The price of tyranny is always corruption and the trampling of the human soul. These costs are now evident to the world, but more significantly, to the Chinese people, in a decimated Sichuan Province and in the shattered ruins of a thousand classrooms.
When the earth opened up in central China two weeks ago, and the extent of the devastation and suffering became apparent, the world forgot about politics for a while and concentrated on the human dimension. Central committees and secret police forces, two functions long associated with communism, were the last thing on anyone’s mind. Many countries offered praise toward the Chinese regime for the openness it showed in permitting the world’s media to report on what happened. There were hopes expressed that things were changing for the better in the governance of the world’s most populous nation.
But all that came to a screeching halt when Beijing announced that it would allow families who lost their only child in the disaster to apply for a certificate permitting them to have another. So it is in this country, whose authoritarian regime regulates all aspects of society with no accountability or opposition, that human life is now subjected to the ultimate bureaucratic indignity. Like so many other things in China, childbirth is relegated to a mere transaction that requires some official stamp of approval. Perhaps it is a predictable Orwellian-style turn in a state where the government has such a formal antipathy toward organized religion and the practice of religious rights. One need look no further than recent events in Tibet for that evidence. But the larger question is: How short is the step between making decisions about birth and making them about the last frontier of human existence? Will it someday become inconvenient for the regime to permit older people who are sick to have the care they need? Once a government crosses the bridge and begins to dabble with decisions about birth, will it have any compunction about making the ultimate determination at the closing stages of life?
When, in North America last year, store shelves were stocked with poisoned dog food and tainted toothpaste, contaminated vitamin pills and children’s toys painted with lead -all the result of wrongdoing in China- the world was properly outraged. Some suggested, as we did on these pages, that such defects were the inevitable result of a society that lacked transparency, accountability and good government. With revelations that many of the buildings that collapsed in the earthquake, killing thousands of children, were the result of shoddy construction, now even some Chinese are beginning to look inward at their own system. The government’s spirit of openness in showing the world the aftermath of the tragedy has suddenly been shut to its own media’s examination of the corruption issues that led to such devastation.
The party officials and central committees, the policies that favor the friends of those in charge while muting dissent on the part of others, all have far-reaching consequences in the lives of ordinary people. The shameful misconduct of those responsible who allowed the construction of such substandard buildings is part of a longer litany of betrayal, from carcinogenic air pollution to contaminated lakes and rivers, that is leaving the Chinese people and their children a legacy of pain and disease that the world has seldom experienced on such a scale. It is being done in the name of profit, which, first and foremost, is about enriching the party bosses in Beijing and their friends, regardless of the costs.
What the rulers at the top do not grasp (as juntas, central committees and tyrants rarely do) is that it is not possible to indefinitely buy the loyalty of a society with the prospects of greater economic wealth while denying it the larger privileges of citizenship and basic human rights. The world, and in this respect the great people of China are no different, is not just the sum of its transactions and accounting statements. No amount of money can console the grieving parent of a lost child. Double-digit economic growth, which China’s regime has trumpeted for years, is no substitute for honesty and transparency in public governance. The price of tyranny is always corruption and the trampling of the human soul. These costs are now evident to the world, but more significantly, to the Chinese people themselves, in a decimated Sichuan Province and in the shattered ruins of a thousand classrooms.
Freedom and democracy are the only tools that give people the ability to hold the powerful to answer for their actions. Without the discipline of accountability, no organization, whether it is a corporation or a government, will function in a manner that serves anything but the vested interests of those on the inside and at the top. It is possible now, in their moment of national sadness, that this understanding will begin to gain new adherents among the Chinese people. They may well come to see that something of the old (but still very current) regime collapsed and fell into the rubble on that terrible day as a result of its endemic corruption and lack of transparency.
Many of the people in China who lost their only child must now look upon the government for their hope of another. But in that mournful gaze they might also begin to question if humans are not entitled as a fundamental right to make such decisions on their own, without the stamp of some government official posted on their bedroom door like a local building permit.
To live under the all-snooping eyes of such a corrupt regime stifles more than family life. It is an offense against human nature itself.
BEIJING: (AP) China’s Citic Securities Co. on Tuesday called off a deal to invest in Bear Stearns Cos. after the troubled Wall Street bank was acquired by JP Morgan Chase & Co.
Now, that is a surprise.
What does it say when an America that once saved the world is now turning cap-in- hand to a collection of anti-democratic regimes from Dubai to China?
Already, foreign funds, mainly controlled by nations and regimes that hold democracy suspect, to say the least, have pumped nearly $20 billion into Citigroup and Merrill Lynch as a result of the credit debacle that has them floating in a self-created sea of write-downs and losses. Billions more are being funneled into Morgan Stanley and Bear Stearns from the same offshore sources. So it is that American capitalism has lost its primacy to such an extent that it must now turn to lands far away for its salvation. The distance is more than geographical. It is deeply ideological. (more…)
Merck pays out nearly $5 billion to settle Vioxx claims, Yahoo incurs the wrath of legislators, and another poisoned child’s toy made in China is recalled. The growing credit market implosion threatens recession. These are the predictable consequences of the subprime leadership and ethics in our boardrooms and in our institutions of government over the past number of years.
The Outrage generally prefers to focus on a single event. This week, however, there was a common theme among several events. There was the Merck $4.85 billion settlement over its Vioxx debacle. Next, there was the appearance of Yahoo CEO Jerry Yang before the U.S. House Foreign Affairs Committee to answer questions about his company’s turning over information that led to the arrest and imprisonment of Shi Tao, a Chinese journalist and political activist.
The week ended with revelations that yet another toy made in China contained toxic chemicals and with officials ordering that Aqua Dots, distributed in North America by Toronto-based Spin Master, recall more than four million units.
What these incidents share is a betrayal on the part of the companies and leaders who could have done better, but failed miserably in their ethical performance. Merck is one of the world’s leading drug companies, yet it continued to market this highly profitable product even after company officials were warned by their own medical researchers of serious problems.
The company pulled Vioxx off the market in 2004, citing increased cardiac risk. But, as the Wall Street Journal reported at the time, Merck had earlier indications of serious problems. A March 2000 internal email shows company research chief Edward Scolnick warning that cardiovascular events “are clearly there.” Still, Merck continued to deny any link between heart attacks and Vioxx.
Yahoo is a company founded and headed by a brilliant billionaire who one might have thought had enough money and youth to still have a social conscience. But doing business in a multi-billion consumer market headed by a corrupt authoritarian regime was too tempting to resist, it seems. And so it was that Yahoo became an adjunct of the Chinese secret police –spying and snitching on its customers and thereby poisoning a name and a brand that had become known world-wide for its sense of innovation and exploration of the limitless knowledge held in cyberspace.
We don’t know who is really behind this latest toxic threat to our children. And maybe that’s the real problem here. Distant manufacturers operating under opaque regulations and dubious enforcement, vague distributors, off-shore companies and the lure of huge profits all conspire to put health and safety way down the line and out of the mind of any responsible entity. These kinds of incidents have happened too often in recent months to be a mistake. They reflect a cultural and ethical deficit endemic to the way global business is being done with despotic regimes.
Among the factors that are causing a crumbling of the pillars of confidence, the subprime mortgage scandal also figures prominently. Here, once again, the too-clever-by-half characters who concocted these elaborate schemes and got paid a sultan’s treasure for their efforts have turned out to be not quite as clever as they wanted us to think. It is unlikely they will have to repay any of the stratospheric bonuses they were receiving while creating these artifices that, like the dot.com bubble and the Enron-era accounting shenanigans, foolishly attempted to defy the rules of basic economics and common sense as only those infused with the curse of hubris will do.
And the figures touted for their wisdom and vigilance who are supposed to be monitoring the actions of these other bright fellows whom history has shown to have gotten carried away with themselves on more than a few occasions, seem not to have been as wise and as vigilant as advertised. Having underestimated the effects of these toxic credit toys before with assurances that the subprime mortgage defaults would not intrude into the broader economy, one wonders if they are any better prepared for the wider economic crisis that seems to be looming.
There will be many casualties before the full extent of the great unfolding 21st century credit debacle is over. There have already been a few CEOs who are taking a very well paid early retirement. More will follow. Some companies will not survive. The stock market will continue to experience unsettling jolts, like its more than 600 point drop this week. But, unfortunately, it will be the ordinary consumer —not the central bankers or the treasury luminaries or the credit agency raters or the boardroom directors who permitted this fiasco and were blind to its early signs— who will suffer most from the turmoil and set backs that lie ahead. So too will the idea that we can look to the icons at the top to do the right thing because their wealth and privilege bestow on them a higher level of accountability to do the right thing. That moral touchstone seems to have vanished, along with the primacy of the common stakeholder —something that has been a recurring theme at Finlay ON Governance.
These events have been the predictable consequence of what has amounted to decidedly subprime leadership and ethics in our boardrooms and in our institutions of government over the past number of years. They are a harbinger of the further crumbling of the pillars of public confidence and trust, which make them our choice for the Outrage of the Week.
First, the company apologized to its American consumers and laid the problem of defective children’s toys squarely on China’s doorstep. “Our standards were ignored, and our rules were broken” at Chinese plants, said Mattel CEO Robert A. Eckert in testimony under oath before Congress this week. Next, Thomas A. Debrowski, Mattel’s executive vice president for world-wide operations, issued an apology to Chinese officials and the Chinese people, saying
Mattel takes full responsibility for these recalls” and that “the vast majority of those products that we recalled were the result of a design flaw in Mattel’s design, not through a manufacturing flaw in Chinese manufacturers.
To confuse the issue even further the toy maker is beginning to backtrack from that apology with a statement about its Chinese statement. One fact that cannot be disputed is that Mattel clearly doesn’t know what it is doing. Not only did the company drop the ball in failing to ensure quality standards on the part of its Chinese manufacturers, it also failed in its own designs. It took too long to recognize that fact. It has frightened parents, placed children at risk and ill-served its own shareholders. With more than 20 million toys recalled, its reputation is in shambles. Yet, with all of this, the company’s board of directors has been basically invisible. There are no reports of resignations of top management. There is no indication that anyone in the company has been held accountable for what has occurred or that there have been any consequences as a result. Disappointing, too, is the apparent absence of any whistleblower within the company who might have alerted top management to problems either off shore or with its own design process. Is this a culture that discourages such action? The company thwarted efforts by Congressional committee staff to visit the plants in China that Mattel deals with, according to members of the House Subcommittee on Commerce, Trade and Consumer Protection. At the very least, the board needs to conduct a review of ethics standards and practices. It also needs to set up an independent committee of directors to investigate all the circumstances of what have brought the company to the brink of disaster.
Mattel is a classic case of what can happen when a company takes for granted the trust it holds and thinks it can coast on its good name. It is also an instructive lesson in what can occur with a country that is governed by a fundamentally corrupt dictatorship that hides most of what it does behind closed doors and secret police. One cannot imagine that Barbie or Ken would approve.
You have to wonder whether this company has really become anything more than a subsidiary of China Inc. and whether as a result of its plan to produce the lowest cost products from what turned out to be questionable sources of quality and regulation, it has created a situation where it now faces the prospect of going out of business altogether.
There are few things that outrage the consuming public more than that which endangers its children. For doing so, and making such a botch of how it handled those problems, Mattel is our choice for the Outrage of the Week.
The Outrage of the Week has returned to its regular Friday slot at Finlay ON Governance.
As we have been suggesting for a while now, the biggest and most damaging impact from China has not been the poisoned dog food or the counterfeit toothpaste, nor is it even the lead in children’s toys or the SARS epidemic which originated in China and almost shut down parts of Canada. Serious and unsettling as these have been, they pale in comparison to China’s apparent power to induce North American consumers to fall into a state of obliviousness and sleep walk into disaster in their pursuit of cheap products.
It seems many have forgotten that they are really dealing with and enriching a regime that is fundamentally corrupt, as any dictatorship which lacks principles of transparency and accountability fundamentally is. The West was too quick to grant China most favored nation status some years ago. It did so without thinking about the consequences —about the lost jobs at home, the appalling working and sanitary conditions in China or about making a communist totalitarian system one of the major creditors of the United States. We are beginning to see some of those consequences, just as we are the spectacle of what some companies will do in placing profits ahead of prudence.
As we have remarked before, the real concern is that this is just the tip of the iceberg and that a number of other shocks lie ahead —not just involving product safety but other ways in which the China contagion of corruption and deceit, along with its mounting wealth, has afflicted our society, our economy and our institutions.
It has long been said that there is no free lunch. If that is the case, perhaps we have all paid a much higher price than anticipated for the products we thought China was producing at bargain basement prices. What we observed a few months ago seems particularly fitting at this time of summer holidays and daily horrors in the marketplace.
None of us can afford to take a vacation from the stakeholder responsibilities we all have as citizens, consumers and investors, and when we do, the results can be chilling.
