China's price advantage

In a previous post I talk about the wisdom of imposing costs on Australian firms as if consumers had no choice but to purchase G&S from those firms.

Governments talk about 'business' paying their 'fair share' and 'protecting workers rights' as if these policies could be implemented in isolation. The truth is that business regulation imposed on domestic firms makes our firms' G&S less competitive and we all buy cheaper overseas alternatives. Mostly from China.

So what is the China cost advantage? A recent study from business school professor Peter Navarro analysis the competitive advantage of China and breaks down the cost advantage as follows:

• 39% is from lower labour costs
• 17% from export subsidies
• 16% from 'industrial network clustering' (smart design of economic zones)
• 11% from currency devaluation
• 9% from counterfeiting and piracy
• 5% from lax environmental, and worker health and safety regimes
• 3% from catalytic foreign direct investment

Taken in aggregate, it is clear to see how the Chinese government sees business success as a key component of national success and supports them as such. Now I don't advocate we adopt China's OH&S regimes or ignore IP, but policy makers need to be cognisant of China's mercantalistic approach to business when designing policy that adds to business costs.

Policy makers need substantially reduce the cost burden of regulation on business, or shift it to the consumer in such a way that global firms compete on a level playing field.