A Nation of Counterfeiters
See more on this theme: In trade, China's moral compass is off course by Chi-Dooh Li in Sunday's Seattle P-I
What's the name of the first nation to pop into your head after reading this headline?
Be honest. My guess is it's the not-so-slumbering giant with a billion-plus people: China. After all, China has been in the news lately for pet food adulteration and lead-paint in children's toys. Then there's the long-standing complaints about intellectual property ripoff coming from the shores of Lake Washington (the home of Microsoft). Congressfolk are on the stump, as are authors like me.
However, I'm not writing about modern China, although the infractions -- food adulteration, fraud and copyright infringement -- are timely. Let's flashback to the mid-1800s. The criminal then? The United States. The cause? What one historian views as a not-unexpected gap between rampant capitalism and systems of regulation. (tip, buy the book)
[T]he ease with which counterfeiters and corner-cutters operate in China today can be attributed to many of the same failings that plagued the United States 150 years ago: a weak, outdated regulatory regime ill-suited to handling the complexities of modern commerce; limited incentives for the state to police and eliminate fraud; and, perhaps most important of all, a blurring of the lines between legitimate and fraudulent means of making money.
One difference is scale: not only is the world bigger and more populated, but there weren't a lot of global corporations in the 1850s. Still, it's important to reflect on the history of this young nation before pointing fingers at another. And even more important, to understand that without some government regulation -- ie, politics -- markets don't necessarily act like Adam Smith's idealized invisible hand.
The Crimes of the Past
What, exactly, did the US do in the mid-1800s? (A related question might be: why isn't this taught in history classes? But we know that answer -- our leaders don't always want us looking into mirrors.)
From the Boston Globe article, by book author and University of Georgia historian Stephen Mihm.
A committee of would-be reformers who met in Boston in 1859 launched one of the first studies of American food purity, and their findings make for less-than-appetizing reading: candy was found to contain arsenic and dyed with copper chloride; conniving brewers mixed extracts of "nux vomica," a tree that yields strychnine, to simulate the bitter taste of hops. Pickles contained copper sulphate, and custard powders yielded traces of lead. Sugar was blended with plaster of Paris, as was flour. Milk had been watered down, then bulked up with chalk and sheep's brains. Hundred-pound bags of coffee labeled "Fine Old Java" turned out to consist of three-fifths dried peas, one-fifth chicory, and only one-fifth coffee.
Though there was the occasional clumsy attempt at domestic reform by midcentury -- most famously in response to the practice of selling "swill milk" taken from diseased cows force-fed a diet of toxic refuse produced by liquor distilleries -- little changed.
[...]
In the literary realm, for most of the 19th century the United States remained an outlaw in the world of international copyright. The nation's publishers merrily pirated books without permission, and without paying the authors or original publishers a dime. When Dickens published a scathing account of his visit, "American Notes for General Circulation," it was, appropriately enough, immediately pirated in the United States.
In one industry after another, 19th-century American producers churned out counterfeit products in remarkable quantities, slapping fake labels on locally made knockoffs of foreign ales, wines, gloves, and thread. As one expose at the time put it: "We have 'Paris hats' made in New York, 'London Gin' and 'London Porter' that never was in a ship's hold, 'Superfine French paper' made in Massachusetts."
However, it took a World War and a global depression to create the political climate to support international agreements like GATT and the World Trade Organization ... as well as domestic laws on product purity (think Upton Sinclair) and truth-in-advertising claims.
It is ironic that the United States is in the same (uncomfortable) position regarding a trading partner as Old Europe was with us 150 years ago.
Through communications technology, the world seems smaller today. But technology hasn't necessarily shortened the time required for people to work their way through change while creating new systems.
Will the rest of the world be patient while China gets systems in place that help balance capitalism and QA? That's the 64-dollar question.