My business partners and myself are all previous toy industry designers. In fact one of my partners worked for Mattel itself. After that we all worked in the fashion industry for several years. All of that said, we've collectively gone over and spent some serious time in Asia. From Hong Kong to various small factory towns/hovels in China. From Taiwan to Korea. And none of this recent ruckus is new, news or really a surprise to anyone accept maybe the consumers out there in America who don't really want to know anything about a product except how much more cheaply they can buy it.

The Mattel CEO (I think) held a press conference a day or two ago and had the audacity to say something along the lines of "there is no price tag on safety". Riiiight. Safety in amortized into the manufacturing cost of any and all product. A toy will have one or two less spray-ops and look like crap if that's what it takes to hit the price point. The toy industry is a nickel and dime business. It's not fun at all and the movie BIG should have been named TALL as in Tall Tale. And while they do think about safety, they think about the price point more. And they are fully aware of the shadier aspects of doing business in these very murky and unregulated regions. In fact that's what makes things so damned cheap. A shoe factory that does Nike or Adidas will turn around and on the side use the molds that were developed and paid for by Nike or Adidas to do knock-off brands. And in order to hit thier price point, most companies have the factories there outsource whatever they can - purchased parts, paint, printing, you name it. That's how almost all business is done over there.

So all of this noise recently about China and how terrible the food and products coming out of there are has really got me thinking. I'm thinking about the timing of all of this "news". The increasing sway China now has on the world stage and over us in certain financial terms seems to me to be the motivation behind all of this. I don't believe for one minute it has anything at all to do with consumer safety. I know better. And I hate to parse words but read the quote released by Mattel regarding this latest recall and you don't see them say "because the paint has lead in it" but rather "because the paint has more lead in it than we consider safe". It may seem like a fine line but with how our regulatory agencies have been bought and paid for (see the FDA) you can't help but have noticed how often and how far that "safe" line tends to move. Isn't it ironic that all of these stories are breaking now with all of the financial rumbling and flexing going on between China and the United States?

Dr. Bernstein
With all due respect, you are wrong.
The boom in China has occurred because the central govt let the provinces do whatever they wanted, and rewarded provinces who did well. Those provinces are awash in favoritism and corruption. This policy is very different, entirely different, from a consistent national rule of law. You don't get safe products and processes by executing an official now and then. You get it from a rule of law.

You also don't get safe products and processes from 'market management', whatever that is. If a country has no deep and consistent rule of law, trade with that country must take that into account, and that requires money American corporations are not willing to spend.

Although China obviously has a quality control problem that needs to be addressed, it is not a coincidence that this problem has surfaced when the US is frantic to reduce its trade imbalance and credit imbalance with China. The US policies that will be proposed to deal with the safety of Chinese imports will really be aimed at these latter issues, and we must evaluate them accordingly.

Peter Miller

I wonder what Jared Bernstein thinks about some of the things Thom Hartmann observes in his book Unequal Protection.  A quick peruse of reviews found that most covered his principal thesis.  But he has quite a bit to say about globalization and product safety under the regimen of the WTO and GATT.  He makes a number of claims which seem pertinent and foreboding here. 

For example, p. 148, "These trade agreements use tribunals and Dispute Resolution Panels (DRPs) to review complaints.  Their largest effect has been to put corporations on a level ground with national governments.  Corporations can sue countries under NAFTA, and many have successfully won tens of millions of dollars for 'unfair restraint of trade' because of laws designed to protect the environments or workers.   In other words, there may be a day coming when our standards for health and welfare may be challenged by corporations less responsible (perhaps) than Mattel.  Too many recalls?  Challenge the law on lead paint.

aMike

What strikes me most is that everyone has a recall this week, because it's in the spotlight. And then we'll move on, and at no time will we ask what happened up to that point. It's not just about globalization or China. It's a case study in media coverage of business period.

John 

http://www.haberarts.com/

I've liked the parts of that book that I've read and you've motivated me to go back to it.

Your post reminds me that far too often, it's assumed that trade agreements really promote free trade.  Often, the truth is they create a set of rules that benefit investors on both sides of the deal at the expense of other interests.

Of course, we have no trade deal with China and are unlikely to do so.  Yet they've grown to be one of our biggest trading partners, further evidence that globlaization does not require bilateral trade deals.

I read somewhere (wish I could remember where) that this problem of quality in China has historical antecedents. In the 19th Century silk was first imported to England from China, then Japan. Japan delivered higher quality silk, China was unable (why?) to upgrade silk quality, and lost market share permanently.

I wonder whether China is such a behemoth that problems solved by govt regulation elsewhere are simply insolvable in China. You have a dog eat dog variety of capitalism that causes suppliers to undercut one another to such an extent that quality and safety improvements aren't feasible.

The "China Syndrome" was discussed in one of my classes last week on corporate governance.

There were a number of Nigerian attendees in the course and they spoke of having to "go slow" in introducing the concepts of corporate governance to their country.

In Nigeria, they explained, it was a violation of social norms not to employ family and friends, tribal allegiances, etc., when a person came to power, therefore it necessitated "going slow" with reform.

I then asked them if they had seen any reports of the former head of the Chinese FDA being shot as a result of his bribery and collusion in untested drugs being approved and brought to market. Many raised their hands. I then asked them the following hypothetical:

"Would you favor the head of the Nigerian oil company being shot if it were found to be that Nigerian oil caused car engines to explode because of adulterated oil?"

Many in the group did not grasp the idea that if a country is only dealing with it's internal audience, the rules can be of a simple social contract. When the country is involved on the world stage it needs to send a signal to the world community that it is serious about raising it's standards to that of the rest of the world community.

Now I could get all "Chinese bashing/all the time", because I frankly think the Chinese government is ready to take down the US any way they can, whether it's dumping our debt for Euros or poisioning our pets, but the main theme is that they will only send the sacrificial icon our way and not address the issue of the Chinese adulterating their product to attain the highest profit.

I'm amazed, and yet not, that this bunch of capitalists in the administration would allow COMMUNISTS to beat us with our own CAPITALIST system.

It seems that the Bushistas would allow the country to be sold down the river for a borrowed buck......

Alphonse ( Al ) Kada
Iranians are fighting the Americans in Iraq so they don't have to fight them on the streets of Tehran

For market discipline to work, there has to be a high degree of competition and all participants have to be well informed about the properties of what they are buying and selling. Neither of these two conditions hold in this situation.
There is a high degree of market power on the part of the sellers, but not the consumers, and the consumers have very incomplete information about the products they are buying. How many of the buyers would have bough these toys if they had known that they contained lead based paint?
Under such conditions market discipline breaks down and strict government regulation is needed to protect the public. We will not get this as long as the Republicans control the government.

Well written. As manufacturers put more and more pressure on their suppliers to hold down or reduce their costs, the suppliers become even more desparate to hold on to the business and risk specs violations. While the manufacturers are wringing every last penny profit they can, the price in the store doesn't seem to drop, in fact it usually goes up.

Glorious Globalism in a nutshell!

You raise a very important distinction, so thanks.

My understanding is that this is but one recall, and that lead paint has been responsible for about half the toys recalled in the past year or so.

Your larger point, Mattel should not be allowed to pretend this is all the fault of Chinese producers, is also very important.  The buck stops with Mattel on this--of course, they are the ones who are responsible for guaranteeing the safety of their toys.

JNB: I understand you 'charge for a day even if the taks takes me a day and a half' but what do you do when it take you half a day?  I'm just messin' with ya.

Also, it's not clear how productivity even works for you musical types.  Like we say, "there's no productivity gain from playing the three minute waltz in two minutes..."

As I responded below, my take on the China case is that it's complicated.  The powers that be have a shakier grasp than is commonly assumed, and they are convinced that only fast economic growth will save their butts.  So they think in terms of GDP growth and jobs--opportunties for the millions streaming into the cities, but not, as you correctly suggest, in terms of labor rights.

Just a while ago I read a short article about the future of India and China. India is a democratic country with free press. If things go wrong, citizens of India can write letters, vote, demonstrate, or in the worst case, riot.

The Chinese can do no such thing. The powers that be in China believe that massive GDP growth is needed to keep the citizens happy, or at least not unhappy enough to commit a revolution or something.

While China is economically significantly ahead of India, the economic success is built on a somewhat shaky political foundation. If something goes wrong in China, it could all come crashing down.

See http://news.bbc.co.uk/2/hi/south_asia/6947567.stm

Howard,

From what I've read on the microfinance initiatives, the social network is the single biggest driver of success in the repayment of the loans.

The difference between the social structure in that arena and the prevailing ethic in China (IMHO) is that success is measured by profit alone in China, while the social structure surrounding microfinance measures the overall business in it's willingness to perform for the group, ie; advising others in the group on business strategy, repayment practices, etc.

I'm not sure that corporate governance and anti-corruption initiatives in Nigeria could be embraced within the social compact. The endemic nature of the level of corruption within the society is best viewed by looking at the names and phrases actually given to it- several come to mind:

"Standing in the middle of the stream"

"{It's} Your turn to eat"

These are applied to the newly ensconced in government, donor projects- anyone in a position to be able to say "no" and stop an action, even if they are not the one who could say "yes" and enable the action.

In China (here I'll substitute my inner Chertoff and use my gut feeling) I feel the prevailing ideology of profit is almost Ferengi-like because profit means the ability to pay a bribe. Once that ability is established, it's probably the biggest difference between the haves and have-nots.

Alphonse ( Al ) Kada
Iranians are fighting the Americans in Iraq so they don't have to fight them on the streets of Tehran

Howard,

for the last 30 years a neighbor across the street was a Muslim family from Yugoslavia.
Nicest people you could ever meet. The patriarch, who wore the long white gown, white hat, and had a white beard, was a Lieutenant in the Yugoslav Army during WWll.
After the Germans occupied Yugoslavia he went into the hills and fought as a partisan for the duration of the war.
This really surprised me, as his appearance didn't suggest him as a guerilla; small, soft spoken.

Anyhow, he used to spend a lot of time in some kind of storefront Muslim Assn in Philly and he once told me of how he and his companions there used to finance Yugoslav newcomers to America, getting them set up in various enterprises, jobs, living quarters, etc. He also told me he was sad that this wassn't happening as much as it used to.

He was always ready with a greeting of a smile, a wave, and a hug/kiss on the cheek.

He passed away two years ago. I miss him.

Speaking of regulation, don't miss Krugman for Friday, on the mortgage crisis, using that dreaded phrase "market failure."

John 

http://www.haberarts.com/

Jhaber,
Do you have a link, please?

But didn't they get "Most Favored Nation" status under Clinton? I know that's not a special, bilateral deal, but it made the terms much more favorable.

Referring back to the Hartmann piece, (which I don't have at hand, so I'm partly remembering--dangerous at 66), I believe he remarked that the WTO also adjudicates disputes among members in ways which can negatively affect legislation in individual countries--legislation designed to protect the environment or workers' rights in country "x" can be overthrown during the dispute resolution process, in secret, without appeal to the Constitution, in the case of the U. S. A. 

Whoops. I lied.  I do have it at hand, and the reference is to pp. 219, ff. 

In a developing nation where there is little or no cost or penalty to dumping toxins into the air or water, manufacturing is vastly more profitable than in a developed nation where toxins must be captured, stored, treated, and cleanly disposed of in environmentally friendly ways. . .

But according to the WTO [tariffs] are considered "restraints of trade"  It is illegal under WTO rules to consider how or who makes a product or at what level of pay it is manufactured"

Again, I'm taking his word on this.  I've not read widely about it.

aMike