Everyday of Freedom is an Act of Faith for my writings ============> http://robertoscaruffi.blogspot.com for something on religions ===> http://scaruffi1.blogspot.com
Tuesday, 26 February 2008
Thursday, 14 February 2008
MAKING MONEY
KNOW HOW TO TELL IT'S COUNTERFEIT? EASY: NO COCAINE ON IT
http://www.dors.com/products/home.html http://www.pbs.org/wgbh/nova/moolah/
rtsp://video.c-span.org/archive/arc_btv/btv102007_mihm.rm
rtsp://video.c-span.org/archive/arc_btv/btv102007_mihm.rm
COUNTERFEIT NATION
http://graphics8.nytimes.com/images/2007/08/14/magazine/19idea600.1.jpg http://www.nytimes.com/2007/08/19/magazine/19wwln-idealab-t.html?_r=1...
America's reliance on dubious credit goes all the way back to the country's founding.
BY Stephen Mihm / August 19, 2007
The recent rumbles and ruptures in the financial markets are finally making people reassess the dubious systems of credit that have arisen in the past few years. In retrospect, it seems clear that honest, tried-and-true ways of borrowing money were recklessly abandoned and replaced by financial legerdemain: black-box transactions, synthetic collateralized debt obligations, mezzanine tranches and credit-default swaps -- to cite just a few of the exotically named financial instruments now facing scrutiny. America's once-solid economy became a house of cards, a web of debt masquerading as wealth, a system crying out for correction. As one Wall Street banker quoted by The Financial Times concluded, the recent credit crunch suggests that things are finally "returning to a more 'normal' level after 'abnormally' loose conditions over the past few years."
But what if the last few years of playing fast and loose with credit were not a deviation from the norm but a return to America's economic roots? Though it is hardly the sort of thing you read about in heroic histories of America's rise to economic greatness, the credit system in the United States has often been, in effect, a confidence game writ large, relying heavily on shaky paper promises, shell games and other trickery. The standard account would have you believe that the road to individual and national wealth was paved by hard-working, honest entrepreneurs who steered clear of get-rich-quick schemes, counterfeiters' printing presses and suckers' swindles. But for better and for worse, such shady institutions lie at the heart of the country's moneymaking past and, if recent events are any indication, its present.
The very phrase "making money" had a curiously literal meaning in the years between the founding of the United States and the onset of the Civil War. Throughout that era -- a time before the federal government issued its own, exclusive paper money -- hundreds and eventually thousands of individual banks extended credit and conducted business by printing and circulating their own "bank notes" in denominations and designs of their choosing. Unlike today's currency, bank notes were promises to pay, not cool, hard cash. A bank issuing a note vowed to pay the stated amount in "real" money (gold or silver coin) if someone presented it for redemption at the bank's counter -- a promise that many banks failed to keep in times of panic. These slips of paper became the nation's de facto money supply, as well as the building blocks of the country's credit system.
None of this sat well with an earlier generation of credit skeptics. John Adams, the former president, wrote in 1809 that "every dollar of a bank bill that is issued beyond the quantity of silver and gold in the vaults represents nothing and is therefore a cheat upon somebody." But Adams, you might argue, was missing an important point: credit is by definition a contradictory creature. It depends on trust and confidence and yet invites the possibility of fraud or, at the very least, grave disappointment. In some deep, unsettling sense, credit depends on credulousness. Or to put the matter differently, credit depends on promises -- and promises, as the saying goes, are made to be broken.
Broken promises came in many forms in that era of bewildering bank notes. Reputable banks often failed to meet their commitments in moments of panic or contraction. Even when times were good, some high- flying banks lent too many notes on the basis of too little capital and went under. More cynically, there were so-called wildcat banks, institutions deliberately founded in remote locations so as to frustrate the redemption of their notes. And most cynically, a thriving class of counterfeiters fed on the banking system. Sometimes they copied an existing bank's notes; other times, they took the logical next step and, like the bankers they imitated, established their own banks with plausible-sounding names, the notes of which they would pass as the genuine article -- which in a sense they were.
All these moneymaking operations blurred the line between what was counterfeit and genuine. As the financial writer Hezekiah Niles observed in 1818, there was no real difference "between a set of bank directors, who make and issue notes . . . which they deliberately promise to pay with a previous resolution not to pay, and a gang of fair, open, honest counterfeiters."
Niles was not merely being rhetorical. The erosion of the boundary between counterfeit and genuine currency was a day-to-day reality for everyone who handled money. There was no better symbol of this than the ubiquitous "counterfeit detectors" found on the desks and counters of merchants, bankers and storekeepers. These flimsy pamphlets, new versions of which were published every week or month, claimed to list every bank note in circulation, along with the rates of discount, known counterfeits, rumors of fraud and instability and difficult-to- decipher descriptions of the appearance of each and every note. When bank notes changed hands, both parties would generally huddle over a "detector." After several minutes, a note might be declared genuine, counterfeit or merely dubious, in which case a discount might be levied. Yet often a bogus note was accepted with a knowing wink. As one detective would later recall, "It was a popular remark among men of business at that time, that they preferred a good counterfeit on a solid bank to any genuine bill upon the 'shyster' institutions."
For all the fraud, the system worked. Between the Revolution and the Civil War, the nation's economy grew by leaps and bounds. The invidious comparisons between bankers and counterfeiters, though true, hinted at a still-deeper truth: America's citizens desperately needed and wanted money to realize their ambitions, and where the reputable banks fell short, counterfeiters and other shady moneymakers were more than willing to take up the slack, operating along a continuum that stretched from rock-solid banks to bona fide frauds.
The contemporary observer who best captured the uneasy coexistence of credit and fraud was not an economist but a novelist. In his book "The Confidence Man," Herman Melville offered a parable of the credit economy and the paradoxical forces that sustained it. Set aboard a steamboat drifting down the Mississippi River, the novel recounts the deceits and deceptions of a shape-shifting impostor who preys on the credulity of his fellow passengers, asking for their "confidence" in the form of loans or other acts of trust. Yet even as he defrauds his victims, he lectures them on the importance of extending credit. "Confidence is the indispensable basis of all sorts of business transactions," the protagonist says. "Without it, commerce between man and man, as between country and country, would, like a watch, run down and stop." Melville's rogue was on to something: what was creditworthy and what was fraudulent could easily turn out to be two sides of the same coin -- or rather the same bank note.
The collapse of the distinction between legitimate and fraudulent means of making money can end badly. It certainly did in Niles's and Melville's day. Not long after Niles predicted that the nation's overextended banks would come to grief, a calamitous panic drove many lenders to break their paper promises; many of them went out of business entirely. Yet a few years later, the credit system was alive and well, and by the middle of the 1830s an era of wild land speculation was under way, with many more banks -- and countless counterfeiters -- pumping money into the economy. Things didn't turn out well then either: the panic of 1837 wiped out hundreds of banks, sinking the country into a brutal depression. Another speculative bubble 20 years later ended on a similarly catastrophic note.
It was only during the Civil War that the relationship between the monetary system and the credit system began to change. At that point, the federal government entered the business of printing paper money, issuing a forerunner to today's greenback in order to pay for the war. Federal legislation taxed the older system of bank notes out of existence and left the government with the start of a monopoly over the money supply. And so began a halting, decadeslong evolution toward the money that we know and -- at least for the moment -- trust.
But credit-driven capitalism did not disappear. The spirit of financial trickery assumed new incarnations in the succeeding century: the stock-market manipulator, the pyramid-scheme promoter. With the proliferation of no-doc mortgages, interest-only loans and a dizzying array of new financial instruments, there is ample proof that America remains in the broadest sense what Hezekiah Niles once described as "a nation of counterfeiters." Genuine counterfeiters no longer lurk in every corner of the financial system, but a new crop of miscreants has fueled the boom: fraudulent real-estate appraisers, for example, and companies offering "credit repair" services that erase bad credit by "borrowing" someone else's more reputable history of paying his bills on time. Some of these practices are illegal; others are within the bounds of the law. The murky business of devising collateralized mortgage obligations, whereby subprime mortgages can be born again as new, lower-risk securities, is legal. Whether it is a good idea is another thing altogether.
Perhaps the current wave of debt machinations will end badly. Then again, in the long run, it may not. Consider the impressions of another novelist, the British writer Frederick Marryat, who visited the United States in the wake of the panic of 1837. As he surveyed the wreckage of broken banks and worthless paper, he came to a surprising conclusion. "If all the profits of the years of healthy credit were added up," he wrote, "and the balance sheet struck between that and the loss at the explosion, the advantage gained by the credit system would still be found to be great. The advancement of America depends wholly upon it. It is by credit alone that she has made such rapid strides, and it is by credit alone that she can continue to flourish."
The recent rumbles and ruptures in the financial markets are finally making people reassess the dubious systems of credit that have arisen in the past few years. In retrospect, it seems clear that honest, tried-and-true ways of borrowing money were recklessly abandoned and replaced by financial legerdemain: black-box transactions, synthetic collateralized debt obligations, mezzanine tranches and credit-default swaps -- to cite just a few of the exotically named financial instruments now facing scrutiny. America's once-solid economy became a house of cards, a web of debt masquerading as wealth, a system crying out for correction. As one Wall Street banker quoted by The Financial Times concluded, the recent credit crunch suggests that things are finally "returning to a more 'normal' level after 'abnormally' loose conditions over the past few years."
But what if the last few years of playing fast and loose with credit were not a deviation from the norm but a return to America's economic roots? Though it is hardly the sort of thing you read about in heroic histories of America's rise to economic greatness, the credit system in the United States has often been, in effect, a confidence game writ large, relying heavily on shaky paper promises, shell games and other trickery. The standard account would have you believe that the road to individual and national wealth was paved by hard-working, honest entrepreneurs who steered clear of get-rich-quick schemes, counterfeiters' printing presses and suckers' swindles. But for better and for worse, such shady institutions lie at the heart of the country's moneymaking past and, if recent events are any indication, its present.
The very phrase "making money" had a curiously literal meaning in the years between the founding of the United States and the onset of the Civil War. Throughout that era -- a time before the federal government issued its own, exclusive paper money -- hundreds and eventually thousands of individual banks extended credit and conducted business by printing and circulating their own "bank notes" in denominations and designs of their choosing. Unlike today's currency, bank notes were promises to pay, not cool, hard cash. A bank issuing a note vowed to pay the stated amount in "real" money (gold or silver coin) if someone presented it for redemption at the bank's counter -- a promise that many banks failed to keep in times of panic. These slips of paper became the nation's de facto money supply, as well as the building blocks of the country's credit system.
None of this sat well with an earlier generation of credit skeptics. John Adams, the former president, wrote in 1809 that "every dollar of a bank bill that is issued beyond the quantity of silver and gold in the vaults represents nothing and is therefore a cheat upon somebody." But Adams, you might argue, was missing an important point: credit is by definition a contradictory creature. It depends on trust and confidence and yet invites the possibility of fraud or, at the very least, grave disappointment. In some deep, unsettling sense, credit depends on credulousness. Or to put the matter differently, credit depends on promises -- and promises, as the saying goes, are made to be broken.
Broken promises came in many forms in that era of bewildering bank notes. Reputable banks often failed to meet their commitments in moments of panic or contraction. Even when times were good, some high- flying banks lent too many notes on the basis of too little capital and went under. More cynically, there were so-called wildcat banks, institutions deliberately founded in remote locations so as to frustrate the redemption of their notes. And most cynically, a thriving class of counterfeiters fed on the banking system. Sometimes they copied an existing bank's notes; other times, they took the logical next step and, like the bankers they imitated, established their own banks with plausible-sounding names, the notes of which they would pass as the genuine article -- which in a sense they were.
All these moneymaking operations blurred the line between what was counterfeit and genuine. As the financial writer Hezekiah Niles observed in 1818, there was no real difference "between a set of bank directors, who make and issue notes . . . which they deliberately promise to pay with a previous resolution not to pay, and a gang of fair, open, honest counterfeiters."
Niles was not merely being rhetorical. The erosion of the boundary between counterfeit and genuine currency was a day-to-day reality for everyone who handled money. There was no better symbol of this than the ubiquitous "counterfeit detectors" found on the desks and counters of merchants, bankers and storekeepers. These flimsy pamphlets, new versions of which were published every week or month, claimed to list every bank note in circulation, along with the rates of discount, known counterfeits, rumors of fraud and instability and difficult-to- decipher descriptions of the appearance of each and every note. When bank notes changed hands, both parties would generally huddle over a "detector." After several minutes, a note might be declared genuine, counterfeit or merely dubious, in which case a discount might be levied. Yet often a bogus note was accepted with a knowing wink. As one detective would later recall, "It was a popular remark among men of business at that time, that they preferred a good counterfeit on a solid bank to any genuine bill upon the 'shyster' institutions."
For all the fraud, the system worked. Between the Revolution and the Civil War, the nation's economy grew by leaps and bounds. The invidious comparisons between bankers and counterfeiters, though true, hinted at a still-deeper truth: America's citizens desperately needed and wanted money to realize their ambitions, and where the reputable banks fell short, counterfeiters and other shady moneymakers were more than willing to take up the slack, operating along a continuum that stretched from rock-solid banks to bona fide frauds.
The contemporary observer who best captured the uneasy coexistence of credit and fraud was not an economist but a novelist. In his book "The Confidence Man," Herman Melville offered a parable of the credit economy and the paradoxical forces that sustained it. Set aboard a steamboat drifting down the Mississippi River, the novel recounts the deceits and deceptions of a shape-shifting impostor who preys on the credulity of his fellow passengers, asking for their "confidence" in the form of loans or other acts of trust. Yet even as he defrauds his victims, he lectures them on the importance of extending credit. "Confidence is the indispensable basis of all sorts of business transactions," the protagonist says. "Without it, commerce between man and man, as between country and country, would, like a watch, run down and stop." Melville's rogue was on to something: what was creditworthy and what was fraudulent could easily turn out to be two sides of the same coin -- or rather the same bank note.
The collapse of the distinction between legitimate and fraudulent means of making money can end badly. It certainly did in Niles's and Melville's day. Not long after Niles predicted that the nation's overextended banks would come to grief, a calamitous panic drove many lenders to break their paper promises; many of them went out of business entirely. Yet a few years later, the credit system was alive and well, and by the middle of the 1830s an era of wild land speculation was under way, with many more banks -- and countless counterfeiters -- pumping money into the economy. Things didn't turn out well then either: the panic of 1837 wiped out hundreds of banks, sinking the country into a brutal depression. Another speculative bubble 20 years later ended on a similarly catastrophic note.
It was only during the Civil War that the relationship between the monetary system and the credit system began to change. At that point, the federal government entered the business of printing paper money, issuing a forerunner to today's greenback in order to pay for the war. Federal legislation taxed the older system of bank notes out of existence and left the government with the start of a monopoly over the money supply. And so began a halting, decadeslong evolution toward the money that we know and -- at least for the moment -- trust.
But credit-driven capitalism did not disappear. The spirit of financial trickery assumed new incarnations in the succeeding century: the stock-market manipulator, the pyramid-scheme promoter. With the proliferation of no-doc mortgages, interest-only loans and a dizzying array of new financial instruments, there is ample proof that America remains in the broadest sense what Hezekiah Niles once described as "a nation of counterfeiters." Genuine counterfeiters no longer lurk in every corner of the financial system, but a new crop of miscreants has fueled the boom: fraudulent real-estate appraisers, for example, and companies offering "credit repair" services that erase bad credit by "borrowing" someone else's more reputable history of paying his bills on time. Some of these practices are illegal; others are within the bounds of the law. The murky business of devising collateralized mortgage obligations, whereby subprime mortgages can be born again as new, lower-risk securities, is legal. Whether it is a good idea is another thing altogether.
Perhaps the current wave of debt machinations will end badly. Then again, in the long run, it may not. Consider the impressions of another novelist, the British writer Frederick Marryat, who visited the United States in the wake of the panic of 1837. As he surveyed the wreckage of broken banks and worthless paper, he came to a surprising conclusion. "If all the profits of the years of healthy credit were added up," he wrote, "and the balance sheet struck between that and the loss at the explosion, the advantage gained by the credit system would still be found to be great. The advancement of America depends wholly upon it. It is by credit alone that she has made such rapid strides, and it is by credit alone that she can continue to flourish."
A NATION OF OUTLAWS
A century ago, that wasn't China -- it was us
By Stephen Mihm August 26, 2007
If recent headlines are any indication, China's rap sheet of capitalist crimes is growing as fast as its economy. Having exported poison pet food and toothpaste laced with antifreeze earlier this year, the world's emerging economic powerhouse has diversified into other, equally dubious product lines: scallops coated with putrefying bacteria, counterfeit diabetes tests, pirated Harry Potter books, and baby bibs coated with lead, to name but a few.
Politicians are belatedly putting China on notice. Representative Frank Wolf of Virginia delivered one of the more stinging counterattacks last month, warning that the United States "must be vigilant about protecting the values we hold dear" in the face of China's depredations.
His anger reflects the mounting disgust with how recklessly China plies its trade, apparently without regard for the things that make commerce not only dependable but possible: respect for intellectual property, food and drug purity, and basic product safety. With each tawdry revelation, China's brand of capitalism looks increasingly menacing and foreign to our own sensibilities.
That's a tempting way to see things, but wrong. What's happening halfway around the world may be disturbing, even disgraceful, but it's hardly foreign. A century and a half ago, another fast-growing nation had a reputation for sacrificing standards to its pursuit of profit, and it was the United States.
As with China and Harry Potter, America was a hotbed of literary piracy; like China's poisonous pet-food makers, American factories turned out adulterated foods and willfully mislabeled products. Indeed, to see China today is to glimpse, in a distant mirror, the 19th-century American economy in all its corner-cutting, fraudulent glory. A tragic lesson (By Stephen Mihm )
China may be a very different country, but in many ways it is a younger version of us. The sooner we understand this, the sooner we can realize that China's fast and loose brand of commerce is not an expression of national character, much less a conspiracy to poison us and our pets, but a phase in the country's development. Call it adolescent capitalism, if you will: bursting with energy, exuberant, dynamic. Like any teenager, China's behavior is also maddening, irresponsible, and dangerous. But it is a phase, and understanding it that way gives us some much-needed perspective, as well as some tools for handling the problem. Indeed, if we want to understand how to deal with China, we could do worse than look to our own history as a guide.
A bit of empathy might even be in order. One hundred and fifty years ago, even America's closest trade partners were despairing about our cheating ways. Charles Dickens, who visited in 1842, was, like many Britons, stunned by the economic ambition of our nation's inhabitants, and appalled by what they would do for the sake of profit. When he first stepped off the boat in Boston, he found the city's bookstores rife with pirated copies of his novels, along with those of his countrymen. Dickens would later deliver lectures decrying the practice, and wrote home in outrage: "my blood so boiled as I thought of the monstrous injustice."
In the United States of the early 19th century, capitalism as we know it today was still very much in its infancy. Most people still lived on small farms, and despite the persistent myth that America was the land of laissez-faire, there were plenty of laws on the books aimed at keeping tight reins on the market economy. But as commerce became more complex, and stretched over greater distances, this patchwork system of local and state-level regulations was gradually overwhelmed by a new generation of wheeler-dealer entrepreneurs.
Taking a page from the British, who had pioneered many ingenious methods of adulteration a generation or two earlier, American manufacturers, distributors, and vendors of food began tampering with their products en masse -- bulking out supplies with cheap filler, using dangerous additives to mask spoilage or to give foodstuffs a more appealing color.
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. And just as the worst sufferers of adulterated food in China today are the Chinese, so it was the Americans who suffered in the early 19th-century United States. But when America started exporting food more broadly after the Civil War, the practice started to catch up to us.
One of the first international scandals involved "oleo-margarine," a butter substitute originally made from an alchemical process involving beef fat, cattle stomach, and for good measure, finely diced cow, hog, and ewe udders. This "greasy counterfeit," as one critic called it, was shipped to Europe as genuine butter, leading to a precipitous decline in butter exports by the mid-1880s. (Wily entrepreneurs, recognizing an opportunity, bought up genuine butter in Boston, affixed counterfeit labels of British butter manufacturers, and shipped them to England.) The same decade saw a similar, though less unsettling problem as British authorities discovered that lard imported from the United States was often adulterated with cottonseed oil.
Even worse was the meatpacking industry, whose practices prompted a trade war with several European nations. The 20th-century malfeasance of the industry is well known today: "deviled ham" made of beef fat, tripe, and veal byproducts; sausages made from tubercular pork; and, if Upton Sinclair is to be believed, lard containing traces of the occasional human victim of workplace accidents. But the international arena was the scene of some of the first scandals, most notably in 1879, when Germany accused the United States of exporting pork contaminated with trichinae worms and cholera. That led several countries to boycott American pork. Similar scares over beef infected with a lung disease intensified these trade battles.
Food, of course, was only the beginning. 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."
Counterfeiters of patent medicines were especially notorious. This was a bit ironic, given that most of these remedies were pretty spurious already, but that didn't stop the practice. The most elaborate schemes involved importing empty bottles, filling them with bogus concoctions, and then affixing fake labels from well-respected European firms.
Americans also displayed a particular talent for counterfeiting currency. This was a time when individual banks, not the federal government, supplied the nation's paper money in a bewildering variety of so-called "bank notes." Counterfeiters flourished to the point that in 1862 one British writer, after counting close to 6,000 different species of counterfeit or fraudulent bills in circulation, could reasonably assure his readers that "in America, counterfeiting has long been practiced on a scale which to many will appear incredible."
What was it that made the 19th-century United States such a hotbed of bogus goods? And why is China's economic boom today, as New York Times writer Howard French clucked earlier this month, "minted in counterfeit"?
Piracy, fraud, and counterfeiting, whether of currency, commodities, or brand-name electronics, flourishes at a particular moment in a capitalist society: the regulatory interregnum that emerges in the wake of fast-paced capitalist change. This period is one in which technology has improved, often dramatically, and markets have burst their older boundaries. Yet the country still relies on obsolete ways of controlling commerce. Until there's something to replace them, counterfeiters and other flim-flam operators flourish, pushing new means of making money to their logical, if unethical, conclusion.
Indeed, the 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.
All of these are typical of capitalism in its early, exuberant phase of development. The United States may have been the worst offender, but early industrial Britain had significant problems with food adulteration and counterfeiting, and Russia from the 1990s onward has been the scene of some of the worst capitalist excesses in recent memory. And in all likelihood China's recklessness is just that: a phase that will eventually pass when the nation's regulatory institutions catch up with its economic ambition.
None of this is to suggest that we should exonerate China for shipping poisonous pet food and lead-impregnated toys, nor that we can count on China merely to follow in our footsteps. There are, obviously, enormous differences between modern China and the United States of 150 years ago. China is not a democracy; however angry its citizens may be, they have limited capacity to translate their rage into legislation aimed at putting the brakes on the economic free-for-all. And there's no equivalent of the muckraking American journalists who thrust these issues into the public spotlight. Just as bad, many of the worst excesses are being conducted under the auspices of the state.
But understanding the parallels does suggest a way to move forward. The rogue industries of the United States eventually responded to stiff international economic pressure. Beginning in the 1880s, the European meat boycotts spurred Congress to pass a raft of federal legislation aimed at imposing some inspection controls on the exports of meat. In response, European countries opened their doors to American meat again. And in 1891, Congress finally bowed to decades of angry lobbying and passed an international copyright law that protected foreign authors.
At a certain point, some of the push for change can come from within. As a capitalist system evolves, there can come a time when some players in the economy prefer to be held to more stringent standards, even ones that impose additional costs.
Partly, this happens when a country begins producing and exporting original goods that might appeal to counterfeiters elsewhere. The United States, for instance, strengthened its copyright laws to protect the growing number of American authors whose books sold overseas. If the Chinese movie business gains a significant international audience, it's safe to say that Hollywood will get a better reception next time it complains about knockoff DVDs of the latest Bruce Willis flick.
In the scandal-racked American food business, several industry leaders converted to the cause of regulation in no small part because there was money to be made: Certain competitors would be put at a disadvantage, and the new federal laws would banish the inefficiencies of the older patchwork of state-level regulation.
But at a more fundamental level, producers began to realize that they could reap big profits from simple trust. By 1905, business leaders were testifying in Congress that the federal government could "do much toward preserving the reputation of US foods abroad" -- in other words, they could make more money if potential trading partners believed the United States was finally cleaning up its act. And that's exactly what happened with the passage of the landmark Food and Drug Act the following year.
With each regulatory advance, the United States began gaining the trust of its own consumers, along with the rest of the world. In the process it went from being an upstart to the most powerful economy on the globe. China is far more than an upstart already, but as recent events suggest, it has a long way to go before it emerges, as the United States once did, from its own reckless youth.
Indeed, if the Chinese are truly following Deng Xiaoping's apocryphal maxim, "to get rich is glorious," then their own entrepreneurs and industries may eventually recognize that to get rich while bowing to international standards may be equally glorious -- and even more profitable.
If recent headlines are any indication, China's rap sheet of capitalist crimes is growing as fast as its economy. Having exported poison pet food and toothpaste laced with antifreeze earlier this year, the world's emerging economic powerhouse has diversified into other, equally dubious product lines: scallops coated with putrefying bacteria, counterfeit diabetes tests, pirated Harry Potter books, and baby bibs coated with lead, to name but a few.
Politicians are belatedly putting China on notice. Representative Frank Wolf of Virginia delivered one of the more stinging counterattacks last month, warning that the United States "must be vigilant about protecting the values we hold dear" in the face of China's depredations.
His anger reflects the mounting disgust with how recklessly China plies its trade, apparently without regard for the things that make commerce not only dependable but possible: respect for intellectual property, food and drug purity, and basic product safety. With each tawdry revelation, China's brand of capitalism looks increasingly menacing and foreign to our own sensibilities.
That's a tempting way to see things, but wrong. What's happening halfway around the world may be disturbing, even disgraceful, but it's hardly foreign. A century and a half ago, another fast-growing nation had a reputation for sacrificing standards to its pursuit of profit, and it was the United States.
As with China and Harry Potter, America was a hotbed of literary piracy; like China's poisonous pet-food makers, American factories turned out adulterated foods and willfully mislabeled products. Indeed, to see China today is to glimpse, in a distant mirror, the 19th-century American economy in all its corner-cutting, fraudulent glory. A tragic lesson (By Stephen Mihm )
China may be a very different country, but in many ways it is a younger version of us. The sooner we understand this, the sooner we can realize that China's fast and loose brand of commerce is not an expression of national character, much less a conspiracy to poison us and our pets, but a phase in the country's development. Call it adolescent capitalism, if you will: bursting with energy, exuberant, dynamic. Like any teenager, China's behavior is also maddening, irresponsible, and dangerous. But it is a phase, and understanding it that way gives us some much-needed perspective, as well as some tools for handling the problem. Indeed, if we want to understand how to deal with China, we could do worse than look to our own history as a guide.
A bit of empathy might even be in order. One hundred and fifty years ago, even America's closest trade partners were despairing about our cheating ways. Charles Dickens, who visited in 1842, was, like many Britons, stunned by the economic ambition of our nation's inhabitants, and appalled by what they would do for the sake of profit. When he first stepped off the boat in Boston, he found the city's bookstores rife with pirated copies of his novels, along with those of his countrymen. Dickens would later deliver lectures decrying the practice, and wrote home in outrage: "my blood so boiled as I thought of the monstrous injustice."
In the United States of the early 19th century, capitalism as we know it today was still very much in its infancy. Most people still lived on small farms, and despite the persistent myth that America was the land of laissez-faire, there were plenty of laws on the books aimed at keeping tight reins on the market economy. But as commerce became more complex, and stretched over greater distances, this patchwork system of local and state-level regulations was gradually overwhelmed by a new generation of wheeler-dealer entrepreneurs.
Taking a page from the British, who had pioneered many ingenious methods of adulteration a generation or two earlier, American manufacturers, distributors, and vendors of food began tampering with their products en masse -- bulking out supplies with cheap filler, using dangerous additives to mask spoilage or to give foodstuffs a more appealing color.
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. And just as the worst sufferers of adulterated food in China today are the Chinese, so it was the Americans who suffered in the early 19th-century United States. But when America started exporting food more broadly after the Civil War, the practice started to catch up to us.
One of the first international scandals involved "oleo-margarine," a butter substitute originally made from an alchemical process involving beef fat, cattle stomach, and for good measure, finely diced cow, hog, and ewe udders. This "greasy counterfeit," as one critic called it, was shipped to Europe as genuine butter, leading to a precipitous decline in butter exports by the mid-1880s. (Wily entrepreneurs, recognizing an opportunity, bought up genuine butter in Boston, affixed counterfeit labels of British butter manufacturers, and shipped them to England.) The same decade saw a similar, though less unsettling problem as British authorities discovered that lard imported from the United States was often adulterated with cottonseed oil.
Even worse was the meatpacking industry, whose practices prompted a trade war with several European nations. The 20th-century malfeasance of the industry is well known today: "deviled ham" made of beef fat, tripe, and veal byproducts; sausages made from tubercular pork; and, if Upton Sinclair is to be believed, lard containing traces of the occasional human victim of workplace accidents. But the international arena was the scene of some of the first scandals, most notably in 1879, when Germany accused the United States of exporting pork contaminated with trichinae worms and cholera. That led several countries to boycott American pork. Similar scares over beef infected with a lung disease intensified these trade battles.
Food, of course, was only the beginning. 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."
Counterfeiters of patent medicines were especially notorious. This was a bit ironic, given that most of these remedies were pretty spurious already, but that didn't stop the practice. The most elaborate schemes involved importing empty bottles, filling them with bogus concoctions, and then affixing fake labels from well-respected European firms.
Americans also displayed a particular talent for counterfeiting currency. This was a time when individual banks, not the federal government, supplied the nation's paper money in a bewildering variety of so-called "bank notes." Counterfeiters flourished to the point that in 1862 one British writer, after counting close to 6,000 different species of counterfeit or fraudulent bills in circulation, could reasonably assure his readers that "in America, counterfeiting has long been practiced on a scale which to many will appear incredible."
What was it that made the 19th-century United States such a hotbed of bogus goods? And why is China's economic boom today, as New York Times writer Howard French clucked earlier this month, "minted in counterfeit"?
Piracy, fraud, and counterfeiting, whether of currency, commodities, or brand-name electronics, flourishes at a particular moment in a capitalist society: the regulatory interregnum that emerges in the wake of fast-paced capitalist change. This period is one in which technology has improved, often dramatically, and markets have burst their older boundaries. Yet the country still relies on obsolete ways of controlling commerce. Until there's something to replace them, counterfeiters and other flim-flam operators flourish, pushing new means of making money to their logical, if unethical, conclusion.
Indeed, the 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.
All of these are typical of capitalism in its early, exuberant phase of development. The United States may have been the worst offender, but early industrial Britain had significant problems with food adulteration and counterfeiting, and Russia from the 1990s onward has been the scene of some of the worst capitalist excesses in recent memory. And in all likelihood China's recklessness is just that: a phase that will eventually pass when the nation's regulatory institutions catch up with its economic ambition.
None of this is to suggest that we should exonerate China for shipping poisonous pet food and lead-impregnated toys, nor that we can count on China merely to follow in our footsteps. There are, obviously, enormous differences between modern China and the United States of 150 years ago. China is not a democracy; however angry its citizens may be, they have limited capacity to translate their rage into legislation aimed at putting the brakes on the economic free-for-all. And there's no equivalent of the muckraking American journalists who thrust these issues into the public spotlight. Just as bad, many of the worst excesses are being conducted under the auspices of the state.
But understanding the parallels does suggest a way to move forward. The rogue industries of the United States eventually responded to stiff international economic pressure. Beginning in the 1880s, the European meat boycotts spurred Congress to pass a raft of federal legislation aimed at imposing some inspection controls on the exports of meat. In response, European countries opened their doors to American meat again. And in 1891, Congress finally bowed to decades of angry lobbying and passed an international copyright law that protected foreign authors.
At a certain point, some of the push for change can come from within. As a capitalist system evolves, there can come a time when some players in the economy prefer to be held to more stringent standards, even ones that impose additional costs.
Partly, this happens when a country begins producing and exporting original goods that might appeal to counterfeiters elsewhere. The United States, for instance, strengthened its copyright laws to protect the growing number of American authors whose books sold overseas. If the Chinese movie business gains a significant international audience, it's safe to say that Hollywood will get a better reception next time it complains about knockoff DVDs of the latest Bruce Willis flick.
In the scandal-racked American food business, several industry leaders converted to the cause of regulation in no small part because there was money to be made: Certain competitors would be put at a disadvantage, and the new federal laws would banish the inefficiencies of the older patchwork of state-level regulation.
But at a more fundamental level, producers began to realize that they could reap big profits from simple trust. By 1905, business leaders were testifying in Congress that the federal government could "do much toward preserving the reputation of US foods abroad" -- in other words, they could make more money if potential trading partners believed the United States was finally cleaning up its act. And that's exactly what happened with the passage of the landmark Food and Drug Act the following year.
With each regulatory advance, the United States began gaining the trust of its own consumers, along with the rest of the world. In the process it went from being an upstart to the most powerful economy on the globe. China is far more than an upstart already, but as recent events suggest, it has a long way to go before it emerges, as the United States once did, from its own reckless youth.
Indeed, if the Chinese are truly following Deng Xiaoping's apocryphal maxim, "to get rich is glorious," then their own entrepreneurs and industries may eventually recognize that to get rich while bowing to international standards may be equally glorious -- and even more profitable.
EXCERPT
Tuesday, 12 February 2008
Subscribe to:
Posts (Atom)