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What Goes Around, Comes Around


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Strategy Page:

August 8, 2010:

Chinese leaders are increasingly worried about another revolution. The signs are ominous, for the Chinese are avid students of their own history, and how it constantly repeats itself. So while China is getting rich, there is much corruption in the government, the military and even the universities. This has created a growing number of unhappy Chinese, and they have a lot of unemployed (often because of corruption) college graduates, and people who are cheated and exploited by corrupt officials on a regular basis, talking about change. Attempts to fix the core problem, corruption, are not working, and that is seen as menacing by many Chinese, as dynasties usually fall because they were weakened, and torn apart by rebels enraged by the corruption. That's how the communists gained power in the 1940s. But their virtuous new government began to show signs of corruption within a decade, and it's gotten much worse since communist economic policies were dumped three decades ago. What goes around, comes around.

One of the more glaring aspects of the corruption is the amount of counterfeiting going on. Patents, copyrights and trademarks are largely ignored, making it difficult for Chinese entrepreneurs to start companies producing innovative, and profitable, products. It's too easy make more profitable counterfeits. Some are quite good, or at least adequate. They range from DVDs of hit movies, to spare parts (for autos, airplanes and industrial machinery) and fake iPhones and other high-tech items. This includes military equipment and weapons. The only thing that keeps quality up among counterfeiters is the domestic market, which will stop buying if the fake is absolute crap. Thus your fake iPhone or iPad has to work. Not as well as the real thing, but enough to be worth the money (usually less than a third of what you'd pay in the U.S.). DVDs have to be watchable and the fake watches have to tell time, if not as accurately as the real thing and using less durable components. This lax attitude towards quality turns very ugly when the counterfeit truck or aircraft parts cause fatal accidents. And in earthquake prone China, cheating on construction standards has killed many thousands of people. This caused popular outrage, but the shady practices are expected to continue, because they are too profitable for too many people.

The corruption is everywhere. University degrees, and other education credentials, for example, cannot be taken at face value. There's simply too much cheating. So employers have to carefully examine job candidates. This often includes administering lots of tests, and making sure there is no cheating, or that the test monitors are not bribed. In effect, the most honest aspect of the country is business. You can't run any kind of profitable company without a fair degree of honesty and dependability. There is cheating going on (like the contaminated baby formula that actually killed a few babies), but that sort of thing puts you out of business (and got some of the baby food executives executed). Thus market pressures keep a lot of Chinese honest, but not so government officials.

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