Wednesday, October 17, 2012

Don't Blame Adam Smith for 21st-Century Conduct

Davis Blair posts in “TechaisleHERE 
In this WSJ article, the Congress is investigating the meteoric rise of Huawei, China’s major telecommunications equipment provider and accusing it of using technology theft and government handouts as the path to its’ incredible growth. The article insinuates that IBM is a major cause of this situation because they have shared advanced technology and management best practice approaches as a shortcut, and summing it up with:
“U.S. government concerns culminated this week in a report by the House intelligence committee that labeled the company a security threat and warned U.S. telecom companies against doing business with it.”
 Huawei counters that they have spent over $400M with US consulting firms like IBM, Accenture, BCG, PWC and others since 1997, and at one point after signing strategic agreement they had 200 IBM consultants on site to optimize core systems and train management in the most efficient approach expand internationally. If there is real evidence of technology theft (none in the article), that would be basis for retaliation, but it did not seem like IBM and others were complaining during the bonanza: Gerstner’s IBM made the transition from antiquated mainframe manufacturer, about to be broken up, into the world’s largest professional services provider on the back of international deals like this, and probably got a couple of large US government contracts in the process. McDonalds, Wal-Mart, Oracle and Boeing have done pretty well also, and American consumers have been blessed with an abundance of all the “stuff” they can buy for the absolute lowest price (not cost). According to the venerable Adam Smith:
“Consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to, only so far as it may be necessary for promoting that of the consumer.”
-Adam Smith, The Wealth Of Nations, Book IV Chapter VIII, v. ii, p. 660, para. 49.
Again, from the Father of Capitalist thought: 
“It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our necessities but of their advantages.”
-Adam Smith, The Wealth Of Nations, Book I, Chapter II, pp. 26-7, para 12.
In other words, China is going to do what is good for China and America is going to do what is good for America. Don’t be surprised when the pupil tries to snatch the pebble from the master’s hand.”
Davis Blair’s post contains two direct quotations from Adam Smith’s Wealth Of Nations and neither quotation is appropriate to the context in which Davis Blair uses them. 
His post is about two producers, IBM and its customer, Huawei, both exceptionally large corporations in the multi-million dollar turnover range.
By no stretch of the imagination can Huawei be considered as a consumer within Adam Smith’s paragraph where he attacks 18th-century governments for responding to the needs of producers for anti-combination laws applying to their employees but not themselves, such a tariff protection, prohibitions, and laws against workers collectively seeking wage rises.  Huawei employs thousands of workers; it is not an employee itself.
The second quotation is about the daily transactions between shopkeepers and their customers and part of a discussion about bargaining.  It too is widely misunderstood.  It is not about self-interested “selfishness” but about the bargaining process by which each party mediates their self-interest/self love to arrive at a mutually satisfactory price for one party obtaining their dinner and the other parties selling their ingredients at the mutually acceptable price. If either party tries to cajole the other to pay their opening price and makes no move to adjust their demands towards a mutually acceptable price, the shopkeepers would not sell their produce and the shoppers would not buy the produce.
Adam Smith was not “the Father of Capitalist thought”.  He was a moral philosopher who described society as he saw it and the people within it who behaved in certain ways.   He never knew the word “capitalism” (it was not invented until 1854).
Davis Blair ought not to blame Adam Smith for the trade relations between IBM and Huawei.


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