CPSIA - size doesn't really matter

UPDATE: Also, don't miss this and this at Overlawyered.

I have been hammering on one aspect of this CPSIA fiasco for some time now. In reaction to the sanctimonious "defenders of the public good" at USPIRG, PC, UCS, KID, etc., I have been trying to point out that they have supported a law which favors mass production and economy of scale even as they speak out against "Big Business". But now it's time to look at other angles; it's a complex mess, so there are many to choose from. [1]

First, there seems to have been a failure to distinguish what is meant by "large" and "small" manufacturers. I have probably been guilty of this myself whenever I was making reference to economy of scale and mass production. There is no "bright line" rule to distinguish the large from the small, the mass produced from the merely large production run, no answer to the Sorites paradox. There will be a temptation, I think, to use arbitrary numbers like "sales greater than $1M" or "fewer than 5 employees," but these will be less than satisfactory.

The million dollar level brings to mind rich people running sweatshops, but it is commonplace to generate sales figures like that with a reasonably small company of happy employees and -- while generating a comfortable living -- without making anyone fabulously wealthy. That is the beauty of entrepreneur capitalism (as opposed to finance or the "other" kind): it generates jobs and meets consumer demand without generating a great deal of inequality. Setting an exemption for companies smaller than some arbitrary size like this is going to have negative repercussions on both the jobs and consumer fronts.

One of those repercussions is the devastating impact it is going to have on the companies which, while big enough to be regulated, are still smaller than the rest. Their sales may fluctuate from year to year, so it may not always be clear to them if they are going to have to test in any given year. If they tend to compete with manufacturers below the line, they have a cost disadvantage because the other guys don't have to test. If they tend to compete above the line, they have a cost disadvantage with companies with large production runs. The middle will tend to get squeezed more than either end, and will therefore collapse.

The second repercussion will be a cyclical problem. As the middle clears out (everyone either gets big or fails), consumer choice will deteriorate. Consumers will start finding the smaller manufacturers making interesting stuff. Those smaller manufacturers will see demand skyrocket and will attempt to meet it. They will grow rapidly, probably making it to the level of the bright line rule. Suddenly, they will have to change their game to incorporate product testing into their production processes. Many of them will respond in one of several ways: either they will manage it well; manage it well but face a change in their pricing structure leading to a drop in sales; manage it poorly and see their costs quickly overtake their revenues; or manage it poorly by hoping to get away without testing.

Is the latter a big deal? We have been watching the tweets and posts of Jennifer Taggart, a lawyer who owns her own XRF gun (anyone remember Paladin?) and has been posting some of the interesting results. It is interesting how many bits of hardware -- mostly bling -- that fail the lead tests. So far, she has found the following:

(1) Vinyl is often stabilized with lead. So, I've found lead in fake leather, vinyl purses (particularly children's and doll purses), vinyl or fake leather shoes, vinyl raingear, diaper changing pads, diaper pages with built in changing pads, vinyl changing pad covers, vinyl mattress covers, etc.

(2) Fake pearl, fake shell or opalescent buttons. Almost universally. [also, she recently tested sequins with the same result]

(3) Fake inexpensive pearl decorations attached to clothing or in children's jewelry.

(4) Some red dyes in textiles.

(5) Lots of those decals on the front of t-shirts. I'm not a fabric industry person, so I don't know if they were ironed, heat transfer, screened or what. They seemed not to be silk screened but I don't have the vocabulary to be accurate.

(6) Crystals. The lead may not be accessible but the lead is generally well above 600 ppm.

(7) Charm like decorations attached to clothing.

At the risk of slaying the sacred cows of some of the really small manufacturers, many of them tend to buy blanks -- unadorned t-shirts, onesies, and so on -- to decorate. This is one of the many easy ways to enter the industry. Unfortunately, they seem to think that since they aren't buying anything that says "Big Al's 100% Pure Lead Geegaws", since they aren't a big name manufacturer, and since they sew at home and don't have employees, then obviously they aren't violating the law (and in some cases have decided that they aren't even a manufacturer). At the risk of getting off topic, many of them are WAHMs (Work at Home Moms) or "Mom-preneurs" and believe that the fact that their bodies spontaneously (or nearly so) grew and then shed an independent life somehow gives them an aura of saintliness and whatever they produced by gluing lead crystals to a t-shirt blank therefore has a patina of perfection. This attitude is at least as dangerous as what might happen at the opposite end of the scale, if not more so.

At the other end of the production scale, large producers work directly with mills and hardware manufacturers to create custom ensembles of products. Also, they are an easier target for lawsuits both because of their visibility and their deeper pockets. Your kid swallows a lead pendant from Reebok, they settle for an undetermined amount; your kid swallows a lead pendant from some unknown working in her garage, you never find her or, if you do, you win a suit and will be lucky to see the funeral costs covered (I think they call such defendants "judgment proof"). The large producers may be more motivated and able to make sure that nothing enters their production stream that would fail a test. May be: Mattel didn't.

So we will find a constant problem with small companies growing into the range of the bright line rule delineating "big" from "small" and then finding that they have to do things that they never had to before. Some will be successful, others will not.

In fact, one really difficult problem will be determining during the course of a year whether or not you meet the new rule. Say I ended last year with $999,999 in sales. I don't have to test, right? But in October or so of this year, I sail through the $1M mark. Now, do I have to go back and test everything I made this year? Or do I see it coming and lay everyone off in September? Same thing with hiring employees: rules that kick in at some level usually force such companies to avoid maximum efficiency: they opt to avoid growing, hire temps, or they outsource.

Another aspect to this is the fact that it is not just manufacturers who are affected, but also distributors and retailers. They are not going to want to risk confiscation, fines, or jail, and will therefore insist that everyone -- large and small -- deliver the GCC documentation. For one thing, they can't advertise products as safe unless they can back up the claim. So small producers will have to produce the GCC and therefore pay for the testing even if the government exempts them. It isn't what Nanny Sam wants, it's what your customers want. In this case, your customers are retailers, and they're afraid of Uncle Sam. In fact, Wal-mart isn't just asking for GCC's, they're asking for the test results.

There is a further differentiation between retailers and manufacturers. Fly-by-night manufacturers can set up sweatshops and produce without giving a single thought to compliance. They can forge test results and GCCs. They can sell their products through traveling reps, at trade shows, and so on. When they get raided, they shut down one facility, incorporate under different names, and start up a new one. Location doesn't matter to them. That is absolutely not the case for retailers: if they aren't in the same location under the same name day after day, they never get the foot traffic to make sales possible. Retailers have more reason to be paranoid and therefore most strict about enforcement.

So everyone who thinks that a small business exemption will solve your problems, think again. Small business will not be able to sell into any meaningful venue. I'm not sure how this plays into the dynamic of the rapid growth of some of those small businesses: it makes it more difficult and so possibly means that only the better business managers will succeed in getting to the higher level and will therefore be okay, but on the other hand it makes it more difficult for anyone to get larger.

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[1] Which is why it should be repealed so we can start over.

Transparency, again

In this post, I introduced two variations on a definition of transparency:

• How are decisions arrived at? Who has the decision authority? What is the basis of a decision? How may the decision be appealed?
• Authority and responsibility must lie at the same locus.

But depending on the context, transparency also means a few other things. With respect to commercial activities, transparency means that you get what
you pay for and it is known to you what you are paying for it. Seen from this standpoint, surprisingly, one of the more transparent transactions in which you will ever engage is the purchase of gasoline. They put the price on a great big sign out front; the price even includes all federal and state taxes; and you control the trade at every step. You could argue that it is less than transparent since the amounts explicitly going to the state and feds are not usually spelled out. But since everyone in the local area has the same burden built in, what difference does it make where it goes? It's the cost to you that matters.

The opposite of this might be the purchase of a house: first you negotiate with the previous owner, then you negotiate with the bank, then you have to pay title insurance, mortgage insurance, transaction fees, flood insurance, and possibly a few other things before you take possession. Later, you find that there are tax advantages and disadvantages (depending on where you live). Other complex deals are comparable: the purchase of a cell phone with a plan and a car with financing involve bundling, hidden costs, fees, taxes, and so on.

For the most part, though, purchasing stuff in a modern economy has become so much more transparent than it was here in the past, or the rest of the world even now. Most of my daily transactions are closer to the gasoline. They post a price, you select the standardized product, you swipe your debit card, your bank transfers the exact amount to their bank, and everyone is happy. Quite different from the bazaar trade in which you weren't sure of the price or the quality/quantity you were getting, and it was risky just carrying your cash on you.

On the other hand, the modern world has made such transactions the opposite of transparent when looked at from another angle: you don't really have any idea what you are getting or how it got here. How much Nigerian or other blood was spilled bringing that gasoline to market? Were those khakis sewn by kidnapped children in India? How many pesticides and effluent went into the production of your spinach? I'm not going to link examples to each of these or the many other stories we hear on a daily basis. You know them as well as I, perhaps better.

I just thought it was worth pointing out that modern crypto has made the money part of our transactions incredibly secure, so secure that we may soon be able to carry on large swaths of economic activity in cyberspace and outside the surveillance of our insect overlords. However, the actual creation and transport of matter, of things in meatspace, cannot be secured with the intelligent application of prime numbers and collision-free hash algorithms. So, how does one create transparency in the creation of hardware?

There are a few open source hardware movements. The Economist just highlighted some of them (may be a $ link). In it, they mention the Chumby, the Neuros OSD, the RepRap (not mentioned in the article, a comparable project is Fab @ Home), the Tuxphone, OpenMoko, GumStix, and Eric von Hippel's book, Democratizing Innovation. Additionally, I have come across a large number of open source Wi-Fi projects, including this mobile hotspot (but the parts are not OS), this solar-powered grid project to bring the tubes to kids in the developing world (an idea complementary to the $100 laptop), and especially the Linksys WRT54G router. And let's not forget open source automobile projects Oscar, Society for Sustainable Mobility, and c,mm,n (I proposed a framework for how an open source car project might work here).

When you can fire up the matter compiler and build your own car after paying for the matter with a secure transaction, the world is going to be a very different place.

PS: I ran into this article in Wired immediately after posting.

Google is not a search engine. Google is a reputation-management system. And that's one of the most powerful reasons so many CEOs have become more transparent: Online, your rep is quantifiable, findable, and totally unavoidable. In other words, radical transparency is a double-edged sword, but once you know the new rules, you can use it to control your image in ways you never could before.

Food for thought.

Wal-Mart and sustainability

UPDATE: In response to some thoughtful criticism I got from a container shipping industry executive, I edited a portion below. I had said that the state helped break transport unions, but in reality they are still a force in the industry. It would be more accurate that the state forced them to accept change.

I got interested in some of the responses on this post on Environmental Economics. If Wal-Mart had claimed altruistic motives for some of their policies, that would properly be called "greenwashing". However, they weren't. Tim Haab was basically pointing out a truism: Wal-Mart's interest in sustainable measures (including hawking CFLs, incorporating passive solar for lighting and active solar for electricity, and so on) is done for selfish reasons: to make money. Like any post involving Wal-Mart and sustainability, it became a lightning rod for people with definite policy agendas. Given that I am likely to either defend or attack Wal-Mart and sustainability, depending on the context, I have an opinion but no definite laundry list of policies I'd like to see enacted.

You could summarize the many variables and value judgements in truth table format with about 27 variations (3^3) and assign each to an ideology. The variables are Wal-Mart, sustainability, and planning/government, each of which people may label as good, bad, or benign/irrelevant. Wal-Mart good, sustainability irrelevant, government bad is the default position for the vulgar libertarian. Wal-Mart bad, sustainability good, planning good is the default position for the Progressive. W-M bad, sustainability irrelevant, gov't good is the default for the populist/conservative. W-M good, sustainability bad, gov't benign is the evangelical right (she drives an SUV and has 6 kids).

I think my entry in the table would be "Wal-Mart benign, sustainability good, planning/government bad". Wal-Mart doesn't "drive" the system the way both the Progressives and the vulgar libertarians say that it does. Rather, the system created Wal-Mart. Going by Chandler's Visible Hand, people responded 100 years ago to the first department stores (Marshall Field's) and then to the mail-order stores (Sears, Woolworth's) the same way they do to Wal-Mart today: by claiming they would eat away at local businesses. Well, if it wasn't Wal-Mart, it would be someone else.

So I tried to point this out and emphasize the fact that it is state capitalism that creates the unsustainability, of which Wal-Mart is just a delivery boy. Our system looks like a giant vacuum cleaner that hoovers up resources in the developing world and kicks them out back here; Wal-Mart is the least fancy exhaust portal. We the people continue to support policies which produce "efficient" systems for delivering products to us. Those systems are a combination of transportation, energy, and credit subsystems that interact with cultural values to both create the demand and impose costs on the use of alternatives.

For example, we have national energy policies that ensure the profitability of large electrical monopolies who generate from coal and natural gas. This will be defended as efficient because it is highly engineered to look that way from the standpoint of the producer and the consumer. However, from other standpoints, there are externalities that are not accounted for. Those externalities include both the pollution and the intangibles, including the isomorphism around the chosen system. This is still something I'm working out, but the isomorphism includes high voltage AC-based transmission and distribution (which increases the cost of using alternatives, like LEDs, or introducing alternative sources, like solar[1]), an emphasis on greater supply (rather than demand-based solutions such as increased insulation or more efficient motors), centralization (rather than distributed generation), and isolation (rather than integral with the users so that the externalities fall on them). When the design was established 100 years ago, AC was a brilliant improvement over DC, regulated monopolies were promoted as the only viable alternative for generating and distributing AC power, and the accumulated engineering successes within that political framework have been impressive. But nothing is so impressive as the socio-political engineering, including a nearly invincible cloaking device and a strong superstructure made of an alloy of the Edison Institute, politicians, populist regulation cheerleaders, discount rate receiving electricity-based industries (like electrical steel furnaces), coal miners unions, dividend receiving widows and pension funds, and soccer moms worried by the so-called de-regulation that is nothing of the kind. Given a different political framework, the counterfactual engineering successes would be just as impressive, but the overall social efficiency (including the external costs) could be much better.

We furthermore have policies that promote and protect the use of petroleum, including "free" taxpayer-supported road systems and the Carter Doctrine. We have policies that promote and subsidize long distance shipping of goods, including eminent domain and taxpayer support of railroads (mostly as a historical fact, not current policy, though the pension plans still receive special tax recognition and grade crossings are your problem, not the railroads') and container ships. The container shipping history is more recent and includes several very interesting factors. Not only did the state (including the federal government) help break [force] the longshore unions who opposed [to accept] the shift to container ships, but the cities, states, and federal government paid for the infrastructure, including the highway systems, harbor improvements, and dock facilities (cranes, rails, etc.). Today, taxpayers foot the operational costs, including infrastructure maintenance (harbors and roads) and cargo inspections (thanks to our interventionist foreign policies, the great transportation system that brings goods from the world is also a potential Trojan Horse for WMDs), but the investments are promoted as tax-yielding investments rather than the revenue consuming corporate welfare programs that they are.

All of this infrastructure, what W. W. Rostow would call social overhead capital, was put in place in the 60s and 70s, long before Wal-Mart became a force. And yet, having taken advantage of it, Wal-Mart is seen by some as the bad guy. Those who hold that view are mostly self-designated Progressives, the same people who favor central planning for efficient management of the economy. This is the main reason why the two groups -- those who see the infrastructure as the pinnacle of efficient engineering, Wal-Mart as benign, and sustainability as irrelevant, and those who see globalization as the evidence of Western greed, Wal-Mart as the embodiment of evil, and sustainability as the new religion -- talk past each other. One looks only at the engineering and sees none of the underlying political structure that brought it about (and perhaps even opposes any government interference with this "free market" system), and the other refuses to admit that their policy preferences are simply the most recent incarnation of the same policies that got us into this mess in the first place. They want another patch on the binding on the dressing on the bandage on the abrasion caused by the crutches they promoted for a fit patient in the first place.

And to top it all off, we have the same social engineers looking to solve the sustainability problem by imposing unsustainable, modern, Western values onto the undeveloped countries whose citizens are the victims of this system. For them, the real problem in the world is not Western-style consumerism, it's those other people who breed like flies because they're ignorant and poor. This obviously plays into biases some have against swarthy "others", but does not necessarily spring from those motives. And it seems to have escaped the attention of the planners that such lifestyles, having been practiced for millennia, are inherently sustainable.

But no, we're going to retrain them rather than us. First, as the story goes, we have to promote growth. In a recent post, Dani Rodrik says,

"What kind of a growth strategy should this [developing] country follow? A strategy that focuses on expanding employment opportunities in the rural areas where most of the poor live? Should it consist of expanding their capabilities, by investing directly in education and health? Or should it focus on wherever the economic activities that will provide sustainable sources of income growth into the future lie, even if these may be in mostly urban areas and likely to foster greater inequality in the short-run?"

He concludes the latter. But he isn't the first: Rostow explicitly proposed that strategy in his Stages of Growth: increase the efficiency of farming to free up and feed a substantial labor pool that can move to urban areas and work in heavy industry. You can do this by subsidizing cash crops (for export) instead of traditional crops (for consumption) and by providing social overhead capital (transportation). Diana Davis' history of the French colonization of Algeria in Resurrecting the Granary of Rome shows that they accomplished the former by several means: confiscate public lands used by nomadic herders, outlaw traditional farming methods (like using fire to clear scrub), and ban the payment of taxes with in-kind payment (force a switch to a cash economy). People who suddenly couldn't sustain themselves by traditional means and now needed to raise money to pay taxes migrated to the cities to look for jobs with French employers. Note how the preferred policies of modern social engineers are remarkably similar to the policies of colonial powers in an unenlightened age.

After claiming that "The joint stock company owes its existance [sic] to [increasing returns], not so much to state (or other) promotion," in response to which I pointed out the above, one of the commenters on the Env-Econ post, Reason, listed his favored set of policies to reduce population growth:

1. Increasing the duration of education which increases the costs of having children
2. Providing social security which reduces the benefits of having children
3. Better public health so that people can be confident their children will survive
4. Peace (same reason as above)

Having selected government policies to solve a problem, he found no opportunities for anarchism to solve the same, as if he had actually searched for any. I'm not going to defend outright anarchy in a world unused to anything but increasingly active states where force is the first resort, but I should think it obvious that smaller states are generally not pugnacious, so he was wrong about his fourth point not being addressed by anarchism. [2] More importantly, though, he failed to explain how 1, 2, and 3 were going to be funded in a pre-takeoff, sustainable society of the type found in the undeveloped world.

Such societies are marked by their traditional, subsistence farming practices, and their children are a necessary source of labor and the primary retirement pension for their parents. Trade is frequently made by in-kind payment. For example, Diana Davis notes the achaba property arrangement in which herders exchanged their labor for pasture rights in Algeria. In order to introduce education and social security systems to take away the parents' labor and pension incentives, there must first be a system of taxation and management. These emphasize the state rather than the community as a central cultural institution and establish the state as central collection and dispensation authority in addition to, or perhaps in place of, its role as night watchman. More importantly, however, it forces the people to abandon traditional methods of trade and agriculture and to switch to crops and methods or other uses of their labor which are easily traded for cash. That means that they must switch to crops or labor of value to people who have cash, i.e. the developed world. The cash crops must have an export value, or the labor must be in an export industry.

Now, just where do they think The Gap, Nike, and Wal-Mart get their labor, sweatshop or otherwise? This is exactly the point made by Ellenita Muetze Hellmer (about which I wrote here).

Given that the greatest advances in public health are typically made by applications of civil engineering rather than medical science, Reason's third point is the step which usually gets the state involved first in sewage projects, then in national transportation infrastructure (roads, rails, ports), and then in "other" engineering projects (oil field development, power facilities, civil defense, air bases, nuclear fuel processing). I know that's a very unconvincing linkage, but I predict that you could draw these direct lines if you only knew enough of the underlying history. After all, if you have the spontaneous creation of private engineering capability and a weak or decentralized state, those engineers won't go looking to develop a military capability because the politicians and bureaus won't exist or have the means to pay for it. Compare the early US -- where military facilities like Ft. McHenry were still conceived as defensive structures; the design and construction were ad hoc, Golden Carrot-type contracts (award a prize to the best designer); and community-based (the federal government granted money to local communities and provided the construction design) -- to modern US military-industrial arrangements where contractors conceptualize, design, build, and endlessly refine offensive weapons while the spin-offs are touted as beneficial to the public (the internet from DARPA, Tang from NASA, etc.). Or consider the military pedigree of modern quality control theory.

When people in the developing world are employed by consumer-oriented industries, what values are transmitted? The employees at Nike factories in Viet Nam first bought bicycles (sustainable) and then motorbikes and now look forward to moving up the consumer ladder to a car. In China, cars (especially with "foreigner" plates) are a highly desired commodity and the sustainable bicycle culture is all but dead. The developing world, with encouragement from the social engineers in the developed world, is building a sketchy replica of the type of economic system whose money they wish to attract. They believe they can attract that money by feeding the West's insatiable maw with container ships full of cargo. I called this (tongue-in-cheek) a Cargo Cult (which seemed to offend odograph, though I don't understand why). Unlike the actual Cargo Cults, it may succeed in attracting the money. For some people, for a while. However, it is not the road to sustainability and it is unlikely that 9 billion people will succeed in enjoying the lifestyle currently enjoyed in the West. The problem lies with us and our chosen means, not them and theirs. The solution lies with change in our society, not with them choosing our existing means.[3]

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[1] Yeah, I know: where would the LEDs and solar cells come from absent the system that provided the R&D resources to discover them? This is perhaps not as strong of a counterargument as you might think: Einstein theorized the photoelectric effect long before the R&D resources were available, and perhaps more would have gone into searching for practical applications it if the political support for large, central, coal-fired generation had not been as successful. No legal monopoly means higher cost and more awareness of the externalities because nobody could afford to build large, centralized systems. That in turn means more searching for alternatives. Also, it would be more feasible today to install a small solar or wind system (like many farmers had before the REA) because you would only be replacing or plugging into a decentralized subsystem.

[2] It is at least arguable that an unstable anarchy is potentially very violent - even David Friedman admits as much in noting that Saga Iceland collapsed in a series of blood feuds, albeit after 300 years of stability. But a stable anarchy can't raise the money or army to go looking for a fight.

[3] Yes, I'm also concerned about population issues. But I think that a less important problem compared to that of Western consumerism. I also think it foolish to believe that a proper list of policies and a certain amount of money is going to solve the former, or a sudden majority of libertarian politicians the latter. Solutions to both problems require wholesale changes in cultural attitudes and values; politics and economics only take you so far. Sometimes the state can lead cultural change, but not always. And not always for the better. Saying self-evident things like, "education of women is important to control population growth" doesn't mean much in Islamic or other traditionalist societies where women are relegated to second class status. I doubt you could fund or force anything which would work. Creating change in those climates requires something that operates on a more personal level than a United Nations program, something that flies under the states' radars, something that cannot be denounced by Imams.

Walmart CSR again

So, here's my kindergarten summary of how the mass market apparel industry works:

You have a company (a manufacturer) that makes clothing. If you don't actually sew it (you contract that out), you are still called a manufacturer. You are selling your clothing through boutiques, the internet, and so on. You want to make the leap into large retail outlets like J. C. Penney, Wal-Mart, Sears, Dillards, Macy's, whatever, so you start trying to get into those stores.

Those stores have very funny (funny-strange, not funny-haha) policies on charge-backs, returns, and how they pay their bills. Basically, they make you take all the risk. You send them clothing, they send back what they don't sell, they charge you back for every non-compliant item they can find (e.g. the tags are crooked). And to top it off, they don't get around to paying the bills for 3, 6, 9 months on end. But still, you are moving a lot more product through them.

Eventually, you realize that the interest rates on the money you are borrowing is killing you, so you get involved with a factor. The factor acts as a bridge: they take over your accounts receivable, but they pay you faster. The factor holds lots of sway over the retailers because they represent lots of their suppliers exclusively. If the retailers wants product, they have to pay the factor. The factors, though, charge for this service, and charge a lot: 15-20%. And that comes from you, the manufacturer. But at least you're getting paid, right?

So by choosing to sell through a major retailer, your choices are either to borrow money and pay interest on that or get a factor and pay them (though effectively you become their employee, since they have now taken over your accounts receivable). If you want to keep making money at these volumes, you need to cut costs. The easiest way is to go offshore and get cheaper sewing contractors.

Wal-Mart, on the other hand, has the reputation of paying their bills in a timely manner. They berate you on pricing [1], but at least they pay on time and offer volume opportunities.

If the major retailers would pay their bills quickly, there would be no need for factors and thus less temptation to go offshore [2]. Perhaps people concerned about Corporate Social Responsibility (CSR) are going after the wrong target? Perhaps they ought to be scrutinizing manufacturers' complaints about retailers' pricing and other policies, their business-to-business relations, rather than their employee or customer relations.

I'm just sayin'.

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This is Wal-Mart CSR again because I already wrote about it.

[1] Apparently, Wal-Mart also brow-beats its suppliers over their use of packaging and renewable fuel content, among other things. Wal-Mart is the world's largest buyer of organic cotton (WSJ-$), and becoming the largest purchaser of sustainably harvested shrimp and fish (WSJ-$). Is it green-washing? Could be. These efforts overlook more sustainable practices -- they are optimizing locally while sub-optimizing globally. But they aren't the ogres normally claimed.

[2] Why wouldn't they go offshore, for profit maximization, even in a factor-free world in which everyone paid on time?

1. Quality control, the ability to see and control problems

2. Flow, in Chandler's sense, the flow driven by the visible hand. This was the preferred method of operating a mass production business before WWII and the ascendancy of the GM/DuPont theory of management. You can't achieve flow with a 3 week or longer delay in the supply stream.

3. Leisure time; if you run a local business, you have the opportunity to blur work, relaxation, and other personal time, whereas when you run an international operation, you have to be "on" 24/7. This is the same problem faced by racing enthusiasts who are offered a sponsorship: do you really want it to be a job instead of a hobby?

4. Some other stuff that will have to wait for another post. Why do factors exist? Why doesn't someone vertically integrate textile, apparel, and retail? Or perhaps we can just shame my wife into writing that book.

Whoops, so sorry

From EconoSpeak:

Thomas A. Debrowski is Mattel's executive vice president for worldwide operations. After a meeting with Chinese product safety chief Li Changjiang, Mr. Debrowski decided his company should take a lot of the responsibility for the recent product recalls:

"Our reputation has been damaged lately by these recalls," Debrowski told Li in
a meeting at Li's office at which reporters were allowed to be present. " And Mattel takes full responsibility for these recalls and apologizes personally to you, the Chinese people, and all of our customers who received the toys," Debrowski said … The recalls have prompted complaints from China that manufacturers were being blamed for design faults introduced by Mattel. On Friday, Debrowski acknowledged that "vast majority of those products that were recalled were the result of a design flaw in Mattel's design, not through a manufacturing flaw in China's manufacturers." Lead-tainted toys accounted for only a small percentage of all toys recalled, he said, adding that: "We understand and appreciate deeply the issues that this has caused for the reputation of Chinese manufacturers." In a statement issued by the company, Mattel said its lead-related recalls were "overly inclusive, including toys that may not have had lead in paint in excess of the U.S. standards. [emphasis added]

Seems a little late, doesn't it? After all, one Chinese executive was found hanged [1] after a resulting export ban. The original lead paint problem was discovered by a "European retailer ", and subsequent problems were discovered by Mattel themselves. Of course, following this, the Consumer Product Safety Commission jumped in on the act -- I'm sorry, what value did they add to the process?

But American companies are using the resulting furor to full advantage as they push for import restrictions, something that plays well to the Lou Dobbs nativists, the anti-globalization left, and ... corporations who still have some domestic production. Domestic food producers, for example, as reported by the WSJ (Food Makers Get Appetite for Regulation):

The Grocery Manufacturers Association, the industry's largest trade group, tomorrow will unveil a proposal to beef up federal oversight of imported food and ingredients. Under a public-private partnership, the system would require the industry to adopt food-safety measures such as product tests and checks on foreign suppliers. [emphasis added]

So, they're in favor of regulation, but not of everyone, just of foreign suppliers. Wow, what do you call it when the Baptists are the Bootleggers? And what does it mean when the CPSC aids in the China-bashing?


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[1] Given the way the Chinese treat executives making high level mistakes, I think it's important to distinguish between "hanged himself" and "was found hanged".

End of the Race?

I have a passing interest in analogies which cause people (including me) to question their basic beliefs and mythical stories. This one makes an analogy between fossil fuels and education which is designed to make people question their commitment to "free" public education or to fuel taxes.

What about natural resources in general? There is an analogy which suggests the earth is like a spaceship, equipped with all of the things we need for life*. As we race to consume those resources, we are only depleting them faster and racing towards our own doom. Eventually, so the theory goes, we will run out of new places to explore, prices will shoot up, and we will wish that we hadn't been in such a hurry.

Does the same logic apply to labor? As transnational corporations search for the cheapest labor, they thrash from one previously uncharted territory to the next: first Japan, then Mexico, then Korea, then Vietnam, then China. This is the so-called "race to the bottom".

What happens when that labor race is over? The consequence claimed by "pro-labor activists" is that all labor will be paid at the same low rate as the cheapest labor, but this relies on such assumptions as equal productivity and zero transportation costs (those activists are frequently either self-interested, i.e. union workers, or mistaken in their theory and therefore anti-labor in practice). The actual consequence is that once you have hired the last untapped laborer, the same thing will happen as when you open the last natural resource mine and still have unsatisfied demand: the price of labor goes up.

That is exactly what is happening in China. See, for example, here at Gapminder (check off the China and USA boxes and watch Chinese income start to catch American income, noting that American income does not fall, directly contradicting the "race to the bottom" theory), here, here, here, and the latest, which I have both on good authority and from here is that there is now a shortage of stitchers on the apparel fabrication lines. They are no longer living in abject poverty, and they are becoming consumers who will eventually demand more of China's manufacturing output. Eventually, they may even move up to importing high quality goods - the type that are still manufactured here in the US. Thus, we have little to fear from export-based foreign countries, and they have much to gain. By blocking them out with trade protection, we also grant truth status to the claims of their demagogues that claim America wants to keep them poor.

Go back to the Gapminder graphic and note something: Africa is the home of last remaining unexploited workers. They could use a sweatshop or two to pull them out of their poverty.

* In reality, the earth was randomly equipped. We happen to have discovered uses for many of those resources, adapting them to our needs. We have barely scratched the surface. "Spaceship earth" is an idiotic parable.