Hong Kong’s Free Market Capitalism makes Safer Baby Formula than China’s State Capitalism

Posted by PITHOCRATES - May 11th, 2013

Week in Review

Kids coming out of American schools learn that capitalism is unfair.  And that greedy businesses will put their customers at great risk to make a buck.  For capitalism puts profits before people.  Which is why we need a government with expanding regulatory powers.  For government puts people before profits.  Like they do in China.  A favorite of those on the left who urge more government intervention into the private sector economy.  Like they do in China.  Where they have a booming economy thanks to wise government bureaucrats.  And safe and happy people because the government prevents those nasty profit-seeking businesses from ever harming a soul (see China’s Parents Crave Illegally Imported Baby Formula by Liza Lin and Julie Cruz posted 5/2/2013 on Bloomberg Businessweek).

For Hong Kong customs agents, baby formula is the new heroin. On March 1 a law went into effect limiting the amount of powdered milk travelers can carry out of Hong Kong to two 2-pound cans each. Since then, more people have been arrested for smuggling baby formula than were caught all of last year with heroin and cocaine…

Many Chinese parents are desperate to get their hands on foreign-made baby formula after numerous food safety scandals in recent years. In 2008 at least 22 Chinese companies were found to have sold dairy products containing melamine, a toxic chemical that can make diluted milk appear to have a higher protein content. Six babies died as a result. In 2011, China’s largest milk producer, China Mengniu Dairy, said in a statement that moldy cattle feed led to excessive toxin levels in its milk. Last year another large milk producer, Inner Mongolia Yili Industrial Group, recalled formula tainted with mercury. “Chinese consumers are so frightened and so sensitive to safety issues with milk powder that they are willing to pay a higher premium than consumers anywhere else,” says James Roy, a Shanghai-based senior analyst at China Market Research Group.

That willingness to pay has led to baby formula shortages in Hong Kong, where food safety standards are higher. The surge in Chinese demand has even hit foreign markets, where baby formula is often cheaper than in China. Over the past year, stores in Germany, the U.K., and New Zealand have put limits on all bulk purchases of formula, such as Danone’s (BN) Aptamil and Mead Johnson Nutrition’s (MJN) Enfamil.

Hong Kong favors free market capitalism.  While China prefers state capitalism.  Where the state regulates the private sector economy with the heavy hand of the government.  So, in Hong Kong you have the economic system that American schools teach students is bad.  Because they put profits before people.  While China has the economic system that the American schools teach is good.  Because they put people before profits.  And which one is better?  Well, food safety standards are higher in High Kong than in China.  Despite putting profits before people.

Or you could say that food safety standards are higher in High Kong BECAUSE they put profits before people.  Because if babies start dying after drinking a company’s baby formula people will exercise their free choice and buy another company’s baby formula.  A very strong incentive NOT to kill babies.  Because it would be bad for business.  And bad for profits.

Whereas in the ‘people before profits’ state capitalism of China if a company kills babies with its baby formula it’s no big deal.  For the state will just force their people to buy the tainted baby formula by putting import restrictions on safe baby formula.  So there is no incentive NOT to kill babies in China.

So which system is better?  If you base it on which protects their people better you have to go with Hong Kong.  For they’re not killing babies with their baby formula.  While the Chinese are.  Which is a lesson the American schools should be teaching.  Instead of the anti-capitalistic curriculum written by those Sixties’ radicals who actually preferred China the way it was under Chairman Mao.  Before state capitalism.  A time of true communist collectivism.  Where tainted baby formula was the least of their problems.  As they were busy setting famine records with their agricultural policies of forced collectivism.  Where they really put people before profits.  For there were no profits.  So things are better in China today.  For they do allow some profits.  But things aren’t as good as they are in Hong Kong.  Where they allow all the profit you can make.  And by putting profits before people the people come out ahead.  As do their babies.

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For Proof that President Obama’s Economic Policies are bad just look at Singapore

Posted by PITHOCRATES - March 30th, 2013

Week in Review

Singapore is one of the Four Asian Tigers.  The economy boomed in Hong Kong, South Korea, Taiwan and Singapore because of their business-friendly environments.  Free markets.  And free trade.  Which is why the Four Asian Tigers had some of the strongest economies in the world.  Because the government did not interfere with market forces.  Like they are doing more and more in the United States.  And if we compare the two economies we can see which system is better (see More than half of employees in Singapore planning to leave jobs: Survey by Cheng Jingjie posted 3/28/2013 on Breaking News Singapore).

More than one in two employees in Singapore are planning to leave their jobs within the next two years because of unsatisfactory compensation.

This isn’t a problem they’re having in the United States.  Americans may be unhappy in their jobs and dissatisfied with their compensation.  But all they do is complain.  They’re not leaving their jobs.  Because unlike in Singapore there are no other jobs to go to.  Because President Obama, unlike in Singapore, is trying to fix the economy with government spending.  And new regulations.  Making the current recovery the worst recovery since that following the Great Depression.  While Singapore’s economy hums along the United States have seen people disappear from the labor force since 2008.  Which is why no one is threatening to leave their jobs.  No.  In the United States their biggest concern is getting laid off.  No matter how unhappy or how poorly paid they are.

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If you Missed the U.S. Subprime Mortgage Crisis you might be able to catch one in South Korea

Posted by PITHOCRATES - February 23rd, 2013

Week in Review

Stop me if you heard this one before (see S. Korea’s Poisoned Chalice of Household Debt Restricts Park by Sangwon Yoon posted 2/21/2013 on Bloomberg).

Park [Geun Hye, Korea’s incoming president] suggested state institutions could buy stakes in mortgaged apartments that have fallen in value, such as Kwon’s. The stakes would then be used as collateral for asset-backed securities, using rent from homeowners to pay interest to investors…

South Korean regulators have been working on a “soft landing” policy since June 2011, including limits on bank lending and tax breaks for homeowners switching to fixed-rate loans. About 85.8 percent of mortgages are currently adjustable…

“The quality of household debt is worsening,” said Lee Eun Mi, senior research fellow at Samsung Economic Research Institute in Seoul. Park needs “measures to stymie the rising danger of a massive default crisis…”

Some borrowers have staved off default by taking out further loans to pay mortgage interest…

Irresponsible household borrowing began after the 1997-1998 Asian financial crisis, said Kim Mi Sun, a debt counselor at a non-profit organization called Edu Money in Seoul. In the wake of corporate defaults during the crisis, the government curbed companies’ ability to sell credit, prompting banks to expand lending to consumers, including a rapid increase in home loans.

“It became so much easier to get loans after the crisis and everyone started taking out debts and mortgages they couldn’t afford,” said Kim. “The crux of the issue is that people simply don’t know how to manage their finances.”

The credit boom early in the last decade caused house prices to soar and left many Koreans with large loan obligations.

Sound familiar?  Sounds a lot like the subprime mortgage crisis, doesn’t it?  Easy credit encouraged a lot of people to buy houses they couldn’t afford with adjustable rate mortgages (ARM).  Just like in the United States following President Clinton’s Policy Statement on Discrimination in Lending.  Where the president told lenders that they had better find a way to qualify the unqualified or else.  Which they did.  With subprime lending.  And the ARM.  And when the interest rates reset at higher rates there was a massive default crisis.

Interestingly Park Geun Hye is suggesting a solution to help underwater mortgages that the U.S. used to spread the subprime mortgage crisis contagion around the world.  The collateralized debt obligation (CDO).  Fannie Mae and Freddie Mac bought the toxic subprime mortgages and packaged them into CDOs.  And unloaded them on unsuspecting investors.  Telling them that they were high yield.  And low risk.  Because their return came from the cash flows of homeowners making mortgage payments.  And what was less risky than mortgage payments?  Of course, what they failed to mention was that these were ARMs sold to low-income people who had no hope of paying their mortgage payments if interest rates ever rose.  Which they did.  Sending the fallout of the subprime mortgage crisis around the world.

No.  CDOs may not be the best solution to their problems.  And chances are that investors may not buy these.  For they were burned once by Fannie Mae and Freddie Mac.  And they’re probably not going to fall for the old ‘investment backed by cash flows from subprime mortgages’ trick again.

Amazing how some things never change.  Different place.  Different people.  But the same bad government policies.  Producing the same massive default crisis.  This is what you get when you interfere in the free market economy.  But some people never learn this lesson.  Despite the numerous examples of what not to do.  And if anyone taught people what NOT to do was the U.S. in the run-up to the subprime mortgage crisis.  Even the Americans can’t learn from their own lesson as President Obama is already talking about bringing back the policies that caused the subprime mortgage crisis in the first place.  Putting more people into houses that they can’t afford.

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Singapore going ‘Solyndra’ to find the next Mark Zuckerberg?

Posted by PITHOCRATES - January 26th, 2013

Week in Review

While public education teaches kids the fear of global warming, the evils of capitalism and the goodness of government Singapore is having their schools teach business and entrepreneurial skills.  The U.S. is suffering through the worst economic recovery since the Great Depression.  While Singapore is doing quite well.  And should continue to do well because they don’t teach kids the evils of capitalism in school (see Singapore Hunts for New Zuckerberg With Stanford-Style Dorm by Sharon Chen posted 1/25/13 on Bloomberg).

Singapore became Southeast Asia’s only advanced economy by moving up the technology ladder, turning a trading port into the region’s biggest banking center and a manufacturer of electronics, petrochemicals and pharmaceuticals. Now, the nation is looking to gain a bigger share of a software industry that raised $28 billion in initial share sales last year.

N-House, which opened in August 2011, is one strand of a five-year plan by the government that includes offering new technology companies grants of as much as S$500,000, supporting venture capital funds, and encouraging high schools to teach business and entrepreneurial skills, in an effort to groom the next Mark Zuckerberg, co-founder of Facebook Inc…

The island of 5 million people, ranked the easiest place to do business for seven straight years by the World Bank, is the second-easiest place in Asia after Hong Kong for entrepreneurs to gain access to capital, according to a study by the Milken Institute published in 2010.

Singapore is a success story because it’s an easy place to do business in.  Businesses like that.  So businesses do business in Singapore.  This is a lesson the United States could learn.  Making it easy for businesses to do business.  Detroit, the Motor City, birthplace of the automated assembly line, is a horrible place to do business.  Being the home of the Big Three (General Motors, Ford and Chrysler) you’d think they’d have an edge on manufacturing automobiles.  Yet not one new auto manufacturer has chosen Detroit.  Honda, Toyota, Nissan, Mercedes, BMW, Volkswagen, Hyundai, and Kia all built assembly plants in the United States.  But not one of them picked Detroit.  Because Detroit, the Motor City, is not an easy city to make automobiles in.

So Singapore knows a thing or two about how to do business.  Which, for the most part, is just leaving business the hell alone.  For a business is a lot like a dog having puppies.  They can do it without any help.  In fact, trying to help can actually do more harm to a business than good.  For when the government steps in and provides money the private sector won’t supply you can pretty much guarantee that the government is backing a bad investment.  Think Solyndra in the U.S.  And all those jobs of the future we were supposed to get with all those investments into green energy.  President Obama begins his second term with the worst recovery since the Great Depression.  Despite all that spending to invest into the jobs of the future.  Here’s a lesson Singapore can learn from the U.S.  Creating a business-friendly environment is good.  But trying to influence things in that environment, well, that rarely ends well.  Again, think Solyndra.

“Singapore has done the best job of any government to spawn an entrepreneurial ecosystem,” said Ressi, who travels to the city about three times a year to meet with government officials. “However, I think they’ve gone a little bit too far in making it easy. If they can’t actually raise money from people privately, they probably aren’t worthy of being in existence.”

There are venture capitalists out there with money burning holes in their pocket.  They want to invest it.  They want to groom the next Mark Zuckerberg.  And if these greedy bastards are NOT willing to bet their money on someone there’s a reason for it.  These people are in the business of finding entrepreneurs to back and groom.  And if they don’t invest in an entrepreneur they must have determined that the entrepreneur just doesn’t have what it takes.  So they keep looking for one who does have what it takes.  And if that person is out there the free market will find that entrepreneur.  While governments pour millions into other Solyndras.

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