The Great Wal-Mart of China

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Few
people today, except for a few out-and-out socialists, would argue
against free markets in principle. Most people now recognize that
capitalism provides the common man with a vast array of quality
goods at affordable prices, thereby improving his lot, whereas state-controlled
economies, such as that of the former Soviet Union, inevitably produce
shortages of necessary goods (let alone luxuries) even for the elite.

At
the same time, however, few would also argue for a completely laissez
faire approach to markets. After all, were it not for government
regulations, most people believe the following would occur:

  • Businesses
    would exploit workers, paying them wages far below what they
    deserve and forcing them to work under grueling sweatshop conditions.
  • Businesses
    would force customers to pay exorbitant prices for shoddy merchandise.
  • Outsourcing
    and importing would transfer jobs from wealthy countries to
    poorer countries, with neither population benefiting.
  • Many hiring,
    firing, and promoting decisions would be based on connections
    in the old boys' network rather than on productivity and merit.

The
most notorious alleged example of these practices is, of course,
Wal-Mart, whose very success has bred contempt for it among Americans
of all classes and political persuasions. Wal-Mart's importing of
so many goods from China seems to be one of the primary bugaboos
of all Wal-Mart haters, for it encapsulates in their minds most
of the above supposed problems with capitalism.

Fortunately,
Time magazine, not the most likely of sources, has come to
the rescue of the barons of Bentonville with an
outstanding and upbeat piece
on the positive effects of Wal-Mart's
doing business in China. The result is an essay that not only helps
rescue the reputation of one of the world's most maligned corporations
but also goes a long way to prove that capitalism improves everyone's
lives without any government intervention whatsoever.

First
let's consider the issue of the alleged exploitation of workers
in factories. While it is true that the wages, hours, and safety
standards are not at the level with which Americans would feel comfortable,
it is also clear that they are all improving. Remember that Western
labor conditions started out in a relatively poor state and improved
over time, owing mostly to increased productivity. In the same way,
as China's workers become more productive, their wages and working
conditions will improve. If wages were not improving, after all,
it would make little sense for Wal-Mart to open stores in China
since they could not expect their potential customers to have the
money to purchase anything. As it is, they've opened 46 stores and
plan to open the same number in the next two years. Furthermore,
in the next year, Wal-Mart "will train some 25,000 new employees
in the art of delivering those everyday low prices to China's growing
middle class," according to the Time report.

It
seems that just as the Chinese government, still officially communist,
is learning that opening up its markets to international trade benefits
the Chinese people as a whole, many in the United States are drawing
the lesson that closing our markets to international trade, especially
from China, would somehow help American workers. Of course, all
it would do is force consumers to pay more for goods, thus worsening
their lot further. As Joe Hatfield, head of Wal-Mart's retail operations
in China, told Time, "If you stop stuff from [abroad]
coming into the U.S., it would mean $180 blue jeans. Is that what
Americans want?"

As
to labor standards, it's obvious that the Chinese government doesn't
regulate them much, if at all, or the sweatshop conditions that
do prevail in many factories wouldn't exist. Therefore, we can expect
the Chinese people to continue to labor under such conditions for
year to come – or can we? Not if Wal-Mart has anything to say about
it. According to Time, "[s]uppliers, including those
who sell to Wal-Mart indirectly through other companies, must limit
their work week to 40 hours plus no more than three hours of overtime
a day, meet safety requirements and provide decent accommodations
for workers." "To enforce the standards," continues
the Time article, "Andy Tang, Wal-Mart's Far East manager
for ethical standards, travels across China, making unexpected visits
to all of the company's suppliers. In 2004, more than 6,500 representatives
of suppliers and factories underwent standards training." In
other words, what the government is failing to do to improve working
conditions, capitalism is doing of its own volition.

Everyone
knows that the rallying cry of Wal-Mart is "always low prices."
The question is: Does the quality of the merchandise on Wal-Mart's
shelves suffer as a result of its relentless drive to reduce prices?
Andrew Tsuei, another Wal-Mart official, says no. "We drive
prices down," he told Time, but not "to the point
where factories are making losses. We're helping them to become
more efficient." This only makes sense, for if Wal-Mart forced
prices so low that factories lost money, those factories would go
out of business and Wal-Mart would be left without products to sell.
Sng Lai Kee, head of the Catalina lighting factory in Shenzhen,
agrees. As he recounted to Time, "Wal-Mart's requirements
are very tight – on quality, ethical standards, production lead times.
They've pushed us to achieve better in all ways." Again, Wal-Mart
can't afford to put either expensive or low-quality goods on its
shelves, or else its business will suffer. For Wal-Mart to succeed,
its suppliers must succeed. Exchange in the free market is indeed
mutually beneficial.

What
about the dreaded outsourcing? As everyone "knows," it
clearly benefits China at the expense of the U.S. Actually, though,
as the Time article points out, most of the manufacturing
jobs left America long before Wal-Mart became a major player. They
went to other places in Asia, such as Taiwan, Hong Kong, and South
Korea, and those countries are now seeing some of those same jobs
lost to China even as their own populations' living standards continue
to rise. Meanwhile, as discussed earlier, the increased number and
quality of jobs in China are helping to produce a burgeoning middle
class, and people in both China and other countries served by Wal-Mart
are enjoying higher quality goods at lower prices, thus improving
their standards of living. Also as noted earlier, Wal-Mart's outsourcing
to China has brought improved working conditions to the employees
of its suppliers, a clear benefit to said employees.

Finally,
Wal-Mart is helping to break up the old boys' network in China.
Wal-Mart brings "respect for the individual," as Time
put it, adding that "[u]nlike in most Chinese companies, the
system is transparent – guanxi, or personal connections, don't
matter . . . ." It is a management style that, says Time,
many of Wal-Mart's "young Chinese employees find liberating.
In most Chinese companies, managers typically share little information
with employees, and promotions usually depend on whom you know."
At Wal-Mart it's different; merit rules the day. As Alan Li, deputy
manager of the Beijing Sam's Club, told Time, "It doesn't
matter who you know here. All that matters is your work."

China
has gone from a completely state-controlled economy to one of more
or less unfettered capitalism. The results are exploding economic
growth; more and better jobs, especially among those dealing with
Arkansas's dukes of discounts; and a rising middle class. Meanwhile,
the economies of the West grow much more slowly, if at all, while
onerous regulations such as Sarbanes-Oxley are piled on one after
another and governments continue to spend and go into debt as if
there is no tomorrow.

Perhaps
we are right to fear China, not so much for its potential military
might as for its economic might. As the Chinese continue to learn
and apply the lessons of economic history – namely, that capitalism
and free trade are always and everywhere good things and that the
best thing government can do is get out of the way – the West
drifts ever closer to socialism. As the capitalist countries of
the West helped to sweep Soviet socialism into the dustbin of history,
so the capitalist countries of Asia may sweep Western socialism
into the same dustbin. By then some poor country in Africa may be
making the brooms used to finish the job while the Chinese move
on to bigger and better things.

June
27, 2005

Michael
Tennant [send him
mail
] is a software developer in Pittsburgh, Pennsylvania.

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