Does unregulated capitalism look like China?

Great Debates
61

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).

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™ who are solely responsible for bringing industry (or even capital) to the stupid/primative Chinee or Indian Wogs™, 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!

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!

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.

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

Certainly this is one of the factors among several.

: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.

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.

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

62

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.

63

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. ?

64

Preachin to the choir Sam. :slight_smile: 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

65

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?

66

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.

67

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.

68

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.

69

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.

70

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).

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:

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

71

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.

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.

72

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.

73

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.

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.

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.

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.

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

74

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?

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

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?

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?

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.

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.

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.

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.

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.