As a general rule, How the World Works doesn't find itself agreeing with Wall Street Journal editorials very often. But Friday's "Chinese Fake Out" opinion piece, arguing that the private sector can take care of Chinese food safety and product quality problems all by itself, without the necessity for "protectionist" moves by the U.S. government, is not without merit.
The Journal argues that those American retailers who think they can just blame their Chinese suppliers for tainted pet food or poison toothpaste and merrily escape any liability are mistaken. "But all bets are off as soon as injured children or sick adults start appearing before juries." Likewise, publicly traded companies "will increasingly see their willingness to invest in China-based quality control reflected in their stock price."
The critical point is this:
American companies have not always realized how expensive Chinese-manufactured goods can turn out to be once the cost of low quality is factored in. Low costs are still to be found in China, but they won't be quite as low after accounting for quality control.
In other words, poor quality is an external cost that American companies haven't properly internalized, but will be forced to do so by the courts and shareholders.
Fine. But the Wall Street Journal fails to take the next step, which is to wonder what other external costs aren't being properly internalized. China gets a lot of grief for the pollution caused by its industrial growth, and much has been made of the fact that the country may have overtaken the U.S. this year as the world's largest emitter of greenhouse gases. But in a sense, China has been performing these "tasks" as a service to the U.S. and the EU. These are "costs" that China has assumed, and the West is avoiding.
The courts haven't figured out yet how to properly account for the damage to the global commons caused by greenhouse gas emissions. But they will, eventually, especially if helped along by governments that enact tough legislation for courts to enforce. Of course, the Wall Street Journal's editorial writers vociferously oppose the kind of legislation that would translate greenhouse gas emissions into added costs for energy companies and the like. They worry about the negative impact such measures might have on economic growth. But in doing so, they are missing their own point -- "American companies have not always realized how expensive 'fill-in-the-blank' can turn out to be once the cost of climate change is factored in."