Crisis begets accountability and transparencyChina's ongoing dairy crisis highlights the fundamental dynamic of globalization: high-trust markets linking up to low-trust environments. The results are predictable: tainted product scandals, followed by sweeping new regulations.
China just beefed up the rules governing its dairy industry, whose main players clearly sought a government cover-up. But with 50,000-plus Chinese kids sickened and foreign governments restricting China's milk exports, the ruling Communist Party had no choice.
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Comments (2)
Crisis begets accountability and transparency.
Was this intro originally meant for our virtual financial market unraveling?
Posted by Louis Heberlein | October 5, 2008 2:31 PM
Misuse of processes or techniques is often a combination of exploitation by some and overconfidence by others with illusions on their insights on the activity.
Thirty years ago manufacturers of new transport aircraft sold them on the basis of reduced maintenance costs by using sensors, data and personal communications networks, and layman oriented statistics and analyses. Then operators pushed the FAA to let them use the technique on older aircraft. The mechanic would be empowered to focus on what he saw as most important. The Aloha Airlines incident exposed how little transparency and accountability really existed for them under the practice, and how it was virtually impossible for the FAA monitors to provide oversight. Soon the NTSB/FAA forced a substantive review of older aircraft by all airlines. Many ended up it the bone-yard because of the lack of meaningful information on how the aircraft had been maintained since the new processes had been adopted. There was often no audit trail on parts sources and maintenance.
Fifteen years later standardized digital specifications and computerized parts manufacturing allowed manufacturers to outsource more fully under the 'form, fit and function' traditional criteria. Soon bogus parts were showing up from cheap Asian sources with phony audit trails linked to lot groups that had samples successfully tested. Again, a lot of money was spent to correct the system.
Free market or strong state oversight economic methods are like choosing the right tool (hammer, screwdriver) for right type task. Whether its Chinese milk, Mexican veggies, engine parts, or financial investments does not really matter. Use transparency and accountability when needed, but not on everything including fishing worms ... even though someone will say that is not fair.
Posted by Louis Heberlein | October 5, 2008 6:47 PM