Sunday, October 5, 2008

The necessity of punishment

After the milk scandal in China, I guess almost none of you dare buy any dairy product from China right?

No, not only dairy product, it should be any food product from China.

No no no, it should be any product from China.

How sad is that?

I just can't estimate how much economic losses are resulted from this scandal. I'm not only talking about China; the countries that used to enjoy the cheap products from China have to buy expensive goods from some other trusted source now because they completely lost all the confidence in Chinese-made products.

Are all Chinese businesses evil? Definitely not. In this milk scandal, I believe that most of the dairy farmers are honest people. The unfair truth is that if only 30% of the farmers are malicious, it's enough to destroy the whole dairy industry. What can the remaining 70% dairy farmers do? Trying to claim that their milk is melamine-free? Will you trust any of them? If you're talking about the health of your kids, you just won't take any chance.

Is this tragedy a result of human greed? I don't think so. On the contrary, capitalism works because human beings are, in general, greedy. When many businesses try to maximize their profits by bringing gasoline to areas that are short of gas, not only will it drive the local prices down but it'll also bring more gas supplies to the residents there so that they don't have to wait at the gas station all day long. In other words, in a capitalist country, the process of maximizing one's benefits also maximizes the benefits of other people, so greed is a good thing.

Come to think about it, the malicious dairy farmers should know that adding melamine to the milk will eventually drive them out of business and got them busted. So, it's bad to them in the long run. However, if by doing so they can
  • Make a huge sum of money in the short run
  • Manage to get away from any legal responsibility
Then, there will be enough incentives to commit such a hateful crime.


Doesn't that sound familiar to us in the U.S.? Yes, it's just like the mortgage bankers who caused this detrimental financial crisis that shakes the world's economy by making loans that have no hope to be repaid just for the sake of those fat commissions/bonuses. One difference between the dairy farmers and the mortgage bankers is that most of the bad dairy farmers will probably be put in jail for many years while the mortgage bankers are enjoying the 700 billion bailout resulted from their absurd lending practices.

I'm not an economist, so there's no way I can predict whether this 700 billion bailout actually benefits the U.S. people from the standpoint of the economy as a whole looking forward. Maybe it does, maybe it doesn't. However, if the wrongdoers who caused this humongous financial crisis in the first place were not punished, I guarantee that the history will repeat again:

If you can be a CEO of a public company who is guaranteed a multi-million severance package even if you drive the business to bankruptcy, will you be one?

"That's too good ridiculous to be true!"

Yes it is, but it's true. Welcome to the business world of the U.S.