Those Hidden Costs

I had lunch with a gentleman I consider a friend last Friday. He's a libertarian, and a really sharp guy, and I always enjoy our discussions. Never heated, always challenging, he's fun to talk with about a wide range of topics. He routinely comes back to a topic that is near and dear to his heart: the hidden (and high) costs of regulation. Truly, there are numerous examples that would illustrate just how absurd this can be (witness that the government regulates how much water is in every flush of your toilet - assuming you're not living in an old house as I am).

Yet, I saw this article today, and read it mostly out of a desire to read something that would reinforce my thoughts on the disparity between our culture and that of China. And wouldn't you know it? I found something in common.

"The Qingping market is dirty," said a Guangzhou-born taxi driver, surnamed Mo. "It's dirty because it's old, and the government is unwilling to put up enough money to fix it."

Ah, yes, the ever-loving "government." Of course, as anyone who reads here knows, I am referring to the external variety. Like it or not, until we find a means of reintroducing the self-government gene to people, and since men aren't angels, we're going to require some external government.

And while my libertarian friend might cringe, this got me to thinking about the high costs of no regulations. Remember the SARS epidemic in 2002? The same article notes that 8,000 people worldwide were infected, and 800 died. Maybe SARS wasn't that deadly (sounds like the winner of the "worst slogan in the world" contest). But how about the next virus that springs up because of the filthy conditions in some of these markets?

All of which leads me back to familiar ground. Until someone can show me otherwise, balanced government remains the only means I have been able to discover that has the ability to revive self-government and ensure a rebirth of this Republic.

Free Trade? Fair Trade?

We've gone around on this before, most notably here.

I've struggled to articulate what, exactly, I've been meaning in most of these discussions. But, I read something today and I realized where I've been lacking: real-world examples. Short of finding someone who'll share doing-business-in-China horror stories with us, let me share the following.

An investment bank I know of publishes a quarterly journal highlighting research and analysis by their practice groups. One group focused its contribution on China, from which I quote:

"Among the most significant risks in implementing a successful market entry strategy are:

- A partially privatized business environment which allows unfair trade practices. For example, in many large industries such as steel and mining, banks (which are quasi-governmental agencies) provide below-market rate loans to State Owned Enterprises ('SOEs')." (emphasis mine)

And later…

"- A legal system, despite its current transition to full World Trade Organization compliance, which fails to adequately protect intellectual property and contractual arrangements. The inadequate protection results from both/either insufficient codification of rules and business principals (sic) and/or lack of enforcement. Many companies which have developed sources in China have been surprised by the quickness with which knock-offs are developed (e.g. gear and apparel by The North Face)."

When one hears politicians tossing around terms like "fair trade" or "free trade" it is wise to sit up and take note. Large is the answer to the question: what is the opportunity for mischief? Yet, there remains a fundamental challenge in trade relations when one party respects property rights and the rule of law, and the other party doesn't.

The hard truth is this: as a country, we want cheap stuff more than we want liberty for other people. Democratic societies won't be able to provide us that dirt-cheap labor needed to manufacture our stuff as cheaply as possible, so until 1) we change or 2) our trading partners become free societies, we're going to be facing this dilemma.

Which I would guess would be a long time.

I'll try and see if I can get some stories of how the social/political risk of doing business in China has hurt some companies, and will try to remember that my points would be so much more effective if they had facts to support 'em!

A Lesson in Illinois

Aha! At last, I think I have pin-pointed the difference of opinion.

Mr. Hargis, you know I love you like a Brother, and that I continue to turn this over (and over, and over, and...) only shows how concerned I am about understanding where we differ.

You said something perfectly succinct in the comments from the last post: "To me, the question of whether the chicom regime is legitimate is almost beside the point. The fact is they are there, and they have a billion people at their disposal. Do we wait for the Chinese to win their own freedom, or do we start now and help them undermine totalitarianism every way possible?You know my answer."

If I can, I'd like to revisit an ongoing issue right here in the State of Illinois, and use it as a parallel to what we were discussing. As I mentioned in a prior post, Illinois is staring down a rather punitive Gross Receipts Tax. Blagojevich promised entitlements and got elected; now, he's attempting to make good on his promises. Given that Republicans are a minority in the General Assembly, there's a good chance that this will pass and become a reality. Consumers will be hurt by this: since this is a 1% tax before any expenses, this can and easily will be passed on to consumers. Businesses will leave the state or will source components of the manufacturing process from out-of-state companies.

All of this is bad news. But I'm not entirely unhappy. Allow me to explain.

This is how it is supposed to work, if you're a believer in balanced government like I am. We have the freedom to make mistakes, and they can be very painful. We already have a fiscal crisis, and may someday soon have a total disaster on our hands. I'm OK with that, as long as we learn from our mistakes and I grant you that's a big qualifier. I'd be much happier if entitlement spending were happening at the county level, because I'd at least have the option of moving, but thank God this is happening at the state and not federal level. Yes, I know entitlement spending is out of control at the federal level, but I'm speaking specific to Illinois right now. The governor is proposing taxes to pay for entitlements, which is at least in the right ballpark.

What does this have to do with the Chinese? Simple: I think sometimes - most times - things have to truly get worse before they can get better. That's just a part of human nature - we're disposed to suffer evils while they are sufferable. Do I want the regular Chinese citizen to suffer unnecessarily? Of course not. But if suffering is necessary to correct problems, isn't any attempt to avoid that hardship merely going to prolong the eventual pain?

Thanks again to all for the lively discussion!

Good Conversation

I'm starting a new post, because I want to take the discussion started under my Barack post in another direction. That, and 40 comments later the discussion has changed enough to merit another posting. ;)

I have a question, or maybe just a clarification...

"It is my position that the government has no business interfering with peaceful voluntary transactions, whether between me and my local Kroger, or between me and a Cuban cigar manufacturer."

Mr. Hargis, I don't disagree with your position, but I have been troubled as of late by the nature of our commercial and political relationship with China. I've started to notice talk radio - the Laura Ingraham Show in particular - beginning to pick up on this topic. I'm hoping you can discuss this with me.

Although Carter tried to turn his back on Taiwan, we're committed to the defense of that country. Recently, Chinese leaders declared that they have no interest in freedom, and that "democracy" is probably 100 years away from reality. I have long thought that our commercial relationship with China is supporting a regime that oppresses its people - witness the allegations of their treatment of followers of the religious movement Falun Gong. Tiananmen Square wasn't so long ago, although it seems that people conveniently forget this.

I think that at some level, government has a responsibility to check the interests of private enterprise. After all, if men were angels, we'd need no government - isn't that true about human nature? If you accept this, you'll acknowledge that some people (certainly not a majority) are of weak character and will take advantage of others for their benefit. And since corporations are merely collections of individuals working as one legal entity, isn't it reasonable to expect that government has a duty to regulate business activities at some level?

I object to the sentiment that manifests itself on the pages of the Wall Street Journal Editorial page - that the United States is essentially America Inc. and that should be the basis for national decisions. There is a strong sentiment in this country that what is good for business is good for America, and I can't say I agree with this.

Our trading partner China is openly hostile and dishonest. That we can get cheap goods from them seems like a shortsighted mortgaging of our sovereignty.