STOCK MARKET WATCH - Friday, 3 February 2012

[Demeter]

14. Apple's Ethical Blindness Selects for Criminal Suppliers in Fraud-Friendly Nations William K. Black

http://www.huffingtonpost.com/william-k-black/apples-ethical-blindness-_b_1244410.html

MASSIVE ANALYSIS OF NYT ARTICLE AND BEHIND-THE-SCENES DETAILS LEADS BILL BLACK TO CONCLUDE:

To sum it up, the Apple official who said that America does not produce the type of engineers Apple needs was speaking the truth. What we are observing is the essence of a Gresham's dynamic in which bad ethics drives good ethics out of the market.

Two aspects of this Gresham's dynamic are obscene, and both are produced by neoclassical economics dogma. Calling this process "creative destruction" is baseless and dishonest. It is the fraudulent destruction of honest businesses, professions, and labor. The Gresham's dynamic is bad for China and bad for the U.S. It is also outrageous that the World Trade Organization (WTO) ignores this non-tariff barrier to free trade and treats efforts to fight anti-employee control fraud as suspect. A few years ago, the World Bank was finally embarrassed into admitting that its purported index of economic freedom was flawed because it treated compliance with International Labor Organization (ILO) rules preventing labor abuses as a denial of economic freedom. The WTO should rule that anti-employee control fraud is impermissible and that nations that permit such frauds with virtual impunity are in violation of their WTO obligations and are subject to sanctions.

Asia's network of fraudulent suppliers of goods and services located in fraud-friendly nations is the greatest barrier to successful competition from (more) honest U.S. suppliers. Viewed today, the network's crushing advantages appear natural. That network, however, is the product of hundreds of individual firms that became large over the last 25 years by engaging in anti-employee control fraud with impunity. It is revealing that such frauds remain the norm decades after the creation of the network. Defrauding and putting the health and lives of workers at undue risk remain defining, core practices of the members of the network. Other factors contributing to the creation of the network include governmental subsidies, particularly by China, Taiwan, and South Korea, the education of large numbers of engineers in these nations, the removal of traditional trade barriers, and widespread anti-public control fraud (tax evasion and tax fraud) by the suppliers.

I repeat my earlier caution -- firms that are anti-employee control frauds are likely to commit other forms of control fraud. Apple and its Western counterparts have driven the creation of an Asian network of fraudulent firms that has distorted international trade, hollowed out U.S. manufacturing, and created a bizarre hybrid: quasi-communist crony capitalism. It boggles the mind that theoclassical economists celebrate the corrupt result as the essence of creative destruction. The network is corrupt. It will not play by the rules. Firms like Apple help create the perverse incentives that encourage the network to cheat. Surviving U.S. manufacturing firms are whipsawed by the powerful Gresham's dynamic that the frauds produce. U.S. firms and workers are constantly pressured to reduce wages and workforce to try to compete with the foreign frauds. This is the "Road to Bangladesh" strategy that has caused U.S. working class wages to stall for decades. Europe is retreating along this same road at an even more rapid rate. The Gresham's dynamic tilts the world in favor of fraudulent firms operating in fraud-friendly nations. It also tilts the world against workers in the developed world.