentially hazardous compounds that can't simply be tossed into a landfill, and because the industry demonstrated it was perfectly happy to throw its hardware into the landfill absent any rules to the contrary.

So thank you for offering an example that proves our point and undercuts yours.

[Voyager]

If the Pure Food and Drug act is what saved people from the horrors of run-amok capitalism, would any of you like to explain why we don't see endless shoddy products in industries that are largely unregulated? Say, computer hardware?

I can speak to that. In fact, we did see shoddy products in computer hardware, until the Japanese started beating us up. In the early 1980s, Teletype had to closely track parts from major component vendors, including Intel, because you could easily get the lot you rejected back. (Intel was mostly making memories back then.) About that time the Japanese sent a letter to HP basically saying your products suck.

I was sensitive to this, since AT&T did care about quality. A switch going down got a lot of attention - from a bunch of regulators.

Another example. Early Commodore 64s had a defect in the graphics chip that caused a sparkle problem on the monitor. I knew a VP there quite well, and he said that they were well aware of this issue and decided to ship anyhow and let consumers test for it.

As for China, a few years back motherboards started failing. It was discovered that the motherboard vendors had bought shoddy capacitors from a supplier. This affected a lot of different products.

The biggest difference is that a lot of computer products go to sophisticated customers. If you have one PC that craps out, you might think it is a fluke, but if you are an admin running a server farm with a thousand machines, you see problems very clearly, yell at your supplier, and dump low quality suppliers.

Finally, when I was in grad school my wife was the quality control director for a family owned vegetable cannery, fairly small. They had an extensive QA department, which sampled incoming cans, outgoing products, and audited the manufacturing process. She sent back traincars full of cans that didn't meet spec. Cans that went through the process were held before being shipped - once a foulup had a batch removed for storage without being cooked. They blew up from bacteria. The owners were good people, but they spent a lot on quality, and I'm quite certain they would have tried to find ways of cutting corners if not for regulation.

Bottom line, a broken C64 is unfortunate, but bad food kills people. How many deaths will you accept while the industry figures out that there should be quality without regulation - if it ever does.

[Voyager]

But my point is that even absent any regulation, these other industries still produce goods of high quality and low defect rates. Which would seem to be a good counter-argument to the idea that if the government doesn't regulate business, business runs amok and floods the market with crappy goods.

So, The Jungle was a fantasy novel? The reason the novel had the impact it did was that the stuff Sinclair wrote about was actually happening.

The purpose of Sarbannes Oxley was to ensure that managers signing off on financial reports actually know what they are signing. (Which you remember Lay said he didn't). I'm not expert in this, but I've read articles in trade rags saying compliance can actually save a company money, by getting the financial processes in better order. That was certainly true when manufacturing companies started cleaning up their processes for the quality push in the late-80s. I'm not denying that execs cry big tears about how these regulations make them noncompetitve, but that always seems to be the case.

[Voyager]

For a start, I'd argue that food and computer hardware are qualitively different, in that it's obvious when hardware is faulty, whereas it's not obvious when, for instance, your food is tinged with arsenic.

I wish that were true! In fact, there are many defects that escape tests and show up later in the field as customers exercise the hardware in ways the tests didn't. There are also sensitivities to cosmic rays, that might cause problems. High reliability computers expect components to fail, and have a substantial amount of checking hardware and software to deal with limiting the impact of the failures. It's far easier to detect arsenic in your soup than it is to detect a subtle defect.

[AskNott]

I'm asking you a question...one that seems pretty relevant to your post above. You asked how an oppressive government would allow defects to be exported. I'm asking you if you really don't understand that oppressive governments have corruption. Seems pretty cut and dried to me. Maybe you should go back and re-read it again in light of what you wrote, ehe?

-XT
I am aware that China has been hip deep in corruption since long before the Maoists took over. It's documented in Stillwell In China. Not only that, but every Chinese government since the 1930s has declared that corruption has been eradicated.

I'm also aware that corruption does not guarantee intentionally poisoned food. Argentina is also corrupt, but they sell us a lot of perfectly safe beef products. When was the last time a million cans of intentionally poisoned Argentine corned beef were recalled?

My question that you are so concerned over, "If China has such an oppressive government and heavy regulation, from a business viewpoint, how did all these defective products get exported?" was in reply to Freddy the Pig, who used those phrases to describe China, after he accused me of agricultural handicrafts. He seems to be alone in believing that Chinese industry is "heavily regulated." I didn't mention corruption for the sake of brevity. I have to watch myself, lest my posts get long and boring. :smack: Even a rookie China-watcher knows about the inherent corruption.

XT, the simple fact is I probably would not have come back at you and Freddy but for that strawman accusation. I started this thread to find out the various positions on the issue. Then you two slung mud on me, and I defended myself. I would have been happy to hear your opinion without that nastiness.

[Freddy the Pig]

AskNott: Your OP strikes me as more than an impartial question; your description of China as "nearly unregulated capitalism" where government doesn't "ride on the businessman's back" seems designed to elicit a particular answer. Even so, I perhaps should have clarified that I was responding more to posts #6 and #7, which gleefully ran with the premise of China as libertarian hell. Several subsequent posts seemed to accept this as a given.

I'm not much interested in whether the situation in China is best described as "heavily regulated", "corruptly regulated", or "arbitrarily regulated"; for my money all of the above are correct. The point is, it isn't anything close to a free market under the rule of impartial law. It's an object lesson in the evils of an overly powerful government.

[David Simmons]

The goal of capitalism is to maximize the return to the owner. This means that the business needs to be run as cheaply as possible and the price charged for the product placed as high as possible. Competition will police the latter but does nothing about the former. All businesses try to run as cheaply as possible.

One way to run cheaply is to dump your waste products into the river or the atmosphere. Another way is to use child labor (http://www.historyplace.com/unitedstates/childlabor/empty.jpg). Another way is to eliminate plant safety features and let society at large pick up the tab for injured workers.

A way to get rid of the price policing by competition is to enter into agreements as to prices charged, market dividing, or simply buying or running your competitor out of business.

All of the above are features of unrestricted capitalism. China of today is the US of the late 1800's and England of earlier still.

[Freddy the Pig]

The goal of capitalism is to maximize the return to the owner. This means that the business needs to be run as cheaply as possible and the price charged for the product placed as high as possible. Competition will police the latter but does nothing about the former.Of course it "does something" about the former. Competition limits how cheaply you can run a business, because you have to bid against rivals for labor and raw materials.

Unless, of course, you're in a place like China, where you can bribe a corrupt official to put your competitors out of business, or where you can enforce the "hukou" system to prevent your workers from leaving.
One way to run cheaply is to dump your waste products into the river or the atmosphere.Which is a tort--unless you're in a place like China, where the worst polluters (http://www.usembassy-china.org.cn/sandt/Liaoningweb.htm) are state-owned enterprises immune to either market discipline or legal action.It is commonly assumed that China's opening to the outside world after 1979, and the rapid economic growth that ensued, led to serious environmental damage, and environmental conditions clearly worsened during the 1980's and early 1990's. But of the two cases studied here, Dalian much more clearly embodies the post-Mao economic reforms, and its environmental record is clearly superior. . . . Soviet-style planning tends to bias economic activity toward high-polluting, capital-intensive heavy industries. Those areas of China that liberalized first and had more exposure to international markets naturally gravitated toward more labor-intensive industries and services. . . . In more economically backward areas, on the other hand, insolvent State Owned Enterprises cannot afford to upgrade their environmental controls, and local officials cannot afford to let them all go out of business. It should come as no surprise, then, that most Chinese environmentalists we talk to see China entry into the WTO as good news.

[AskNott]

Thanks for clarifying, Freddy the Pig. Now, I'll go back to the sidelines. This discussion goes more smoothly without me.

[gonzomax]

I'm bored sitting in an airport while my DS re-charges....so, I will ask the following: WTF does this link have to do with your supposed "argument?" Capitalism requires regulation. When people say "free market" they mean, as at least one poster has eluded to: enforced property laws, equal protection under the law (that is, a means by enforcing contractual relations, however, capitalism can probably exist without this requirement, it just wouldn't be very efficient); privately owned means of production/resources; etc.
They are unregulated and have A SLEW OF CASES. It is not that hard to follow.

[gonzomax]

Whats interesting is these are hybrid companies. Walmart has a city in China with many of their suppliers moving there.. They are American Corporations going to China to get low wages. The corps are making huge profits. China is on a building boom as long as corps continue to build there. The wages are low on an international scale but at least they have jobs and taxes collected where were none before. Win for profits and executives. Win for China. Lose for workers in the US.

[XT]

Win for profits and executives. Win for China. Lose for workers in the US.

If the goods were produced here wouldn't they have to cost more? So wouldn't that be a loss for...everyone else (besides these mythical American manufacturing workers) who shops at Walmart?

You really have no idea do you?

-XT

[gonzomax]

Yes the goods would have to cost more if they paid a living wage here. The short term profits are huge. Is there a future problem? Sure. If Americans buy less because they are making less will Walmart make less. Not if they can sell their junk to new markets. Of course in China they wont have to pay the prices we do.
It will take a while for our wages to reach a world average but that is where we are headed. there is no reason to pay American wages. They wont.
The future is grim for American workers. As a matter of fact ,even infrastructure work is being outsourced to Mexican workers to cut wages. Go to any working site and see. The government is letting immigrants come in and work . They could do a better job of stopping them on entry. They could prevent companies from hiring them. There is a paper trail for employees. They have no intention of stopping them. There is nothing special about America to a corporation. It is just another market .

[XT]

Is there a future problem? Sure.

I hate to break this too you gonzo...but the US hasn't been a manufacturer of those kinds of goods for decades. And yet your 'problem' has not materialized. I'm sure its poised to strike any decade now however...

If Americans buy less because they are making less will Walmart make less.

Um...do you have a cite showing this trend?

It will take a while for our wages to reach a world average but that is where we are headed.

Cite?

As for the rest of your post...best we don't mention it I think. If you would be good enough to provide the cites for your other (less, um, interesting) assertions however I would be much appreciative...

-XT

[gonzomax]

A cite for the future. WOW Ask much.

http://www.dailykos.com/story/2006/7/26/74756/7412


http://www.elecdesign.com/Articles/Index.cfm?AD=1&ArticleID=10062

http://findarticles.com/p/articles/mi_m1153/is_n10_v120/ai_20198260/pg_6 I can do this all night.

[Siam Sam]

Nitpick: It's spelled Wal-Mart.

[XT]

A cite for the future. WOW Ask much.

You should probably read what I wrote again. I asked you to cite the trend. And YOU made the assertion after all.

And a cite by bonddad, much as I'm sure he's an authority on the Daily Kos, isn't exactly what I'd consider the optimal source. Think you could maybe dig one up somewhere else? Also, even if I accept that wages HAVE dropped 5.2% (in 7 years), its going to be a rather long time before they are the equivelent of wages in China.

Your elecdesign link (gods know what that is) took me to an ad page btw. Why don't you quote out what you think are the important parts instead of these drive by links where I'm supposed to guess what point you are trying to make? Just to try something new, ehe?

-XT

[XT]

Nitpick: It's spelled Wal-Mart.

Yes it is...quite right! Apologies...I can't spell my way out of a wet paper sack. I'm sure that now gonzo see's the correct spelling it will all fall into place for him! No more drive by links, no more cryptic broken sentences! And from me? Definitely no more content free posts. It will be peace on earth, and good will toward men...cats and dogs living together! Etc etc...

-XT

[gonzomax]

Seems to me xt if you do not know of the downward effects of outsourcing and manufacturing in China ,you are being very selective in your reading. Why do you think we are building factories in China,a good will gesture for the Chinese? We must like them a lot. If we take our jobs and manufacturing to a place with lower wages ,what will the impact be on our wages.
In your wettest dream can you see wages going up? It is simple they move to pay less for wages. They move to escape environmental regulation. They move to escape product regulation. Sure it will create short term profits and the Wal mart family will become even bigger billionaires. I guess that that is worth it for you.

[David Simmons]

Of course it "does something" about the former. Competition limits how cheaply you can run a business, because you have to bid against rivals for labor and raw materials.

Unless, of course, you're in a place like China, where you can bribe a corrupt official to put your competitors out of business, or where you can enforce the "hukou" system to prevent your workers from leaving.Which is, of course, unrestricted capitalism and typical of the US in the 1890's.

The typical response to competition in an unrestricted capitalistic system is to eliminate the competition. You buy they out, you force them out, or you come to an agreement with them. Standard oil wasn't in competition with anyone for a price on moving their oil. They owned the railroad.Which is a tort--unless you're in a place like China, where the worst polluters (http://www.usembassy-china.org.cn/sandt/Liaoningweb.htm) are state-owned enterprises immune to either market discipline or legal action.Sure and the average person or even city doesn't have the resources to outlast US Steel. Such dumping went on right up until those meddlesome tree huggers started in.

One result of that is that US corporations move their operations to places where they can dump.

[XT]

Seems to me xt if you do not know of the downward effects of outsourcing and manufacturing in China ,you are being very selective in your reading.

And it seems to me, gonzo, that you don't understand history if you think that this trend of reduced manufacturing in the US is new...or that China is the reason. The US has been heading away from manufacturing for decades...and I don't think this is a bad thing at all. Essentially with our higher standards of living we can't compete with other nations in the manufacturing of things like textiles, say...and there is nothing inherently bad about that. In fact, it allows us access to cheaper textiles from other nations (to continue with that example).

Why do you think we are building factories in China,a good will gesture for the Chinese?

Well of course not, Mr. Strawman! The fact that its a good thing for the Chinese is definitely a side effect. Of course, WE aren't the sole builders of factories in China or anywhere else. You have a very (some would say offensively) western/US-centric view of things. Its not the Great White Masters(tm) who are solely responsible for bringing industry (or even capital) to the stupid/primative Chinee or Indian Wogs(tm), ken? You may not be aware of this, but they are quite capable of forming their OWN companies these days. I know its hard to believe, but its true!

If we take our jobs and manufacturing to a place with lower wages ,what will the impact be on our wages.

I'd say the answer would be (and in fact HAS been)...we will find something ELSE to do! Its a difficult concept to grasp, I know...but if we can't compete in the manufacturing arena anymore then we would have to find something else we CAN compete at. Like, say, service oriented industry!

I know its hard for you to understand, but the US hasn't been a major manufacturer for quite a long time now...and yet, though the workers and peasants are no longer toiling nobly away our economy has yet to collapse. In fact, contrary to your obvious belief we have one of (if not THE) strongest economies in the world, despite our lack of being able to make tee shirts or other cheap goods normally found on Wal-Marts shelves!

In your wettest dream can you see wages going up?

Well, in MY wettest dreams there are usually large breasted and large bottomed women romping about, to be sure. However, I'd say the answer to your question (if it is a question) is...its gone up in some sectors, and down in others. Certainly in the manufacturing sector its gone down...and will continue its downward trend as the US continues to move away from an industrial manufacturing base.

It is simple they move to pay less for wages.

In the unskilled or semi-skilled manufacturing industry, of course...thats kind of why the US can't really compete in that market, see?

They move to escape environmental regulation.

Certainly this is one of the factors among several.

They move to escape product regulation.

:dubious: How do you figure this? Unless they aren't planning to sell their goods in the US (or Europe or anywhere else WITH regulation), then they still have to meet the standards of the country buying those goods. For instance, if I decide to skip the pure food and water regulations and decide to manufacture a tained product to save money, thats great...until I try and sell it in the US or Europe and am unable too do so because I don't meet their standards. Truly you don't understand how trade works gonzo.

Sure it will create short term profits and the Wal mart family will become even bigger billionaires.

It will ALSO enable people (like the poor...remember them?) to buy goods for a lot less money than if you had attempted to force those manufacturing jobs to stay in the US, despite the fact that we can't compete in that arena.

I guess that that is worth it for you.

Why yes...it is. Considering that your way (trade protectionism, heavy import tariffs, heavy manufacturing subsidies to allow them to compete, etc) leads pretty much to economic disaster or at least economic stagnation.

-XT

[Sam Stone]

I'd say the answer would be (and in fact HAS been)...we will find something ELSE to do! Its a difficult concept to grasp, I know...but if we can't compete in the manufacturing arena anymore then we would have to find something else we CAN compete at. Like, say, service oriented industry!

You've got the order backwards. Americans can't compete for overseas manufacturing wages because they found something better to do. Americans won't work for $2.00/hr, because they don't have to. The U.S. has full employment, with a median wage about 10 times higher than that, and a bottom wage three times higher.

Some people just can't understand that when an economy advances to a certain point, it no longer makes sense to use its human capital in low value-added positions like semi-skilled factory labor. They're worth more than that, and they demand more than that.

This is the beauty of free trade and comparative advantage. Americans are no longer willing to work for $2.00/hr, but people in other countries are. Human labor is a cheap resource. So they get better jobs than they otherwise would have, and we in the west get our cheap manufactured goods. We both win. Put a trade barrier between that transaction, and the people in the poor countries go unemployed, and the price of goods in the rich country skyrockets because the labor costs quadrupled. Both sides lose.

If America suddenly started transitioning back to non-automated manufacturing, it would be a bad thing. It would be a sign that the U.S. is losing its competitiveness and can no longer compete in the rarified heights of high technology and professional services.

You'll note that there aren't a lot of gardeners and maids in the U.S. labor pool, either. Thus you have millions of illegal immigrants doing jobs Americans want done but refuse to do themselves. Do you think the American economy would improve if all those millions were ejected from the country? It would mean that a lot of jobs would go undone because there's no one to do them. It's a loss of a resource. That's why the President is so unwilling to just kick them all out.

[gonzomax]

http://www.thinkandask.com/news/jobs.html The shenanigans in counting the unemployed have crossed party lines for a generation or so. This one as always shows no intention to be truthful. This story is about how the manipulation of the unemployment statistics occurs.
As people exhaust their unemployment they are dropped off the unemployment rolls and simultaneously out of the base work force. This skews the rate greatly.
I was watching a German news program a couple days ago. They said their unemployment was at around 9 million. They added that if they counted like the US it would be 3 million.
Sam do you live in some kind of gated community without information on foreclosures and
business failures. ? There is a lot written and shown on TV. Are you really unaware of the economic perils of the US. ?

[XT]

You've got the order backwards. Americans can't compete for overseas manufacturing wages because they found something better to do. Americans won't work for $2.00/hr, because they don't have to. The U.S. has full employment, with a median wage about 10 times higher than that, and a bottom wage three times higher.

Preachin to the choir Sam. :) I think this is sort of a chicken and egg kind of thingy...and a bit more complex than you (and certainly than I...admittedly my language was sloppy in my post) are saying. The bottom line however is that the US doesn't do that kind of manufacturing anymore because we aren't competetive doing it, and thats overall a GOOD thing. Which was the main point I was trying (a futile effort, admittedly) to get across to gonzo.

-XT

[mazinger_z]

They are unregulated and have A SLEW OF CASES. It is not that hard to follow. Your posts are extremely hard to follow. This post -- I take great care not to call it an argument, because an argument actually entails some sort of logic, or say, an argument -- makes no sense, particularly in relation to anything that I've posted, or even to the link. Just to be clear, let me re-state what I said so that I can hopefully be a little bit more clear:

What does your link have to do with your line "capitalism fights all regulation" and what does that have to do with what is happening in China?

As others have stated, you need regulation in order for Capitalism to work. There are these things that legislators enact, perhaps you've heard of them, they're called "laws," these laws also regulate capitalism.

If you don't have laws, where might and power is the underlining enforcement of all transactions, then what you have is feudalism. You do not have more capitalism. Likewise, it's not capitalism that is being practiced in China. Care to refute?

[Steve MB]

If China has such an oppressive government and heavy regulation, from a business viewpoint, how did all these defective products get exported?
Because the producers of the defective products are cronies of the oppressive governors and the heavy regulators. Unless the stink gets so bad that somebody has to be thrown under the bus as a scapegoat (and one of the chief priorities of the Chinese government is to censor their own media and limit access by outside reporters to forestall such unfortunate embarassments), the privileged class does what it likes, with government intervening in its favor as requested.

As somebody put it earlier in the thread, what they have is feudalism, not capitalism.

[ForumBot]

Seems to me xt if you do not know of the downward effects of outsourcing and manufacturing in China ,you are being very selective in your reading. Why do you think we are building factories in China,a good will gesture for the Chinese? We must like them a lot. If we take our jobs and manufacturing to a place with lower wages ,what will the impact be on our wages.
In your wettest dream can you see wages going up? It is simple they move to pay less for wages. They move to escape environmental regulation. They move to escape product regulation. Sure it will create short term profits and the Wal mart family will become even bigger billionaires. I guess that that is worth it for you.
And I guess you want your shit job protected by the gubbiment so you can drive a Lexus instead of a Nissan while people around the world starve to death. Jobs go to those who need them most and are qualified to do them. If you won't work for less, obviously your skills are more valued elsewhere.

[gonzomax]

If the goods were produced here wouldn't they have to cost more? So wouldn't that be a loss for...everyone else (besides these mythical American manufacturing workers) who shops at Walmart?

You really have no idea do you?

-XT
The cost of producing furniture has dropped apprx. 40 % since it moved to China. The price has gone up about 7 %. How does that demonstrate the price break for consumers. It does indicate huge profits going somewhere. It also weakens the US. Jobs go prices stay the same.

[gonzomax]

http://www.businessweek.com/magazine/content/07_25/b4039001.htm?chan=top+news_top+news+index_businessweek+exclusives

Before you whine about cites. It is a radical lefty site. Business Week.

[XT]

Before you whine about cites. It is a radical lefty site. Business Week.

And before you attempt to attack me preemptively about about a potential 'whine' for cites you should perhaps actually read (and understand) the one's you give. That Business Week article doesn't say what you seem to THINK it says...even if their speculation is correct (which even they admit is based on a number of assumptions that may or may not be right).

The cost of producing furniture has dropped apprx. 40 % since it moved to China. The price has gone up about 7 %.

I don't know what to tell you except to re-read the paragraphs concerning this in your cite and try and understand what they are saying...and the context its being said in WRT their own theories on ghost GDP. Here, I'll quote the paragraphs for you from your own cite and let you ponder what it means:

WRENCHING PROCESS
Paul B. Toms Jr., CEO of publicly traded Hooker Furniture Corp., (HOFT ) recently closed his company's last remaining domestic wood-furniture manufacturing plant, in Martinsville, Va. It was the culmination of a wrenching process that started in 2000, when Hooker still made the vast majority of its products in the U.S. Toms didn't want to go overseas, he says, but he couldn't pass up the 20% to 25% savings to be gleaned from manufacturing there.

The lure ofoffshoring works the same way for large companies. Byrne of Accenture is working with a "major transportation equipment company" that's planning to offshore more than half of its parts procurement over the next few years. Most of it will go to China. "We're talking about 30% to 40% cost reductions," says Byrne.

Yet no matter how hard you look, you can't find any trace of the cost savings from offshoring in the import price statistics. The furniture industry's experience is particularly telling. Despite the surge of low-priced chairs, tables, and similar products from China, the BLS is reporting that the import price of furniture has actually risen 6.7% since 2003.
The numbers for Chinese imports as a whole are equally out of step with reality. Over the past three years, total imports have climbed by 89%, as U.S.-based companies have rushed to take advantage of the enormous cost advantages. Yet over the same period, the import price index for goods coming out of China has declined a mere 2.3%.

I bolded and italicized the relevent parts for you. As a hint, you have to read this part in the context of the rest of the article and BW's assertions about a ghost GDP, and how the statistics the government are using MAY be skewed or incorrect.

-XT

[BrightNShiny]

But my point is that even absent any regulation, these other industries still produce goods of high quality and low defect rates. Which would seem to be a good counter-argument to the idea that if the government doesn't regulate business, business runs amok and floods the market with crappy goods.

In fact, the vast majority of products are largely unregulated. Sure, a computer might have to meet some regulations on electrical safety and RFI emissions. But those are only two characteristics of computers. Why doesn't industry create computers that are electrically safe yet pieces of crap in every other way?

Yes, and in the US few people argue for Soviet-style product planning. What they argue for is regulation designed to prevent negative externalities and rectify information problems, and consumer product safety (which is what this thread is about) is a perfect example of a regulatory system designed to combat negative externalities. In the US, all consumer products are regulated by the Consumer Product Safety Comission, which has the authority to set minimum standards for products and issue recalls. Car safety is regulated by the NHTSA, which has the authority to set minimum safety standards for cars and issue recalls. We have plenty examples in US history where companies knowingly pushed unsafe products onto the market resulting in death and injury (see the Ford pinto). There are also other legal regulations and doctrines (such as the Implied Warrant of Merchantibility) which help to ensure that you don't get stuck with crap products.

I've probably explained the mechanism a hundred times on this board. No one listens. I don't have time to go through it again, but you might ponder this: After Enron went down, the government prosecuted a handful of people. The market punished the whole company and every other company that looked like it. Companies like GE that had capital divisions with fingers in many pies bent over backwards to open their books, submitting to voluntary audits, and restructuring their businesses to remove any questionable relationships, to avoid having their stocks hammered by the market. The market did a far more effective job of 'cleaning house' than did government regulators.

Perhaps no one listens because you're entire premise is faulty. First of all, there were hundreds of prosecutions by both the SEC and the NY attorney general, and many major companies and all the major NY trading firms had to either pay fines or enter into consent decrees or both. Then we got additional regulation in the form of Sarbanes-Oxley. And yet you freely ignore these convictions and regulations and simply declare all changes to be the result of the market. (BTW, I'm not a fan of S-O and think it needs fixing).

Additionally, lets say I accept your premise that the market is the sole reason for the corrections, then you've simply put the cart before the horse. The reason that people can put pressure on companies to change their behavior is that they largely have good information about the company's internal operations. And the reason they have that information is because the SEC forces publicly traded companies to disclose it through regulation. If you've ever read the Congressional hearings leading up to the 1933 Securities Act and the 1934 Exchange Act, you'll see that companies routinely spread false information in order to drive up share prices in the 20s.

[David Simmons]

If you've ever read the Congressional hearings leading up to the 1933 Securities Act and the 1934 Exchange Act, you'll see that companies routinely spread false information in order to drive up share prices in the 20s.And those acts need to be greatly strengthened as shown by the Enron and other financial capers at about the same time.

I don't see any market mechanism that forces people to be honest with the consumer if all producers lie.

[Sam Stone]

Yes, and in the US few people argue for Soviet-style product planning. What they argue for is regulation designed to prevent negative externalities and rectify information problems, and consumer product safety (which is what this thread is about) is a perfect example of a regulatory system designed to combat negative externalities.

I'm in favor of regulations that seek to improve the functioning of the market when it has negative externalities and information asymmetry problems. I'm in favor of the SEC. I'm in favor of regulations that punish businesses for not disclosing known defects.

Product safety laws fall into two categories - those that correct the defects listed above, and those that go farther and attempt to simply block otherwise voluntary transactions between two people because a regulator doesn't share the same values.

An example of a product safety law I would support would be a law mandating various indicator lights and headlamps on vehicles meant for public roads, and regulations that prevent people from buying vehicles that endanger others, such as cars with tires that are not rated for normal highway speeds, or laws that force sellers of vehicles to disclose the accident history and prevent them from rolling back odometers.

But there is another category of product safety law which goes much further - it is an attempt to protect you from what the regulator sees as your own foolishness, or an attempt at industrial management, usually at the behest of industry. The requirement for 5 MPH bumpers on cars in the 70's, for example, was essentially the result of rent-seeking behaviour on the part of insurers.

Here's a perfect example of the kind of split I'm talking about and where I draw the line. The FDA regulates drugs for two things - safety, and efficacy. There is a huge difference between them. The first protects customers from hidden flaws that they would have a hard time otherwise discovering. But that's where the FDA should stop. It's none of their business whether or not the drug is effective, so long as it's safe.


In the US, all consumer products are regulated by the Consumer Product Safety Comission, which has the authority to set minimum standards for products and issue recalls. Car safety is regulated by the NHTSA, which has the authority to set minimum safety standards for cars and issue recalls. We have plenty examples in US history where companies knowingly pushed unsafe products onto the market resulting in death and injury (see the Ford pinto). There are also other legal regulations and doctrines (such as the Implied Warrant of Merchantibility) which help to ensure that you don't get stuck with crap products.


That last is exactly the kind of overreach I'm talking about. Okay, the government can correct for externalities and market failure. But to go from there to government as the wise old dad who looks out for you and protects you from yourself is a huge, huge leap. The government has no business telling me that I can't buy a certain product because, in their opinion, it's 'crap'. That's for me to decide with my own money, thank you.



Perhaps no one listens because you're entire premise is faulty. First of all, there were hundreds of prosecutions by both the SEC and the NY attorney general, and many major companies and all the major NY trading firms had to either pay fines or enter into consent decrees or both. Then we got additional regulation in the form of Sarbanes-Oxley. And yet you freely ignore these convictions and regulations and simply declare all changes to be the result of the market. (BTW, I'm not a fan of S-O and think it needs fixing).


How do you think that compares to the punishment companies went through from the market? Some large companies lost billions of dollars of market cap in that shakeout.

And here's a big difference: If you have a situation where the results of fraud are simply that the CEO goes to jail, you've got a situation where the stockholders actually have an incentive to look the other way while their CEOs engage in shady business, so long as that business profits the company. The shareholders get the money, and if the CEO gets caught he takes the fall. But the market punishes the shareholders. It goes right for the source of the capital, which causes capital flight away from shoddy businesses, and greatly increased shareholder scrutiny. A lot of companies were forced into private audits by nervous shareholders, or chose to do it voluntarily to attempt to rebuild their stock prices.


Additionally, lets say I accept your premise that the market is the sole reason for the corrections, then you've simply put the cart before the horse.


Whoa. I didn't say it was the only source. I merely pointed out that an unregulated free market will not look like China, because the free market has its own regulatory mechanisms. If government vanished, the market would develop even more mechanisms to overcome problems such as information asymmetry. Would there be excesses? Absolutely. Would there be some market failures that, absent a regulatory body, would cause us problems? Probably. But then, government brings its own excesses, corruption, and problems. And I happen to think that they're largely worse, and that if we scaled back the amount of government interference in the economy we would be better off.

Anyway, I think it's bizarre that China would get held up as an example of capitalism run amok, when its economy is clearly heavily contolled. A much better example of the results of unfettered capitalism would be Hong Kong. There are no import or export tariffs. Business licensing is trivially easy. Food and Drug regulations are much more limited. Most product regulations only extend as far as labeling requirements to make sure consumers understand the risks of the product. Many goods are not regulated at all.

Hong Kong now has 30 times the standard of living of the Chinese mainland, despite having similar populations and starting from the same economic environment lot that long in the past.


The reason that people can put pressure on companies to change their behavior is that they largely have good information about the company's internal operations. And the reason they have that information is because the SEC forces publicly traded companies to disclose it through regulation. If you've ever read the Congressional hearings leading up to the 1933 Securities Act and the 1934 Exchange Act, you'll see that companies routinely spread false information in order to drive up share prices in the 20s.

You must have me confused with an anarchist or something. I have no problems with SEC regulations or the SEC itself.

[BrightNShiny]

I'm in favor of regulations that seek to improve the functioning of the market when it has negative externalities and information asymmetry problems. I'm in favor of the SEC. I'm in favor of regulations that punish businesses for not disclosing known defects.

You were asked by Ravenman how the market could prevent dangerous goods and environmental pollution, and I see nothing in your response to him/her that indicated you were in favor of regulation designed to prevent negative externalities and information assymetry. Now you are saying you favor those regulations. So, are those regulations necessary to prevent dangerous goods and environmental pollution, or not?

Product safety laws fall into two categories - those that correct the defects listed above, and those that go farther and attempt to simply block otherwise voluntary transactions between two people because a regulator doesn't share the same values.

An example of a product safety law I would support would be a law mandating various indicator lights and headlamps on vehicles meant for public roads, and regulations that prevent people from buying vehicles that endanger others, such as cars with tires that are not rated for normal highway speeds, or laws that force sellers of vehicles to disclose the accident history and prevent them from rolling back odometers.

But there is another category of product safety law which goes much further - it is an attempt to protect you from what the regulator sees as your own foolishness, or an attempt at industrial management, usually at the behest of industry. The requirement for 5 MPH bumpers on cars in the 70's, for example, was essentially the result of rent-seeking behaviour on the part of insurers.

I'll need you to post some links on this, as I'm not familiar with this specific piece of regulation.

Here's a perfect example of the kind of split I'm talking about and where I draw the line. The FDA regulates drugs for two things - safety, and efficacy. There is a huge difference between them. The first protects customers from hidden flaws that they would have a hard time otherwise discovering. But that's where the FDA should stop. It's none of their business whether or not the drug is effective, so long as it's safe.

I don't know how you're using the term efficacy here. If by efficacy you mean that the government won't let manufacturers sell drugs with claims of benefits that haven't been proven, then that to me falls under the realm of truth-in-advertising regulation which is designed to correct an information assymetry problem. You've already said you're ok with regulation to correct information assymetry problems, so what is your beef here?


That last is exactly the kind of overreach I'm talking about. Okay, the government can correct for externalities and market failure. But to go from there to government as the wise old dad who looks out for you and protects you from yourself is a huge, huge leap. The government has no business telling me that I can't buy a certain product because, in their opinion, it's 'crap'. That's for me to decide with my own money, thank you.

I'm not using "crap" in an aesthetic sense. Nobody is preventing you from buying David Hasselhoff CDs or Apple Computers, are they? I'm using "crap" to mean that the product doesn't function as advertised. Since this is again an information assymetry problem, should I take it that you're ok with it?

How do you think that compares to the punishment companies went through from the market? Some large companies lost billions of dollars of market cap in that shakeout.

And here's a big difference: If you have a situation where the results of fraud are simply that the CEO goes to jail, you've got a situation where the stockholders actually have an incentive to look the other way while their CEOs engage in shady business, so long as that business profits the company. The shareholders get the money, and if the CEO gets caught he takes the fall. But the market punishes the shareholders. It goes right for the source of the capital, which causes capital flight away from shoddy businesses, and greatly increased shareholder scrutiny.

The vast majority of trading in the US is done by a relatively small number of financial instituions and wealthy investors. These are the people who set share prices for publicly traded companies. Prior to Sarbanes-Oxley and the NY consent decrees, these companies had conflicts of interests which caused them to ignore financially quirky information coming out of companies like Enron. S-O and the NY consent decrees are designed to eliminate this problem. With the conflicts of interests removed, these large traders are better able to force down share price when companies are behaving funny.

The problem with your analysis is that you treat all shareholders and traders as being incentivized in the same way. They weren't. Incentives existed for traders to profit at the expense of shareholders. Government has stepped in to remove those incentives.

A lot of companies were forced into private audits by nervous shareholders, or chose to do it voluntarily to attempt to rebuild their stock prices.

There's a whole slew of new audit controls in Sarbanes-Oxley. If companies choose additional audit mechanisms over what S-O requires, well, that's nice and all, but the base-line auditing system is set by the government. Again, the market can create better alternatives, but you're being asked how the market will set the floor.

Whoa. I didn't say it was the only source. I merely pointed out that an unregulated free market will not look like China, because the free market has its own regulatory mechanisms. If government vanished, the market would develop even more mechanisms to overcome problems such as information asymmetry. Would there be excesses? Absolutely. Would there be some market failures that, absent a regulatory body, would cause us problems? Probably. But then, government brings its own excesses, corruption, and problems. And I happen to think that they're largely worse, and that if we scaled back the amount of government interference in the economy we would be better off.

Yes, of course some people will voluntarily choose to create a regulatory framework in an unregulated market. But plenty of people either won't or can't (say because of barganing problems or transaction costs). Additionally, the people who don't voluntarily submit to regulation will be able to externalize costs onto those who do. You're unregulated market will be an inefficient one, and a market with this much inefficiency is pretty much useless in my mind. Those types of markets lead to social unrest and instability.

As for government brining its own corruption, that's why we attempt to put checks into the way government functions, and then we try to let government function as a check on the market. If it's not doing an adequate job, than that's an argument for better government. I don't see how its an argument for less government.

Anyway, I think it's bizarre that China would get held up as an example of capitalism run amok, when its economy is clearly heavily contolled. A much better example of the results of unfettered capitalism would be Hong Kong. There are no import or export tariffs. Business licensing is trivially easy. Food and Drug regulations are much more limited. Most product regulations only extend as far as labeling requirements to make sure consumers understand the risks of the product. Many goods are not regulated at all.

Hong Kong now has 30 times the standard of living of the Chinese mainland, despite having similar populations and starting from the same economic environment lot that long in the past.

Personally, I don't give a crap for communists (and I'm using the term crap here in a scatological sense). But keep in mind that China's economy was decimated by the Cultural Revolution, so they're not really starting from the same place.

You must have me confused with an anarchist or something. I have no problems with SEC regulations or the SEC itself.

No, what's confusing me is that we're talking about product safety, dangerous products, and I suppose environmental problems, and you keep bringing up product quality.