Toy Story, Global Version

[marmar]

from TPM Cafe:


Toy Story, Global Version
By Jared Bernstein | bio


One of the impacts of globalization is the increased supply of goods, services, labor, capital, and so on. I’m not gonna go all breathless, Tom Friedman-ny about it, but it’s unarguably true. And that truth carries benefits and costs.

We’re seeing one harsh aspect of the cost side of the equation play out in the China toy debacle, and this raises some deeply important caveats about the way globalization is evolving.

Where was the regulatory breakdown?

Where is the market discipline?

Why is toy production so concentrated; where’s the global risk dispersion?



As stressed in this NYT piece today (“Mattel Recalls 19 Million Toys from China”), if a market-leader like Mattel is producing toxic toys, this may be the tip of the iceberg. One problem surfacing quite clearly is meta-outsourcing. Mattel outsources the production to factories in China to which they provide at least moderate oversight. But in the endless pursuit of lower labor costs, when those factories outsource, the oversight goes blind.

Which undermines the case for letting the “free market” handle the problem. Under Milton Friedmanomics, market discipline renders regulation unnecessary. Sovereign consumers will quickly recognize the problem and punish the bad producers by shopping with their feet. Bumbling government interveners will only make matters worse.

How quaint.

One can imagine a period of time when such logic might have held. Perhaps once a peasant or two fell ill from the toxic ale proffered by the village brewer, market discipline was quick and decisive.

But that won’t work with the China toy problem. It will take too long, and the damages can be irreversible. Globalization has created much more distance between supplier and demander and that jams disciplinary market mechanisms, creating both longer time lags and identification problems. Products have inputs from all over the place. Whom do you punish? How can you be sure which toys are safe and which ones you should avoid like the plague? There is a role here for government, a role that is demonstrably not being carried out today.

[TreasonousBastard]

1. What fascinates me about crying about China is...

that this is nothing new at all, but a continuation of what's been happening for many years.

Where was all the whining about shoddy goods and low wages when companies moved production from Connecticut and New York to South Carolina? What about the garment sweatshops that still exist in LA and NY?

Unsafe products and recalls have always happened, whether the gizmo was made in Massachuissetts or Mexico. Suppliers screw up, mistakes are made, boneheaded decisions are made... Friedman's an ass, but he is on to the idea that a well-managed company has controls and checks to see that these mistakes are identified and corrected before too much harm happens.

The only point to remember is that regulation is always absolutely necessary. Even Adam Smith said it was necessary, although the Chicago economists seem to forget that part. And it is necessary simply because there are too many companies that are not well-run and do not give a shit.

(Long before China's problems, I remember a European firm "saving money" by stretching its paprika with red lead-- I've been leery of red spices ever since. And don't get me started on the frozen shrimp scam.)