Beef noodles and Economics 101

[Fransisco]

Here's one for cotten.

[Fransisco]

<b>Beef noodles and Economics 101</b>

National Post
Monday, July 09, 2007

There is an interesting controversy in north China at the moment, one that involves a staple of the country's culinary heritage. Mention the city of Lanzhou to any mainlander and one of the first items he will imagine are the delicious stretched yellow noodles served locally with beef, clear broth, radishes and caraway. According to one travel guide, a Lanzhou resident is literally defined by the beef noodles he eats.

Lanzhou beef noodle bowls have traditionally been an affordable treat, but last spring the average local price of a large serving suddenly jumped from 27 cents to 31 cents -- no small change in a city far from China's metropolitan centre, where many people are still living on Third World incomes. The resulting outcry was so great that it reached the pages of The New York Times. A Communist party-led investigation found that a cartel of noodle-shop owners had agreed on a price increase and sent around an ominous circular urging colleagues to go along or face the consequences. But even the shop owners who opposed the cartel had to admit that their overhead, particularly in the costs of labour and beef, had risen.

Recently the city government of Lanzhou announced a special price ceiling on beef noodle bowls and declared that sellers who violated it would be punished to the full extent of municipal law. One might expect that this measure would be welcomed in a poor Communist society. But according to an op-ed in the Beijing Youth Daily (translated into English by the media and culture Web site Danwei.org), the local public has actually been quite skeptical. It turns out they do not regard the shop owners as inhuman predators, but as fellow citizens and enterprising artists who share the common burden of rising costs for health care and housing.

The market for beef noodles, observed the paper, is a highly competitive one with low barriers to entry, making it a poor target for regulation. "In a society whose prices are soaring upward, the majority of Lanzhou's beef noodle shops are operating on slim margins, so if they have no way to increase prices in response, then skimping on materials seems to be their only way out. If that is the case, then even if the price does not change, I'm afraid that so-called 'beef noodles' will no longer live up to their name." Another regional newspaper stated that "beef noodles are not a monopoly product, so the market will naturally adjust their price.... Under this argument, isn't the Lanzhou Price Administration Department a bit too broad in its management?"

Reading the array of press and popular response to the price controls, one can only stand astonished at the apparent political and economic sophistication of today's Chinese public. The editorialists and interviewees reacting to the beef-noodle regulations display an understanding that government intervention is not necessarily the right way to protect an essential piece of the country's cultural heritage; that entrepreneurs are the lifeblood of a nation; that price controls on a good are likely to discourage differentiation by quality, and encourage corner-cutting.

Are Canadians, on the whole, so well-informed and sensible? Here's a hint: hop on a plane tomorrow and fly to the most conservative province in Conservative-led Canada, and the first thing you will find (when you get to Alberta) is a Conservative government seriously debating price controls on rental property -- even though the immediate effects, known from decades of empirical study, would be to discourage both the upkeep of existing buildings and investment in new ones. It's like treating a tumour with a bullet. We can't last long competing with China unless we rediscover the competitive and libertarian instincts that we once had and that they seem to have acquired in what is, on a historic scale, a mere heartbeat.

[Fransisco]

The last paragraph really drives it home.

[wd9]

I like noodles. They are yummy, although most times like in Pudong China you can't quite recognize the protein thingy on top as beef, cold shudder. The back fat balls fried in beef fat are always a treat. Buckwheat noodles in Tokyo are absolutely delicious, great broth, but strangely enough, you can't quite figure out if that protein on top is pork or chicken or beef or....

This story kind of reminds me when farmers want the price of inputs to be regulated, how silly is that?

[kamichel]

Very correct. The Chinese are realizing that the various price controls that have been helping drive the economy forward are also keeping their incomes down. I hear pork in China is now at an all time high.

[TOM4CWB]

WD9,

My point on "regulation" of inputs & services... can be impacted largely by takeovers and consolidation.

Competition is the grease that makes the private enterprise system work... when entities become so massive that new efficient business can not arbitage or effectively discipline the market place... there will be serious structural economic consequences!

Canadian Rail Service is a prime example of what I a getting at! The Fertilizer business is not far behind!

[Lifer]

When does something become something that the public should managed or regulate more.

Should all highways be privatized? Hospitals? should we regulate banks, insurance companies more?


"China is a big country with a lot of chinese people living there"