Trust, Honesty, and China

imagesSo, China is going to eat our economic lunch and dominate the globe? True enough, China has much going for it, mainly hugeness, but also what’s really the world’s most unrestrained free market capitalism (the non-state-owned sector, that is). But not so fast. One element that helped make capitalism so successful in the West seems distinctly weak in China. That is an ethos of trust and honesty.

Sneer cynically if you like, but the fact is that commerce could hardly function at all without a basic level of trust and honesty among participants, and its lack is punished by the market. That’s certainly illustrated in my own business of trading in coins. In dealer-to-dealer trade, especially where authenticity of merchandise is an issue, trust is extremely important. A sleazy dealer soon gets a rep, and weeded out. And we keep each other informed about untrustworthy customers too. They’re actually rare. I send nearly all my orders in advance of payment, with only a tiny percentage of problems. Businesses don’t thrive in the long run by ripping people off, but by catering to their needs. This ethos is embedded in our DNA. In the West, at least.

images-1The Economist recently reported on Yale’s baleful experience setting up shop in China. Now, of course cheating is a real problem in American schools. But it seems Chinese students carried it to a whole new level. Most were literally amoral: getting ahead was all that counted, and the means didn’t matter. Thus plagiarism, for example, was endemic. And an essay by NPR’s Louisa Lim, in the Times Book Review, made a similar point about Chinese culture with regard to how government operates at all levels, with pervasive corruption, bribery being central to the Chinese way of life.

Recently too we learned of the Chinese government’s large scale cyber hacking operation, stealing sensitive information from foreign businesses. Now, Western companies are not all angels, and corporate espionage does happen. But for the government to create a whole bureaucracy to do it?

Cartoon by Dave Granlund

Cartoon by Dave Granlund

And, when caught out, to simply brazenly lie? All this bespeaks a mentality very different from ours.

Columnist David Brooks has observed that it reflects China’s seeing world economic competition as akin to war, with deceit and skullduggery being natural weapons. However, Westerners would regard this as self-defeating, because it destroys the trust that lubricates free exchange. But Brooks fears what he calls a “brutality cascade” in which the rules of the game tend to become those of the most ruthless player.

Yet, he says, there’s another path: strive to establish norms of legitimacy upheld by the broadest possible coalition, isolate the violators, and make it clear that joining the “friendship circle” pays great benefits while staying outside will prove costly.

I want to be clear that not all Chinese are amoral. I’ve done business with many good people there. But it’s obvious that there’s an important cultural difference, that I believe will handicap China in building its world economic role. Dishonesty and corruption creates a foundation of sand for an economy. If China wants to become the global economic kingpin, it will have to grow up and become a responsible adult.

As Chinese author Wang Xiaofang has written, quoted in the Times essay, “The habit of falsehood is fatal to a culture. But to us, falsehood is the essence.”

3 Responses to “Trust, Honesty, and China”

  1. Scott Perlman Says:

    We have two facilities in China and have purchased millions of dollars in tooling from China sources. We have experienced tools made using inferior steels that did not meet the documented specifications. We have even had a tool supplier sample a tool using counterfeit plastic. The plastic actually came in a bag that had all the markings of a bag from the factory. The bag and the plastic were counterfeit. The repercussions of this could have been significant had we not caught it. We “groom” tool steel based on the dimensions of the parts after the mold trial. We are talking about decisions to move steel in thousandths of an inch. A tool can cost $150K plus. So the use of the fake plastic could have had us adjusting steel incorrectly and at its worse, possibly destroyed a significant investment. Consequently, our new policy requires us to supply the resin in a sealed package. The package can be opened only by one of our staff. Partially used containers of resin will be transported to one of my factories. We cannot trust storing it at the tool supplier because it may be altered. I think it is interesting to note that this resin costs about $4 per pound and we were going to use about $1000 worth in the sampling. We pay for this material. So the use of fake plastic save them some portion of $1000. My point is that the stakes do not have to be that high for this corruption to take place.
    This, along with a virtual disregard for IP, makes doing business in China a real challenge. Nothing can be assumed to be compliant, even with what appears to be proper documentation. We revalidate everything. It is part of the hidden cost of doing business there and I believe a weight on their economy.

  2. gallerydavid Says:

    I agree this cultural trait is self-destructive and is probably the biggest reason the Chinese have historically struggled economically.
    I have heard that in China, if one walks away from any object or goods that one owns for a short time, that object or goods will be considered abandoned, and therefore open and freely available to be taken by any passer by.

    Now, of course in the West we consider this to be stealing.
    In China apparently, the 11th commandment is in Full force: “Take Care of Thine Own Goods!”

  3. Are We Becoming Less Trustworthy – Or Just Less Trusting? | The Rational Optimist Says:

    […] elaborate and cumbersome safeguards would be needed, inhibiting trade, to everyone’s loss. I’ve written before how China differs here, its pervasive societal norm being deceit and corruption. If the AP’s survey questions were […]

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