Tag Archives: regulation

CES Update: Google Expands in China

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Author Gary Moreau, aka Avam Hale in fiction

On January 11, 2018, I posted “Consumer Electronics Show”, in which I gave some dimension to China’s importance to American tech and offered my assessment that China, for the reasons stated in the post, would be a major player in the future global tech industry. And, yes, this prognosis was very different from the one I provided in 2015, when I wrote Understanding China: There is Reason for the Difference. And, of course, I provided the reason for the change of heart.

Five days after I released that post, Google announced it was opening an office in Shenzhen, China, the center of the hardware manufacturing universe, just across the river from Hong Kong. And a few days after that Google announced a broad patent sharing agreement with Chinese tech giant Tencent, the $500 billion parent of China’s top social media and payment app, WeChat.

This, of course, all comes on the heels of Google’s previous announcement of a new AI research center in Beijing, where the software side of China’s tech business is growing rapidly, in part due to the presence of many of China’s top universities there. And, of course, the symbolism of Google’s CEO Sundar Pichai speaking at a conference in China, back in December, hosted by the Cyberspace Administration of China, which overseas Internet censorship in China, where Google’s search engine, as I write this, remains blocked.

In addition to providing some support for my prognosis, these announcements have triggered some additional thoughts that only reinforce my conviction in that previous prediction.

It is difficult for Westerners, and Americans in particular, to appreciate the role of the Chinese government in the economy. If your company does not maintain good relations with the government, you simply won’t succeed there. And it’s not enough to simply do what they ask you to do. If you want to succeed, you must be pro-active, and you must convince the government that you are a good partner. That means you have empathy for the job it faces and you share its goals for model corporate citizenship.

As my faithful readers know by now, I believe the universe is ultimately defined by dualities. For every pro there is a con, for every cloud there is a silver lining, for every yin there is a yang. Reality, as a result, is not so much defined by the dimensions of the two sides of that duality as it is by the degree to which equilibrium is established between them.

American business people look at the role of the government in the Chinese economy and immediately think oppressive regulation, bureaucracy, long delays, and, of course, bribery. And, of course, all of these things can exist. That is not to say, however, that they must exist, and, in fact, my nine-year experience there convinced me that while these concerns are realistic, they do not define the current reality. I found the government facilitated my business more than it hindered it and not once did my company pay a bribe, nor was one ever solicited.

And, yes, I am experienced enough to know that a government official looking for a little grease is not going to ask me, a foreigner, directly. If an official is corrupt it doesn’t mean he or she is stupid. Which is why every quarter I personally reviewed each and every cash disbursement made by my company, from the payment of invoices to the reimbursement of travel expenses, to the replenishment of the petty cash fund. If you are looking for fraud, that’s where you will find it. And I found none.

In the case of Google and the tech industry you have to look at the positive side of the government duality issue. In the fast moving tech industry, a government alliance is not a strategy for risk avoidance; it’s a strategy for gaining competitive advantage in the global tech industry.

That is because, unlike the US, China, like many developed countries, including Germany, has a very well defined national industrial strategy. The policy defines those industries where it sees the most positive growth potential, in fitting with the country’s social and political agendas, of course, which serves as a blueprint for both corporate leaders and government regulators. It’s totally transparent and insures that everyone is singing from the same song sheet.

The US, by contrast, leaves its national industrial policy up to the “free markets.” The US, in other words, lets the corporations decide, based on the theory that they will be guided by Adam Smith’s invisible hand of profits to do what, in the end, is in the best interest of the country and its citizens.

Like a lot of our political and economic theory today, unfortunately, that’s not the way things really work. The US has an industrial policy; it’s just not transparent. It is defined by politicans, corporate lobbyists, and special interests behind closed doors. This is one of the main reasons that the rich continue to get richer in the US. They are the only ones with access to real political power because they are the ones with the money that politicians need to remain in power. We don’t call it bribery, so that we can claim the moral high ground, but it is bribery of the worst kind—both distortive and clandestine. (I was a CEO and board member in the US as well as China, so this is not conjecture.)

Google has apparently seen the light. (Microsoft saw the light years ago but it learned some very hard lessons before it did.) They recognize that China is the world’s second largest economy, with 1.4 billion citizens who are the earliest of early-adopters, and which, if you have good government relations, is going to be the fastest moving playing field on the planet. As I noted last time this is because, if you make the national priority list, which tech sits atop of, your regulatory and legal problems will largely disappear. The government will clear the runway in the way that only a government can. In the meantime, the young bucks of Silicon Valley will be trudging through the quagmire of preventing “fake news” and fighting it out in court over who owns what intellectual property rights.

When it comes to China, Americans have been trained to see the glass, particularly when the government is involved, as half full. In reality, the opposite is true. A partnership with the Chinese government will not only set up your company to succeed in China, it will set you up to dominate the global market for tech or any other favored industry.

The world has changed. It is smaller and more crowded. But more importantly, technology has been a game-changer. And one of the things it has changed most dramatically is the integration and complexity of the political, economic, and social systems we use to govern the country. We can no longer think of them in discrete, independent terms.

Environmental scientists used to think of our environment as a collection of discrete ecosystems. We had a prairie here, a polar ice cap there, and a rain forest a long way away. They now recognize, however, that these are not discrete. They are all part of a single global ecosystem that is intricately interconnected. Yes, climate change can lead to huge snowstorms and record-breaking cold temperatures along the US eastern coastline. That doesn’t mean the climate isn’t changing. It just means that the global environment is more inter-connected than we ever imagined.

Other areas of science have discovered the same thing. The various branches of hard and soft science (e.g., biology and economics) were once studied and researched as discrete subjects. Today, however, the real science is being done in areas like evolutionary biology and behavioral economics. The knowledge of how the world works is found not within the functionally discrete pockets of science, but in the overlaps that pull them all together into one inter-connected reality.

I’ve actually written a book about it. It’s called We, Ourselves, and Us: Creating a More Just and Prosperous American and it will soon be available on Amazon in print and Kindle versions. It is not a book about China. It is a book about how to leverage our individual liberties and opportunities into a new model of political economy that emphasizes our collective advancement as a country and a just, inclusive society.

Here’s the text from the back cover:

The phrase “We the people” is the start of one of the most famous documents in American history, yet few have paused to consider what it truly means. In his new political guide, Gary Moreau ponders this expression and the change it could represent for our society. America has long perpetuated an idea of rugged individuality and exceptionalism. The “we” in society has been replaced with “me.”

Moreau explains why this notion is simply untenable for America. America has gone through some growing pains in the past two hundred years, and Moreau believes that society’s refusal to cast off some of its original, ineffective methods is a pressing issue. Instead, they should be replaced with a model focused on providing for the collective good.

The world is changing, and for America to continue to be the land of happiness and prosperity, it needs to change with it.

The release date is February 15, 2018, but that is subject to change as the design process wraps up. In the meantime I am offering 25 free copies of the book in either paperback or Kindle formats. Just send your name and address to gary@gmoreau.com with the subject line “Free Book” and I’ll send it out as soon as it is available. First come, first served. For print versions, US addresses only, please, and for the Kindle version you must have a US e-mail address and access to Amazon US. (I don’t need your physical address if you are requesting a free Kindle copy, and I promise not to sell any of your contact info or use it for any other purpose.)

 

You may contact the author at gary@gmoreau.com
Visit my personal blog at www.gmoreau.com

Follow on Twitter @gmoreaubooks

Consumer Electronics Show


Author Gary Moreau, aka Avam Hale in fiction

The annual Consumer Electronics Show (CES) kicked off this past Tuesday in Las Vegas. Media coverage is dominating the business, tech, and lifestyle news cycle in virtually every format.

The Chinese have a big presence there, as they have for the last decade or more. There are about 1,500 Chinese tech companies in Vegas, collectively accounting for about one-third of all of the booths at the show.

Industry giants like Baidu and Alibaba, the parent of e-tailing giant, Taobao, which did $25 billion in retail volume during one 24-hour period this past November 11, are there, of course, along with numerous Chinese startups that you’ve never heard of. One Chinese company, Iflytek, which specializes in AI translation, introduced a real-time translator that works as well as the most proficient human translators.

Driverless car technology, as expected, is everywhere. Royole, a Shenzhen-based company with engineering teams in 16 countries, and a leader in human-machine interface technologies that introduced the world’s first curved car dashboard in 2016, unveiled the completion of a $1.7 billion production campus for its flexible display technology in China.

The big Chinese star this year, however, is Byton, an electric car unveiled at CES that is expected to sell for $45,000 and be the Chinese equivalent of Tesla. Suning, a Chinese electronics retail giant, also opened the first fully automated retail store in the US. The new store, in Las Vegas, is a further rollout of the five it already operates in China.

Tech, of course, continues to further dominate the way we live, work, and learn in ways that none of us could have imagined even a short time ago. While I have historically been a late-adopter of all things technical I actually ended up with an Echo device over the holidays because I bought one for each of my daughters and Amazon, marketing geniuses that they are, was running a promotion on a pack of three. So far I’ve only used it about ten times more than I thought I would, and I have yet to spend any time learning how to apply it. It even responds to my wife, who speaks with a heavy Chinese accent but can use Alexa for audible translation into English.

And where does China fit in? Of course, China makes virtually all of the hardware, but that’s not where the real money is. Or the influence. Silicon Valley is still the center of that universe, for now.


A Kirkus Reviews Book of the Year for 2017.

When I wrote Understanding China: There is Reason for the Difference, I honestly had my doubts as to China’s ability to lead the tech charge. And since the machines will ultimate build themselves, being the tech factory to the world didn’t seem all that alluring.

That reservation was built on the observation that as a result of their inductive worldview and the rote nature of their education system, the Chinese I encountered did not exhibit the same level of raw curiosity that I had witnessed in the best-run American companies, and I thought that might hold them back.

But I’ve changed my mind. Completely, in fact. And my reasoning has more to do with a better understanding of what drives tech than anything else. I now believe that the Chinese are ideally situated to dominate the tech universe of the 21st Century. It will take time for the Chinese to develop the brand confidence that is so essential at the early-adopter stage, which we’re still in, but they will get there, just as the Japanese got there in automobiles following a pretty weak start in the 1960s, when their car brands were synonymous with poor quality.

One obvious advantage the Chinese have is that the education system, which is changing, but still largely rote-oriented, puts a big emphasis on the STEM subjects. Chinese culture puts a big emphasis on education, moreover, and the Chinese university system is putting out roughly 8 million graduates per year, each of whom has gained nothing quite so much as they have learned discipline and hard work. Chinese students in general, and university students in particular, must survive a daunting school schedule that leaves little time for much else, but prepares them well for the grind of the modern workplace.

And, of course, there are roughly 300,000 Chinese students currently attending American universities, and an equal number, or more, attending universities in Canada, the UK, and Australia, as well as virtually every country in Europe. Some of those will stay overseas when they graduate but many will return to China and join their classmates who stayed home to go to school to form a truly internationally-trained workforce.

Anyone who has ever worked or lived in China also knows that there is such a thing as “China time”, a greatly accelerated time line that is impossible to comprehend until you witness it. They accomplish in days what other countries struggle years to achieve. Part of that is a function of the work ethic, but Americans work hard, too. American companies, however, reflecting the deductive worldview of Western culture, are consumed with process, which helps to insure consistency and sustainability, but at the expense of bureaucracy and rigidity. The inductive Chinese, by contrast, are laser-focused on results, and far less infatuated with the process employed to get there.

Tech, of course, works to an accelerated clock that is only going to accelerate faster and faster as machines get better and better at learning and one breakthrough is quickly leveraged into a dozen more in the blink of an eye. The Chinese will be very comfortable working at warp speed and juggling many balls in the air at one time. American business will continue to excel once they get their processes developed and in place, but when the landscape is changing that rapidly, speed will be the ultimate competitive weapon.

Chinese companies will also benefit from a much more business-friendly regulatory environment in China. Unlike the US, China has a very clear national industrial policy and tech is at the head of their list of priorities. That alone will remove a lot of regulatory hurdles and delays. When Chinese tech companies are ready to test new technologies in real-world environments, they will face far fewer regulatory delays and will be able to be in live tests in a matter of days.

China, as well, is far less legalistic, of course, and while that may hinder development in some arenas, it will be a big advantage as new technologies totally redefine the legal boundaries of ownership and property rights. American companies, by comparison, are sure to get bogged down in the courts as obligations and rights are resorted through the new paradigm of technology, where ideas dominate, and where one begins and another ends is often a matter of perspective.

I actually believe, however, that China’s big advantage in tech will be one that will surely surprise you and that I, frankly, hadn’t even considered until recently. That advantage—hold your hat—is the Communist Party of China, or, more specifically, the collectivist environment in which the Chinese tech pioneers of today have been raised.

America is the home of rugged individualism, and that perspective has served it well. To date, the US has clearly been the center of the tech universe, largely on the back of young, independent entrepreneurs like Mark Zuckerberg, Dustin Moskovitz, Rishi Shah, and the once younger Bill Gates, Steve Jobs, Larry Page, and Sergey Brin.

By definition, tech is built on collaboration and a collective perspective to personal rights and ownership. There is a duality to everything—or a yin and a yang, as the Chinese would put it. American business has benefited from a strong legal system and its protection of intellectual property in the past. The idea economy, however, is sure to blur the historically clean lines of IP ownership and protection and the courts are sure to become a quagmire of commercial suits and counter-suits as the tech giants and bankers battle it out. The Chinese will face no such burden.

I recently saw an interview with 26 year-old Dai Wei, the founder of bike sharing company Ofo Inc. The company has already raised $1.3 billion in startup capital and was expected to have 20 million of its yellow bikes on the streets by the end of 2017. Dai Wei is typical of the Chinese young tech entrepreneurs, and in many ways could not be more different than his Silicon Valley counter-parts.

Dai Wei attended Peking University, the Harvard of China, where he surely got a world-class education and probably paid virtually nothing thanks to government largesse. After graduating, however, he joined a government teaching program sponsored by the Central Committee of the Communist Youth League of China and went to Dongxia township in rural Qinghai Province to teach math to poor middle school and high school students. He cycled 17 kilometers from his dormitory to work each day along dirt mountain paths, the only way in and out of the village. He would later return to Beijing to earn his masters degree and start his ride sharing company.

When the interviewer asked Dai Wei who actually owned the bicycles that the company leases for 1 yuan (about $.15) per ride, he seemed perplexed by the question. “No one owns them,” he finally answered. “They don’t belong to anyone, but all of us may use them.” It’s hard to imagine many Silicon Valley entrepreneurs, in the their mad scramble to become the next youngest tech billionaire, or the venture capitalists lining up to cash in on them, would share such a perspective, either in terms of career path or the ownership of bicycles.

There are some in the tech world who do share a collectivist utopian vision of the tech future. But that does not appear to be the direction the country is heading. Progressives, conservatives, and libertarians alike all see the world through a decidedly individual prism. They come at the issues from different directions, but they all end up at ME. Whether it’s the individual’s right to be free of the government, or the individual’s right to the government’s protection and support, their worldviews are not collective.

Eventually, I believe, the US will have to adopt more of a we-centric socio-economic-political system if we want to maintain the American Dream and make it available to all Americans regardless of race, country of birth, gender, or sexual identity. I am, in fact, writing a new book about it.

In the meantime, enjoy the coverage of CES and the fancy new gadgets being unveiled there. This will be the Year of the Dog in China, an auspicious sign not far below the dragon or the horse in the cosmic pecking order.

The year is already off to an interesting start.

You may contact the author at gary@gmoreau.com
Visit my personal blog at www.gmoreau.com

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Follow on Twitter @gmoreaubooks


Here’s what legendary Kirkus Reviews has to say about the author’s new book: “More than a guidebook for managers, this is a manifesto for an intellectually deeper – and happier – world of business.” Kirkus Reviews (starred review)
click here

The latest in the Understanding Series is now available.
click here
photo credit: iStock.com/tupungato

The Bicycles are Back

Author Gary Moreau

In the late 1980s I was granted a special visa to travel to Guangzhou, then called Canton. I traveled by plane (a fairly antiquated one, at that) from Hong Kong.

We landed at an airport where the terminal seemed no larger than a modest house. Today’s Baiyun airport, by comparison, handles 60 million passengers per year, more than New York’s Kennedy airport.

Bureaucracy and security were in full view. My paper work was passed along a row of officials, none of whom apparently spoke English or asked a single question. They did, however, stamp with big, loud, mechanical stamps that just sounded very official. Today, China is one of the most automated and digital countries on the planet. Many cities are very close to a cashless economy and there isn’t much you can’t do with just a mobile phone.

The latest in the Understanding Series is now available. Click here.

On the security side there were a lot of young men in military uniforms at the airport holding some fairly serious weaponry, and they had all apparently been trained to look menacing. We were supposed to put our hand luggage (in my case, a briefcase) on a conveyer for x-ray inspection, undoubtedly in search of contraband coming in from Hong Kong. I was so overwhelmed with the scene, however, that I didn’t see the sign directing everyone to do that until I was almost past. I continued to walk by at least three automatic weapons but no one said a word. (Probably because I was a foreigner, I know now.)

And then I walked out the door. There were bicycles and people everywhere. I still can’t put it in words. There were very few cars, although my official host, a representative of the Communist Party at some level, had a car, so I was a given a bird’s eye view of what a swarm of bicycles looks like.

What was most impressive, however, was the total lack of carnage. The cyclists were packed so close together that a single accident was sure to turn into a massive chain reaction. And there appeared to be no rules of the road. Cyclists ignored the cars, what few traffic signals there were, the pedestrians, and each other. And somehow it all worked.

Substitute cars for bicycles and you have the same scenario today. The traffic in places like Beijing, Shanghai, and Guangzhou makes the traffic in any major American city pale by comparison. Imagine New York or Chicago with 25 million residents. And, to this day, while there are well-defined rules of the road, no one obeys them. Or even pretends. And the police don’t care.

This is China. It’s crowded and noisy. And it’s chaotic. (The Chinese don’t normally honor queues either.) But it works.

It works because the Chinese have learned how to cope with chaos. They live it every day. And yet things get done, usually at a speed Americans can’t quite fathom.

Bikes are now returning to the streets of China in the form of ride sharing platforms that work much like Uber and Lyft. It’s not a new idea. Bike sharing has been offered in major US cities for some time now.

Here’s what legendary Kirkus Reviews has to say about the author’s new book: “More than a guidebook for managers, this is a manifesto for an intellectually deeper – and happier – world of business.” Kirkus Reviews (starred review)

The difference, however, is transformative—or disastrous—depending on your perspective. China’s popular bike ride sharing platforms, like Ofo and Mobike, don’t require pickup, drop off, and storage stations. You find the bike wherever the last patron left it, but the app on your smart phone will tell you where that is. And you drop it off wherever you like. And that’s where it sits until someone else wants to use it.

The obvious lack of structure is ideal in solving the last mile problem. It really doesn’t matter where your last mile is. You don’t have to live next door to the subway entrance or bike rental station.

That same lack of structure, however, Americans have already noted, can create visual and pedestrian anarchy. Bikes will just pile up at the entrance to other forms of mass transit, and since there are no racks, and the Chinese typically reject rules, that can create an inconvenience for people just trying to get into or out of the tube.

This, I suspect, will be a much bigger hurdle for the Chinese ride sharing companies trying to expand into the US than they probably realize. I wouldn’t be at all surprised if these companies aren’t banned in otherwise “progressive” cities around the country. A recent article in The Washington Post claimed, in fact, “Opponents have branded Ofo and Mobike a menace, a plague and a public nuisance.”

It will start with the bureaucrats. In San Francisco the City Supervisor referred to China’s Bluegogo, which put 20,000 bikes on the street without permission in January, a “public nuisance,” and threatened legal action. (Of course. It’s the American solution.)

Even though these companies require no support from the cities themselves, since they don’t need racks or real estate, they will have to get a license to operate and they will, without a doubt, be excessively regulated. Local governments will try very hard to tell them where they can leave the bikes, offer the bikes, etc. And the police, of course, will be called upon to enforce the regulations, giving the men and women in blue yet another regulation to occupy their time and dilute their efforts to stop crime.

One of the reasons that the Chinese economy is so resilient is that the regulators don’t worry about the little stuff. If you want to start a small business, just start it. Sure, you technically need a license, but chances are that no one is going to bother you unless you give them a reason to. The police are more likely than not to patronize your business than shut it down.

And the reason that the police are able to keep a tight rein on violent crime is that they do little else. They don’t waste time writing out traffic tickets or fining some hapless predestination for jay walking. If you’re not threatening the Party or public security, the police are likely to leave you alone.

We Americans, on the other hand, are a nation of rule followers and enforcers. And rules are rules. There are no moral equivalents, if you will, when it comes to controlling what people do. Take a trip to your local DMV office and try to do something even remotely out of line with the rules if you doubt that.

The third, and perhaps most significant difference, however, is not that the Chinese won’t eventually see the need to do something about the problem. It is that the people impacted will do something about it. They will figure out some way to overcome the problem without throwing away the benefits.

Available in paper and electronic formats.

Americans, on the other hand, will, I suspect, look to the government to solve the problem. The government will inevitably over-reach, yet other people will get upset, and responsibility will just bounce around in that growing bin of social problems we just can’t seem to find a solution for.

The wealthy, of course, will get helicopter ride sharing apps or buy their own, if they can afford it. The mass middle will get prescriptions for higher doses of Xanax, and the poor will just shake their heads and get by.

Oh, one last thing. The regulators will tell you that they need to regulate these companies in the name of public safety and consumer protection. You will hear all kinds of dire concerns about the bikes being stolen, set afire in the middle of the street, or used in the commission of crime. These are all just red herrings. What is the price of climate change? What is the value of your time sitting in commuter traffic? What is the value of giving people just another simple way to get a little exercise without joining a fancy gym?

Ride on.

Opening photo credit: iStock.com/tupungato

Contact: You may write the author at gary@gmoreau.com
Author’s website & blog: www.gmoreau.com

Internet China

There were more than 600 million Internet users in China at the end of 2013. And by the end of 2014 it is predicted that China will be home to the largest e-commerce market on the planet. On November 11, 2013, Alibaba, the Chinese Internet giant which created the Double 11 e-fest and is about to launch an historic IPO in the U.S., rang up $5.75 billion in sales in just one 24-hour period.

Beyond its massive scope and reach, however, there are a couple of fundamental differences between Internet China and the Western World Wide Web. And both, not surprisingly, mirror the fundamental difference between the deductively grounded worldview of the West and the inductively holistic worldview of the Middle Kingdom.

The first relates to e-commerce and reflects the importance of relationship in Chinese culture. While much of Chinese culture turns on personal obligation, all relationships are personal. And because the Chinese cannot personalize institutions to the extent that Westerners often do, there is a natural suspicion of all commercial institutions.

As a result, Amazon, which is synonymous with e-tailing in the U.S., is a distant laggard here to industry leaders JD.com and Alibaba (Tmall & Taobao), which together account for close to 90% of the massive e-tail market in China.   The Amazon model is a brand model built on the strength and credibility of the company’s core brand – itself. JD.com and Alibaba, by contrast, employ e-tail models that serve to facilitate peer review to the point of actual shopper branding through a complex system of peer endorsement that ultimately rates both the product and the reviewer, resulting in a community of virtual personal relationships that ultimately drive buying behavior.

The second difference between Internet China and the Western WWW, of course, is a little more obvious and a lot more controversial – at least in the West. While the U.S. and other Western countries have resisted any temptation to regulate or otherwise limit the use of the Internet, the Chinese Internet is highly regulated.

Facebook and Twitter are not available here but China has its own social networking giants for maintaining virtual relationships.
Facebook and Twitter are not available here but China has its own social networking giants for maintaining virtual relationships.

The Chinese, as a result, cannot access Facebook or Twitter or YouTube or any of the other Western social media outlets that have been virtually woven into the fabric of Western culture. (There are Chinese versions of each, but they are not simply translated copies. They are Chinese in both style and social structure.) Nor can they access pornography – in any form. (Some estimate that as much as 30% of all Internet traffic in the West is porn.) There are actually laws on the books that prohibit using the Internet to spread false rumors or malicious lies. And, yes, there is censorship of political content determined to be offensive or inappropriate.

And, for the most part, the Chinese abide. Not out of fear or ignorance or even the sense of powerlessness to do anything about it. They abide because, in their worldview, everything must be evaluated in context.

While the rational foundation of all liberal democracy is that political legitimacy flows from the individual, the source of all political legitimacy in China flows from the government’s collective obligation to protect and sustain the larger Chinese family – the common good. And while it is the fundamental belief that individual rights are the very foundation of common good that gave rise to Western democracy, it is the more holistic, outcome-oriented worldview of common good that defines the roles of the governing and the governed in the Confucian worldview of rites and obligation.

There are, of course, pros and cons to both political systems and the polar worldviews on which they are built. Within the liberal democracies of the West the dangers of rogue government behavior is minimized by the fundamental expectation of government transparency and the empowerment of the individual to demand accountability at the ballot box. On the other side of the ledger, however, individuals with money and power can bend the political agenda in ways that potentially compromise the common good. (Take your pick of special interests that control the political agenda of the West today.)

Under the one party socialist system (There are actually 8 officially recognized political parties in China, although one calls all the shots.), on the other hand, the government can act swiftly and decisively in the interest of social advancement. Airports, rail lines, and highways can be completed in a fraction of the time it would take such projects to wind their way through the courts in the U.S. And the government can act swiftly to halt the dissemination of false rumor or spiteful content that might otherwise harm innocent netizens or institutions. With such power, however, comes the risk of silencing constructive dissent and productive political dialogue. The line between promoting the common good and oppressing the common good can, of course, be a matter of perspective.

To the Western mind political censorship is never defensible. As deductive reasoners we believe in absolutes; absolute morality, absolute truth, the absolute belief that all men are created equal and the absolute source of all government legitimacy. Through such an absolute lens, context is merely oppressive rationalization.

In the world of inductive reasoning that is at the heart of the Chinese worldview, however, context is everything. Outcome trumps process. Achievement trumps language. Rights are both situational and relative.

To the average Chinese person, therefore, the question is not whether the government should censor or not. (They will point out that while the U.S. government doesn’t censor, it does snoop, and the end result isn’t all that different when it comes to personal rights.) To them it is a question of context. Why? And how does this one piece fit into the larger puzzle?

There is a rational justification for regulation. Like the printing press before it, the Internet is an extrapolator. It is a lever of influence. And levers, through leverage, extrapolate impact. A modestly strong man, with leverage, can move boulders many times his size and mass.

During the 24-hour e-fest that it created known as Double 11, Alibaba rang up more than $5 billion in e-tail sales.
During the 24-hour e-fest that it created known as Double 11, Alibaba rang up more than $5 billion in e-tail sales.

And so it is with the Internet. Individual voices with no established audience can be broadcast across the world. Tiny companies, whose products would be lost in the crushing swells of traditional commerce, can build global markets with little more than an idea and a keyboard. And dreamers, once confined to their own thoughts, can inspire a legion of followers.

But with every great benefit comes a potential curse. Extrapolation begets exaggeration, and since the Internet is itself a neutral, unassuming lever, veracity is not a prerequisite to its impact. Rumors and myths are disseminated at the same speed as truth and facts. Commercial fraud and products of no redeeming social value (e.g. porn) are granted the same access to potential customers that legitimate commercial providers and worthy causes are.   Those who mean us harm are given the same power to organize as those who wish to celebrate our success.

As Yogi Berra once said, “In theory there is no difference between theory and practice but in practice there is.” What the Chinese that I know want is not to post political dissent on the Internet but a better environment, better medical care, and a better life for their children.

And that, ultimately, is the context within which all governments are measured – the context of hope. When people have hope for themselves and their children, as the Chinese currently do, everything else is mere ideology.

In the end, the Chinese, as they so often do, have taken a less absolute, more holistic approach to managing their virtual community. It is the Internet with Chinese characteristics – characteristics of realism and balance with an eye toward achieving the best outcome for all. In short, individual rights within the context of hope for a better life.

In the holistic Chinese worldview context is everything.  And no context is more empowering than the hope for a better life for ourselves and our children.
In the holistic Chinese worldview context is everything. And no context is more empowering than the hope for a better life for ourselves and our children.

Copyright © 2014 Glassmaker in China

Notice:  The views expressed in this post are strictly those of the writer acting in a personal capacity.  They are not in any way endorsed or sanctioned by his employer or any other individual with which he may be personally or professionally affiliated.

 

The Yin-Yang of Chinese Regulation

Westerners think of China as highly regulated.  And at one level that’s true.  In important and surprising ways, however, the opposite is also true.  Compared to the U.S. and other Western countries it’s a veritable free-for-all here.

There are a few lines you just don’t cross.  Anything that challenges the security of the state is one of them.  Although I personally find that to be rather comforting in this day and age.

And the flow of foreign currency is another.  Even if you have foreign currency you can’t spend it without governmental approval.  But the Chinese have spent the last thirty years exporting their hard work in exchange for U.S. dollars so who can blame them for wanting to protect that accumulated equity.

Perhaps the biggest headache for foreign companies operating here is the fact that business licenses are very specific and often very narrow in their scope.  Most foreign companies are licensed to sell only what they make and even that may be spelled out in great detail in terms of processes and materials.  What are simple tasks to their Western brethren, like opening a factory outlet, buying a few trucks to haul your merchandise, or even expanding into a new line of products or services, can be quite problematic here.

Within those broad boundaries, however, both individuals and businesses have a lot of freedom – more, even, than in the West.

f you think China is a bastion of regulation you apparently haven't driven here.  I'm still not sure why they bother with traffic lights.
If you think China is a bastion of regulation you apparently haven’t driven here. I’m still not sure why they bother with traffic lights.

At the personal level you have to look no further than the motorways of China to verify my assertion.  If you even see a policeman on the highway – and it’s rare – it’s very unlikely he has pulled anyone over.  Chances are he is going somewhere and is likely to have a long line of cars literally drafting behind to take advantage of his ability to break through traffic.

Traffic signals exist only for – actually, I haven’t figured out why they bother with them.  And speed limits are routinely ignored except where electronic sensors and video cameras have been installed; and in those cases they have conveniently posted signs to allow you to slam on the brakes before actually entering the detector’s field of vision.

Trucks are pretty much unregulated here.  If you can get it to stay on there, and even if you can't, you're welcome to use the highway.
Trucks are pretty much unregulated here. If you can get it to stay on there, and even if you can’t, you can haul it on the highway.

Commercial trucks, for their part, are almost totally unregulated in practice.  I have yet to see a police weigh station along any highway.  I frequently see trucks carrying loads far beyond their designed capacity and sometimes wider than the width of a single lane.  And in the event traffic is stopped on a highway for any reason one of the biggest delays in getting things going again is that the police have to walk down the line of trucks to wake up sleeping drivers catching some much needed rest.

No Chinese parent or homeowner has ever gotten into trouble for failing to pay taxes for his or her nanny or housekeeper (called ayi’s here), although every modestly wealthy family has at least one.    While they would be easy for the tax authorities to find, having the poor housekeeper employed is far more important to the pragmatically minded government than the small amount of revenue lost by her or her employer not paying taxes.  (And the revenue will, of course, turn into expense when the housekeeper becomes unemployed and has to rely on government assistance to survive.)

There are minimum wage laws, of course.  And there’s the usual labyrinth of regulations relating to overtime and social insurance and all the rest.  And sometimes they’re not enforced.  And sometimes they’re not enforced for the wrong reasons.

The reality, however, is that those regulations apply only to a small portion of the population.  A huge part of the economy depends on independent contractors and day laborers and is essentially unregulated.  It’s one of the key reasons that the China price is as low as it is.

The unregulated economy is not underground.  It's right there on the street corner.
The unregulated economy is not underground. It’s right there on the street corner.

To be clear, this is not an underground economy.   It’s all very much above board.  Go to this street corner to rent a giant earth excavation machine by the hour or the job.  Go to that street corner for carpenters, electricians and other tradespeople.  And go here to pick from a dozen different trucks and drivers to move your load from A to B.  All cash.  No taxes.  No regulations.  And, for all intents and purposes, no liabilities.

The government knows that these small companies and individual contractors are there, of course.  Everyone knows they’re there.  That’s the whole point.  It’s all part of a system designed to deliver maximum economic growth while keeping everyone employed at whatever they’re capable of doing.

Tradesmen waiting for work.  They're obviously not hampered by red tape and paperwork.
Tradesmen waiting for work. They’re obviously not buried in red tape and paperwork.

But what’s even more critical to China’s economic success, in my opinion, is that even when there are regulations, and there can be a lot of them depending on the issue, the industry, and the company, every regulation is more of a guideline than a hard and fast rule.

Not for the taking, mind you.  If you’re an employer, for example, the labor laws are regulations for you.  You must follow them.  They’re guidelines, however, for the government officials who are tasked with enforcing them.  And they have both the authority and the willingness to interpret them in a way that maximizes the government’s key priorities of social stability and economic growth – i.e. socialism with Chinese characteristics.

There is a big downside to regulatory discretion, of course, when it comes to corruption.  But there is a big upside as well.  No regulation, no matter how carefully crafted or exhaustively detailed, can envision every circumstance to which the regulation will ultimately apply.  It is the Law of Unintended Consequences.  The only foreseeable reality is the reality of the unforeseen. 

The reality is that no regulation can sensibly accomodate every situation to which it must ultimately be applied.
The reality is that no regulation can sensibly accomodate every situation to which it must ultimately be applied.

It is, as a practical matter, the lack of discretion, more than the mere existence of regulation, which leads to crippling bureaucracy, regulatory gridlock, cost inflation, and, in the end, a lack of jobs.   And it is discretion, in a word, that has allowed the Chinese to economically succeed – to lift more than 300 million people out of poverty in less than a generation – where other highly regulated economies (e.g. the Soviets) were unsuccessful.

This is precisely why I believe the debate over government regulation in the West is ill-framed.  As the Chinese have so clearly demonstrated, regulation is not the problem.  They have one of the most highly regulated economies in the world but have, nonetheless, created a fertile environment for the small businesses and independent contractors that are the real job-engines of every economy in the world.

The problem plaguing the U.S. and other Western economies is not regulation, but its digital application.   It is the loss of discretion, or, as my long-deceased father would have said, the death of common sense, not the birth of regulation, that has sapped the vitality out of Western economic growth.

The litigious nature of the U.S. regulatory environment, of course, naturally squeezes discretion out of the system.  And there are some benefits to the resulting consistency.  Consistency, however, taken to the extreme, promotes rigidity, limits responsiveness, and ultimately weakens that segment of the economy – small business – that builds value by catering to micro needs through the ability to provide flexible services at low cost.

In the end, the Chinese once again have turned Western assumptions on their head.  Where we see the chains of regulation they have created a bastion of economic freedom.  And while we promote the value of rugged individualism, we have, in fact, spawned an environment of expensive and crippling regulatory rigidity.

The lesson, once again, is that in regulation, as in health, food, architecture, and – in all of life and business – the best solution is a balanced solution.  The yin-yang of regulation.  It’s how a political and economic system that is literally defined by regulation nonetheless thrives on its ability to nurture economic freedom.

As with most things in life and business, effective regulation comes down to balance and perspective - what my dad called common sense.
As with most things in life and business, effective regulation comes down to balance and perspective – what my dad called common sense.

Contact:  You may contact the author at glassmakerinchina@gmail.com

Copyright © 2014 Glassmaker in China

Notice:  The views expressed in this post are strictly those of the writer acting in a personal capacity.  They are not in any way endorsed or sanctioned by his employer or any other individual with which he may be personally or professionally affiliated.