A Failure of Markets and Other Observations from Asia

By Kevin Meyer

I’m currently winging my way back home after two weeks in Thailand and Laos.  Sort of a last minute vacation for my wife and I to recenter and reconnect after a very difficult September that ultimately resulted in the unexpected passing of my mother in-law.  I’ve been to Asia, including Thailand, many times, but this was a first for Laos.  I’m very glad we got to see the remarkable city of Luang Prabang before it becomes overrun and changed by tourists – being called the #1 tourist destination in the world by The New York Times can cause that.

Technology is sometimes far more visible in Asia than in the western world.  Everyone, including tuk-tuk drivers working for a few bucks a day, are on cell phones.  Even monks, including this one in a remote Laos village only accessible via the Mekong River.  That village happens to be known for its whiskey distillery.  Yes, good people with good monks.  I’ll admit I am sort of proud of the [entirely accidental] composition of this photo.

What really strikes me with each visit to Asia, especially the more remote areas, are the markets.  These daily markets have stalls for everything, from clothes to hardware to raw meat.  Refrigeration is obviously overrated and perhaps even a waste.

But it’s not the market itself – that’s beautiful capitalism in action, the value of efficiently distributing goods to where they are needed in exchange for some profit – even in communist countries like the People’s Supposedly Democratic Republic of Laos.  It’s that there are multiple stalls selling the exact same thing, in the exact same part of the market, that drives the business guy in me nuts. 

How does that work?  What is the differentiator that causes someone to purchase from one stall vs. the identical one next to it… or any of the other 30 for that matter?  For local foodstuffs there’s probably a trust and quality component.  Perhaps one stall is known for having fewer flies in the cow parts.  That makes sense.  I bet someone could make a mint putting a cow parts stall next to a veggie stall so shoppers didn’t have to walk as far.

But what about at the touristy nick nack side of things?  The night markets of Luang Prabang, Chiang Mai, or even Bangkok?  Stall after stall selling the exact same (and I mean EXACT) figurines, silk scarves, or paintings.  A 200-stall market could truly be reduced to about five and you’d have the exact same selection.    Is a stall near the edge of the market an advantage because it’s the first one a tourist sees?  Or is one near the middle best as the tourist is thinking “boy I’ve seen fifty of this cheesy t-shirt – maybe I should buy one?”  I don’t get it.

Of course my wife and I don’t buy that kind of crap – or any crap for that matter – so perhaps we simply don’t understand.  I know one potential differentiator is whether or not the person in the stall is sleeping.  We saw that several times, and I’m guessing it has an impact on sales.  Apparently when selling one rinky-dink potential Christmas tree ornament can create a day’s wages, pushing the sale isn’t a high priority.

Observing how capitalism is thriving in supposedly communist countries is interesting.  China is an easy example, and many argue that capitalism is now more vibrant in China than in the U.S..  I thought Laos would be different, but it’s not.  Markets thrive (even when shopkeepers are asleep) and entrepreneurial folks are setting up new shops and services to get tourists to part with their dough. 

Even in the boonies there are stories.  Such as the tiny Hmong village downriver from Luang Prabang.  A collection of thatched one-room huts with dirt floors… each with a TV.  TV?  Power?  The government didn’t bring power to the outlying villages.  An entrepreneur came up with a way to pay for the infrastructure, deliver power to people with no money but with rice to barter, and make a profit.  The “people’s” government frowns but tolerates it.  Now those happy folks in one room huts get to learn about the unhappy Real Housewives of Beverly Hills in their mansions.  I bet they're still happy after watching it, too.

The people of both Thailand and Laos are remarkably knowledgeable about the political process in the U.S., and I had several interesting conversations with waiters, tuk-tuk drivers, tour guides, and $5/hour masseuses.  Even a monk I sat next to on a park bench while patiently waiting for the wife to closely examine fifty shops selling the exact same thing.

As a common theme they were wondering why Americans were allowing their government to dismantle the greatest economic engine the world has ever seen – just as they were opening the wealth-creating floodgates in their own economies.  At the same time they were surprised that Americans were slowing and in some cases reversing trends toward social liberalization – again just as they were becoming more liberal themselves by accepting, embracing, and even relishing their differences.  Yes in that regard Asia is a bit different than the Mideast.

I couldn’t really argue – it’s the quandary that many of us in the sociopolitical center experience every day.  And perhaps a reason why, once again, in this election I don’t think I can even hold my nose and vote for either major party candidate.  On one hand we have a guy so obviously in over his head it’s mindboggling and scary what he’s doing to the global competitive ability of U.S..  You would have thought that the recent China threat to dump Japan’s bonds, effectively economic warfare, would have woken us up to the perils of going more into debt to a country like that.  As an alternative we have a guy beholden to conservative social extremes that in my opinion cross the line into the realm of hate.  Sharia law, American style?  Well, maybe an extreme.  Barely.  One party wants the government involved in everything… except women’s bodies and bedroom behavior.  The other wants government out of everything… except women’s bodies and bedroom behavior.  Ridiculous hypocrisy on both sides.

Ce la vie.  Maybe the emerging economies of Asia are the place to be.  Nah... we can still work it out.  I hope.  Although I did take a liking to pad thai and tom yum soup.  If they only had good wine…

Comments

[John Hunter]

As an economics major one of the things that annoys me is that the biggest difference between capitalism and what we have has nothing to do with what the politicians talk about (too many regulations or whatever). The theory of capitalism fundamentally relies on "perfect competition" which essentially means no-one has "market power." If anyone tries to charge more than the market rate people will just buy from the next place. The markets are a extremely good example of this.

In the west I would say a vast majority of transactions are done with businesses that have huge market power (often sustained by government action and government failure to restrict businesses from creating market power) - (Verizon, Comcast, GM, Google, Apple, Sony, Toyota, Exxon, United, Fed Ex, Bank of America, NBC, Visa, American Express...).

As a businessman perfect competition is horrible. You can't get huge profit margins with perfect competition.

There is a difference between market power based on monopolistic tendencies (which is most of the problem currently) and price differentiation based on better offerings. Looking at say why Four Seasons can charge a great deal to those that can afford it.

Businesses want to grab market power in every possible way. Adam Smith understood the danger in businesses using this to sap the societal benefit of free markets. The current politicians don't even understand that. But even if they did it wouldn't matter. They are not interested in capitalism they are interested in whoever can give them the biggest stacks of cash. And those with market power (almost always aided by past acts and refusals to act by the government) have the most cash to give the politicians).

The beautiful nature of capitalism to provide the economic benefits to society is most easily enhanced by reducing market power and increasing competition. Sadly it is almost diametrically opposed by our political nature to allow those with the gold to make the rules.

[Jim G]

"Sharia law, American style? Well, maybe an extreme."

I live in a neighboring state to Mitt Romney's Massachusetts. I heard all of the horror stories of his band of religious enforcers who arrested women and had them executed during half-time of soccer matches. It was just like the Taliban! Homosexuals were in fear for their life from Romney's sharia police.

Obviously I know that all of the above is ridiculous. Kevin apparently does not.

[david foster]

Kevin, why do you say that the Romney side wants government to control bedroom behavior? Neither Romney nor anyone else serious in the party is proposing to ban or restrict contraception. (Not paying for something, of course, is not equivalent to banning it.) Nor is the Romney side even remotely suggesting banning homosexuality.

The Taliban, of course, HANGS gays (although there are debates about whether it might not be better to push walls over on them), practices genital mutilation on women, throws acid in the faces of those it dubs insufficiently devout, etc etc. I'm not really seeing the analogy.

I'm very confident that after 4 or 8 years of a Romney administration, Americans will have the same sexual freedoms they have today. I'm also confident that after another 4 years of an Obama administration...especially if the Dems do well in the Congressional races...Americans will have much less economic freedom as well as less freedom of opinion. Not to mention being a whole lot poorer.