Written by Casson Rosenblatt
When you see "Made in China" on a product, what is your first instinct? Put the product down and move on to another? Barely notice and put it in your shopping basket? Look at other products, realize how much more they cost, and begrudgingly buy the Chinese one? While the desire to avoid Chinese products is several years old, the past year's recalls has put extra attention on the quality of Chinese exports that Americans continue to gorge ourselves on. The media, particularly in headlines, has placed most of the blame squarely on the shoulders of the Chinese government's push for economic growth at any cost. But are we overlooking more basic personal and policy choices that have lead us here?
American consumers enjoy low prices. American multinationals enjoy giving consumers what they want. And inherently, there is reason to be glad that low cost products are available so that people of all income levels can provide for their families. But often we overlook the toll that price pressure has taken on quality. Some goods have become cheaper because producers have become much more efficient at producing them. But lots of goods, like toys, are cheaper because companies have found cheaper places to get them produced.
The move to overseas production is natural in economic theory. It's known as "comparative advantage." Industry requires workers or capital, and if you can produce with cheaper workers rather than expensive machinery . . . well, you get it. And so China and other developing nations have built their economies on the backs of this theory - not necessarily a bad thing - until contractors begin to sub-contract and sub-contractors begin to sub-contract, and the supply chain becomes difficult to control.
While companies like Mattel (MAT) have quality control mechanisms in place, they obviously have to ramp things up. The Chinese government needs to improve their system a lot. But for Western companies to assume that the Chinese bureaucracy will develop adequate controls quickly would be foolish and costly. After all, they are the companies whose names are on the product. They made the deals with the factories that made the hazardous toys. As toy expert Eric Johnson says, "I would never advise them to rely on China to fix this. China’s oversight on a national level isn’t very mature at this point; much of the oversight that occurs in China is more localized. You will certainly see a lot more pressure on the manufacturers in the toy-producing regions...to clean up their act because [the recalls] are hugely embarrassing. But it’s still naive to imagine that China’s own regulatory capabilities are going to be able to control quality. Mattel is ultimately responsible for what’s coming into the United States—it’s their brand at stake."
Although the public response to the product recalls were loud and eye-catching, I wonder if it comes as much of a surprise to anyone who has been paying attention to the evolution of industry. People brought their businesses to China and other developing nations to save money, and we have long known that these savings come from the ability to skirt social and ethical issues as much as the lower cost of land, labor and capital.
While I believe that many companies, including Mattel, have improved their practices over time, to assume that all products produced abroad and sold here are safe simply because they have a big multinational's name on them is foolhardy. Our personal desire to get a bargain has long been either a risk forced on us by economic circumstance or fueled by our desire to buy more for less. While lead in toys or poison in dog food is the most obvious result, air pollution over LA or destruction of natural habitats is also a consequence. We are rightly appalled at the corners companies cut and are wise to change our habits in response. But it is worth remembering that it was largely our consumer choices that started the problem in the first place.