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Saturday, July 14, 2007

Corrective mechanisms

Government can play an important role in the provision of product safety. There are other mechanisms that greatly aid correction of failings in this area with less chance of harmful side effects.
To hear the drumbeat in Washington, you'd think trade barriers are the only way to protect Americans from tainted Chinese products. But the good news is that individual companies and the Chinese government are getting a lesson in free-market branding and quality control that will do more to promote safer products than trade barriers ever will.

American companies have not always realized how expensive Chinese-manufactured goods can turn out to be once the cost of low quality is included. Naiveté is as much to blame as greed. Western companies sometimes fail to understand how Chinese manufacturers do business--especially the way many factories outsource some work that has been outsourced to them. Several supply-chain and quality-control consultants report an uptick in business over the past few years, especially among U.S. and European small- and medium-sized enterprises.

Government does have a role to play. In the U.S., the FDA has been working to disseminate information about dangerous products so consumers and importers alike can protect themselves. The Consumer Product Safety Commission has been working as usual to facilitate product recalls.

The least productive response is U.S. protectionism, which will lead to higher prices and less competition. Other countries will respond by also using quality as an excuse for trade barriers, the way they already have against U.S. beef after a rare case of "mad cow" disease. The best education for crooked Chinese capitalists is likely to be the harsh judgment of American business partners and consumers.
Their standards improve or they lose out!


Oroborous said...

That's a fine Utopian ideal, but, for instance, people routinely ate adulterated and tainted food before Upton Sinclair, The Jungle, and the establishment of the Food and Drug Administration and federal inspection standards for meat.

The market alone cannot regulate the quality of all goods sold, since market participants all have imperfect knowledge.

There also need to be established and widely known penalties for providing substandard goods.

Harry Eagar said...

Obviously, you haven't been to a Wal-Mart.

Howard said...

If communications were as slow and limited now as they were 100 years ago or even 30 years ago, I would probably be much more interested in aggressive government action as a corrective. I'm OK with it but word of tainted products now spread like wildfire with the attendant effects upon producers and distributors reputations and consumers purchasing decisions.

Harry Eagar said...

Actually, such word does not spread all that well. Visit your health food store and contemplate the goods on offer and then get back to me.

Either they don't contain the ingredients they claim to, or the ingredients don't do what is claimed for them.

It was not so many years ago that deliberately contaminated cooking oil killed thousands of Spaniards, and that went on for well over a year.

Bret said...

The Spanish government must not've done such a good job either then.

The problem is the sheer volume of stuff that we all consume. The governments of the world can only test so much of it. To get it all, they'd basically have to hire ALL of us to do nothing but testing!

The best thing the government can do, in my opinion, is to have clear laws prohibiting selling things to consumers that are tainted and to provide the institutions (courts) to enable consumers who end up with such goods to get reasonable compensation. Of course, it's tough to get the balance right even with this course of action.

Harry Eagar said...

That's true but efficiency has never been an element of Spanish government.

China has a government, too, sort of. It is best described as inactive.

Market forces in China seem to have been pushing toward less quality, not more, though.

Oroborous said...

Regarding the health-food store goods, when there is a problem, mostly it's that they don't contain enough of their active ingredient to be effective.