The Communist government of Kerala is threatening to ban "retail giants" from setting up shop in the Indian state. The measure, which appears to be backed by all the major political parties in Kerala, is chiefly aimed at India's version of Wal-Mart, Reliance Industries. The concern is that a proliferation of large retail outlets would drive tens of thousands of mom-and-pop shop operators out of business.
Kerala made headlines not so long ago for attempting to ban Coca-Cola; the state has a long history of pursuing its own unique path to development. Naturally, the more gung-ho-for-capitalism elements of Indian society aren't mincing their deprecating words: An editorial in the Indian Express made no attempt to restrain its sarcasm:
Coke poisons people. Highway tolls exploit them. Fiscal discipline starves projects that can better their lives. So, of course, big retail chains, as Kerala's Left explained to this newspaper on Monday, are anti-people ... Food minister ... C. Divakaran is ever so bold in proposing to ban a business activity permitted almost everywhere bar places like North Korea.
Indian Express trots out the standard defense of mega-retailers everywhere. How can low prices be considered "anti-people"?
Let's switch venues. The safety of Chinese-made products is in the news again today, as China's government announced that a whopping one-fifth of the products on the shelves of Chinese stores were found to be substandard or tainted. The immediate, and understandable impulse, is to blame the health hazards of Chinese products on the lack of regulatory enforcement in China, a state of affairs exacerbated by state corruption, a weak judiciary, and a general absence of effective checks and balances in Chinese society. But that's only one-half of the picture. The other half is the imperative, in the biggest markets for Chinese exports, that demands ever-lower prices for everything.
In "The Wal-Mart Effect," Charles Fishman makes a compelling argument that Wal-Mart's market power inevitably forces its suppliers to cut corners on quality in order to deliver the lower and lower prices that Wal-Mart demands. So those suppliers close their American manufacturing facilities and start sourcing their products in China -- if they don't, they'll lose their place on Wal-Mart's shelves.
So whose fault is it really that so many problems are cropping up with Chinese-made products? Of course, the factory owner in China who authorizes the insertion of toxic chemicals in toothpaste and pet food bears a heavy liability, as does the government official who looks the other way. But shouldn't the Western mega-retailers fighting for market share with their "pro-people" low prices also be held to account?
Maybe tougher safety standards and enforcement of legal liability all the way up and down the supply chain, from China to the retail store, is a better answer, ultimately, than attempting to ban chain stores altogether. On that question How the World Works will remain agnostic. But the symbolism of Kerala's "bold" move, however quixotic, is still potent. Markets left to themselves do not deliver perfect outcomes. Sometimes government has to push back.