Friday, June 13, 2008

Now it's their ox that's being gored

China has a history of taking a, well, somewhat casual approach to intellectual-property law, particularly when it comes to counterfeit foreign goods. Sometimes they're so obviously fake as to be laughable (you'll occasionally see a hilariously-mangled brand turn up on, sometimes they're actually rather good.

There's nothing new in this, of course. The United States didn't recognize any foreign copyrights or patents while it was a developing economy. It wasn't until we had more to gain by enforcing our own than by ignoring everyone else's that "intellectual property" became a serious concern. The Chinese are developing their economy, and copyrights, an artificial, government-imposed monopoly, are economically inefficient.

Until, of course, there's more profit to be made by enforcing it than ignoring it.

For years, China has been known as the leading exporter of fake goods, from Louis Vuitton handbags and Patek Philippe watches to auto and jet engine parts. The underground economy, which according to U.S. trade officials costs American companies $3 billion to $4 billion annually, has been allowed to flourish by a Chinese government that seldom prosecutes intellectual property violations.

But the Olympics have mobilized China's piracy police like never before. Beijing, the host city, stands to receive up to 15 percent of all revenue from Olympic merchandise, a figure expected to easily top the $62 million raised in Athens four years ago. Aside from the mascots, China is also reportedly collecting up to $120 million each from Coca-Cola, McDonald's, Adidas and other companies that have qualified as the highest-level Olympic sponsors.


With the world's gaze on China in the run-up to the Aug. 8-24 Games, officials have moved to make sure counterfeit goods don't reflect poorly on the festivities. Fake Adidas clothing that was widely available at popular Beijing markets a year ago is now hard to find.

Officially, of course, it's about protecting China's image and putting their best foot forward for the Games. Unofficially?
"They have moved some of the market more underground than they have before, but that hasn't stopped the activity," said Marc S. Ganis, chief executive of Chicago-based Sportscorp Ltd., a sports marketing firm. "It proves that China can do something about the problem when its own interests are aligned with the crackdown. . . . The reality is, just like in the U.S., people are going to do what they're going to do, which is make money."
And with the government getting its cut of royalty payments, it's suddenly in the government's interest to enforce the laws.

It's also nice to see that in some ways, the Chinese government isn't that different from our own:
"The Chinese government usually only manages during a crisis," [an import-export trader] said. "When things reach a peak and they have to deal with it, they will."

If you ignore the bad news, everything's fine.

Washington Post:

The inflation rate shot up in May at the fastest pace in six months, pushed higher by soaring costs for gasoline and other types of energy.
But don't worry, it's not that bad! Really!
Core inflation, however, which excludes energy and food, edged up a more moderate 0.2 percent in May. That increase was right in line with expectations and should help relieve worries that the big increases in food and energy could be breaking through to more widespread inflation.
See? Once you exclude unnecessary luxury items like food and gasoline, it looks much better! And it's not like those are things regular people ever buy... And really, if you can't cut a few unnecessary luxuries out of your household budget during a nonrecession, you're just not trying.

I understand excluding the volatile components if there's been a one-time event... When Katrina shut down Gulf Coast refining, there was a spike in gas prices but everything else was pretty much unaffected. Likewise, it helps to look at the less-volatile components if we're swerving back and forth between "OH NOES THE SKY IS FALLING" and "Nothing to worry about, things are great, in fact some more inflation wouldn't hurt."

But to pretend that we can just exclude things that are rising consistently, repeatedly, and pervasively, for reasons having much more to do with market fundamentals than random fluctuations, is disingenuous at best and useless otherwise.

And businesses are getting squeezed by fuel costs, meaning anything that has to be shipped by truck is going to go up. Airline tickets are already going up (same story), and the Wall Street Journal reports that some businesses are no longer outsourcing, but returning production to the US because of transportation costs. The only reason they haven't raised prices is that the market won't bear it yet. The grocery business runs on razor-thin profit margins, so higher costs had to be passed along almost immediately. Higher-margin businesses have a little more breathing room, but not much, and they're running out of space. But hey, that's only if you actually, you know, need to eat.

Dismal science, indeed.