SMT007 Magazine

SMT-Feb2017

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56 SMT Magazine • February 2017 people. This promotion is often done without regard to the long term damaging effect of the policy. This is the definition of a demagogue. Having the government pick business win- ners and losers, even with the noblest inten- tions (e.g., leveling the playing field) may seem like the right thing to do, but eventually leads to making a bad situation worse, not to men- tion creating an environment rife with the po- tential for corruption. Brazil and Venezuela are contemporary ex- amples of these government-centric, collectiv- ist private business policies. To view the opposite end of the free market spectrum, look at Hong Kong when it was un- der British rule: total free trade. It was a bastion of economic activity. It is interesting to note that in 1997 when Hong Kong was returned to the control of the People's Republic of China, the free trade policy was maintained. So, where business in mainland China is regulated under a system of government controlled State capi- talism, the Chinese government has refused (at least for now) to kill the Hong Kong golden goose cash machine. In addition, their business, or profit tax rate is 16%. In the United States, it is 35%. To Tariff, or not to Tariff, That is the Question Milton Friedman, a father of economic free- dom, described a government imposing a pu- nitive tariff this way: Imagine you are in a ca- noe on a lake with a rival. An argument ensues leading to your opponent shooting a hole in his side of the canoe. You decide to get even by shooting a hole in your side. The result in the long run is that both parties lose. The point is, many think of government protectionism as a way for a country to create and maintain jobs and promote economic pros- perity. This is predicated on the assumption that it is better for a country to export rather than import goods. We speak of a favorable bal- ance of trade, as one where a country exports more than it imports. Or, use the pejorative term trade deficit to describe a country that im- ports more goods than it exports. This is a hot- ly debated question and beyond the scope of this column except to say the following: Timing must be considered. If there develops a scarcity of jobs in an industry because companies who design products have outsourced the manufac- turing of those products to areas with low labor rates, consider this: What will accompany the exodus of manufacturing jobs is a reduction in the disposable income of those consumers. So, it's fair to question to ask what good is it for a country to corner jobs in a particu- lar industry if, in the long term, they destroy the buying power of the markets they want to sell the products into depressing that industry's economy? In the long run, the effect in the manufac- turing country will be upward pressure on la- bor rates, causing an increase in product pric- es making other manufacturing sources com- pete more favorably. In the consuming country, prices for the imported product will rise, both from the manufacturing country's increasing la- bor costs resulting in them raising their prices and the government imposing tariffs. The con- sumer eventually loses. A Milton Friedman disciple would maintain that importing products made by others is actu- ally a badge of economic success for a country, not a symbol of economic failure. Why? Because it is a country's consumer who rules and makes the rules based on immu- table economic law. This happens automatical- ly without any conscious action. Adam Smith (the Scottish economist and contemporary of Thomas Jefferson) called it the "invisible hand." Product prices are set, demand is created and industries are ultimately successful not be- cause of government—the government hand— but by the natural laws of economics, or the in- visible hand. So, what is the general guideline for glob- al business success? Find products, services and industries you can compete in successfully: on the merits of your product designs and/or value of your manufacturing services—not by hiding under your government's protectionist shield. Back to Brazil: In Florida, as a prime tour- ist destination, we have a huge population of Brazilian visitors each year. As popular as the theme parks are there is another destination many will add to their holiday itineraries—the Apple Store. Why? Apple smart phones cost A NEW ORGANIZATIONAL MODEL USING LOGIC, PART 3

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