Now, that money goes toward public goods and services so I wouldn’t label such a tax unethical maybe just unfair. And I suppose that is my point: I don’t find China’s price fixing of pharmaceuticals unethical just as I don’t find OPEC’s collusion nor our government taxation unethical. They all have a resource (power) they can leverage and they will do so until we as consumers push back.

The ethics question for me arises with non-market exploitation, say of underpaid workers or the environment. We willingly pay more for drugs and gas as a choice weighing benefit vs. cost. What choice does a sweatshop working have? Maybe we should agree to let China’s government set drug prices if they agree to increase the wages and benefits of their workers. I think that compromise will work better than us playing Two-Face.

As far as the ethics of the situation, I think you are going to find unethical companies and governments in every country. Look at Enron from the United States and the governor from Illinois. The difference between our government and China’s is that our government usually does not protect those who break the law. But China is just beginning to enter the world market. It is obvious that they want their own companies to succeed in the global market, and they were protecting their own interests in this situation, but I believe this will not continue to happen. I agree with what Dr. Carr said, it may take 10 to 20 years, but eventually their government will handle these situations without their own interests at heart.

http://www.washingtonpost.com/wp-dyn/content/article/2006/07/01/AR2006070100962.html

Although somewhat dated—from July 2006—the article talks about how some people are getting subsidies regardless of whether they are farming or not. Donald Matthews, the man the article focuses on simply lives on land that was once farmed for rice. He gets a check each month for, essentially, doing nothing. Those of us who have spent time recently in Economics class know that this check is an incentive not to farm. In line with this view, many farmers that once farmed rice now collect their subsidy and use their land for higher-profit uses like commercial timber. With incentives not to farm rice, less people farm rice. With less people farming rice, supply is low. If demand is constant then prices rise. Is this not just another way for the government to artificially keep prices high?

I’ll admit there are some holes in this argument. First of all, the government has been trying to get rid of farm subsidies for awhile now. In fact, the negative effects of this particular subsidy were the result of legislation attempting to phase out farm subsidies. In addition, these subsidies are allowed under international trade rules, unlike those in China. Lastly, the US doesn’t have a monopoly on rice production so artificially high prices wouldn’t affect the rest of the world who could import rice much cheaper from places other than the United States.

We can also consider subsidies for green auto manufacturing. Instead of forcing car manufacturers to increase their prices in relation to their costs, the government slips them money so they can keep their prices low and competitive. Perhaps I am oversimplifying a complicated situation, but regardless, the comparison stands to be made. Our government messes with the natural forces of the market also (bailouts anyone?).

The whole situation seems fishy to me. Did anyone else think it was obvious that the companies colluded on their own and then the government stepped in to save them when they came under international scrutiny? Perhaps this is where the ethics problem comes in. There’s a difference (or is there?) between controlling the market with a good reason versus lying to cover up big companies’ indiscretions.

Either way, if China wins this case, there could be a very problematic precedence set for international trade.

It is interesting to see that China is beginning to take a stand in their domestic markets regarding antitrust activity. This is evidence that they see the need to keep things competitive for growth and consumers within their borders. Outside their borders, they currently have little incentive to expand these same sentiments to provide fair and balanced trade laws in an international marketplace. As a result, global consumers will be forced to pay higher prices due to these price fixing strategies until other markets in developing countries begin to flood consumers with cheap products. It is just a matter of time before the “new” China appears to begin seriously undercutting Chinese products.

As for international businesses, they either have to wait out the price fixing phase of Chinese international business strategy, join the strategy, or develop new, ethical ways to keep profits up. I personally see the third scenario the most likely result, as international businesses have already established their own norms and regressing to price fixing will only hurt them in the long run. Eventually the Chinese strategy will run its course and move on to the orderly markets, and when they do those businesses that adopted new strategies will be there to take advantage of the head start they have over the Chinese.

As China grows to become a world superpower they are slowly becoming more accustomed to the “culture of the market” and therefore will slowly need to become more market driven in all areas of the economy. I agree that this process will take some time though. After all, habits are hard to break, especially those of a government where everything is protected and regulated strictly by the state. It will be very interesting to see how quickly China changes, and how China continues to handle the decline in the world economy.

There remains an absence of a “culture of the market” in China. I don’t think the Chinese government or industry players are bad per se or have the intention of breaking the law or doing something inappropriate. Rather, when profits fall we often see the Chinese take collective action to maintain profit levels, such as that described in Eric’s article.

It will take them time to learn more about “orderly markets” that we take for granted in the West — I predict at least 10 and more likely 20 years … about the time many of you will be in the prime of your business careers.