How being a good Samaritan can 'spoil the market'
Recently, I came across a report in Hangzhou's Dushi Kuaibao (《都市快报》) which said that for 30 years since 1991, 81-year-old Jin Shuhua has been giving 2 RMB haircuts at an elderly activity centre in Railway New Village, Beishan Street, Xihu District every Tuesday, Thursday and Saturday. Granny Jin has also been praised as an "honest and trustworthy good person". Due to the low cost, many elderly people go to her for a haircut. When some of them press extra bills into her hands, Granny Jin would insist on returning them the extra cash. At the end of the article, the reporter sincerely hoped that Granny Jin's hair salon would stay open for a long time and wished that there would be more hair salons like hers.
Granny Jin's story is indeed touching. While there are many hair salons in the city, few specialise in serving the elderly. It must not have been easy for Granny Jin to persevere in her work for 30 years, and she is certainly worthy to be called a "good person". But I'm also reminded of the unfortunate events that befell my father after he did something good almost 20 years ago, and cannot help but sigh.
About 20 years ago, my father went back to his hometown in the countryside after retiring from a state-owned enterprise. Back then, the village still had dirt roads as the asphalt road connecting the village to the town was still under construction. This made travelling very difficult, especially for the elderly who needed to head to town to buy groceries. As someone who could not sit still, Father bought a tricycle to tackle this difficult problem. He charged an extremely low fee that was just enough to cover the fuel and maintenance costs. Having finally found some work to do after lazing around for a year in retirement, Father felt extremely energised. At that time, I was still studying for my master's degree and did not read too much into it because Father sounded very happy whenever I spoke to him and the entire family was supportive of him as well.
With high-quality and low-cost Chinese products being sold worldwide, related industries of several countries were affected. A shoe-making city in Spain even burned Wenzhou-made leather shoes at one point in protest against low-cost versions that undercut theirs.
Retaliation for 'spoiling the market'
Alas, less than two months later, I received a call from my mother, who asked me to head home because Father was in the hospital. The story went like this: because Father charged a low fee, business soon became very good. People from neighbouring villages also used Father's services, drawing the ire of some of his peers in town. That fateful afternoon, Father was wounded in an ambush and lay unconscious by the roadside. He was later brought to the hospital by some passersby. Fortunately, he was not seriously injured and only had a mild concussion, but this incident dealt a big blow to Father's mental health. His emotions were very unstable for a period of two years, and he always muttered that "it doesn't pay to be kind".
Mother nagged at Father, "You didn't understand the situation! Who in this town doesn't wish to charge a higher fee to earn a livelihood and feed the family? But you charged such a low fee and stole their business; will they not hate you for it?"
The problem lies in the social implications behind the market.
Father was a mild-tempered person who never argued with anyone. But he was unconvinced when he heard this and blurted out, "Their fees are way too high! Many elderly people can't afford such a high fee and it is difficult for them to move about. Wasn't I doing a good deed? Why are you criticising me?"
Although we made a police report, the police said that there was nothing they could do because we had no evidence. We could only tell Father to rest well at home and stop working after he recovered.
In this case, it was difficult to judge which was more noble - Father's deeds or the sweat and tears that the drivers went through for their earnings.
This incident reminded me of the anti-dumping investigations that Western countries often brought against China at the time. With high-quality and low-cost Chinese products being sold worldwide, related industries of several countries were affected. A shoe-making city in Spain even burned Wenzhou-made leather shoes at one point in protest against low-cost versions that undercut theirs. In fact, many other China-made products - not only leather shoes - have been hit by anti-dumping investigations initiated by Western countries. I am not an expert in anti-dumping cases and cannot comment on the topic. But based on familiar economic principles, we can still ask: when Zhejiang province's Wenzhou-made shoes are sold in another Chinese province, they are also cheaper than those made locally - why is this not considered as dumping? Why is it only considered dumping when they are exported to another country?
In fact, when affordable Wenzhou leather shoes are exported to Spain, it is the Spanish consumers who truly benefit from it. They are able to buy a pair of leather shoes with less money, and spend the money they saved on other products, which actually improves their welfare. In this sense, weren't the Wenzhou shoe merchants doing a good deed in the worldly sense like my father was? But, my father landed himself in the hospital and Wenzhou shoes were burnt in Spain. In both cases, it seems like kindness does not beget kindness.
Social implications beyond simple market forces
The problem lies in the social implications behind the market. Father did a good deed, but it was not without gains. On the one hand, he enriched his boring retirement life. On the other hand, he earned praise from the folks in his hometown. These are all his gains. And because he had a retirement income - my brother and I were also financially independent by then - it was acceptable for him to choose to do good without the intention of making money.
But what about the people in the town who did this for a living? Unlike Father, they needed money because they had mouths to feed. As Father's business became better, this meant that business could be bad for some of them. Not being able to earn enough money, they might return home to an angry wife and feel pressured by the family's living expenses. In this case, it was difficult to judge which was more noble - Father's deeds or the sweat and tears that the drivers went through for their earnings.
While the market is good in itself, it constantly disrupts society's default structure and causes painful adjustments in the short-term
Similarly, Spanish leather shoe manufacturers have mouths to feed. Their labour costs and restrictions are different compared to the Wenzhou merchants, but the market is oblivious to anyone's grievances - it only cares about the price. When it comes to similar products and services, the lower-priced one wins in the market. However, when Wenzhou leather shoes drove Spanish leather shoes out of the market, the Spanish leather shoe manufacturers and their families landed in dire straits in the short term. I could understand their plight, in the same way that I could understand the circumstances of the drivers from the village who ferried passengers for a living. Later on, I shared this with my father, who also went silent upon hearing it.
This means that the beneficiaries of globalisation and marketisation are two different factor groups. Another thing is that we have overlooked the feelings of those who are the losers in this competition.
No sense in robbing Peter to pay Paul
While the market is good in itself, it constantly disrupts society's default structure and causes painful adjustments in the short-term. During this process, if we expect those who suffer the pain to accept this "good" thing willingly, we would be robbing Peter to pay Paul.
Within a country, Wenzhou leather shoes can certainly be sold to other provinces and the leather shoe manufacturers of these other provinces can also choose to change careers and transfer their resources to places that can generate higher value if they cannot outdo Wenzhou leather shoes. This is a logically sound economic argument. But the premise of the story is that the factors of production can flow freely. Between countries, however, while labour may not be able to move freely, capital can. This means that the beneficiaries of globalisation and marketisation are two different factor groups. Another thing is that we have overlooked the feelings of those who are the losers in this competition. If these groups of people fail to receive timely help from society, they could become angry at the market and globalisation, and eventually deal a big blow to society.
The moral mechanism - the role played by people's consciousness - can also play an important role in social governance.
The "Chawei" chapter of the "Xianshi" examination of the Spring and Autumn of Master Lü (《吕氏春秋·先识览·察微篇》) recorded the story of Zigong, one of Confucius' disciples, redeeming a person. It roughly goes like this: There is a law in the state of Lu stipulating that anyone who manages to redeem a citizen of Lu who became enslaved in a foreign state would be entitled to a compensation from the state treasury. Once, Confucius' disciple Zigong redeemed a Lu citizen from a foreign state but rejected the compensation from the treasury. After hearing about this, Confucius said that it was wrong for Zigong to do so because with this precedent, no one from the state of Lu would redeem their comrades enslaved in a foreign state ever again. While accepting compensation would not damage your reputation, rejecting compensation meant that no one would ever redeem another person again. On the other hand, Confucius' disciple Zilu once saved a drowning person who later gave Zilu a cow to repay him. Zilu accepted the cow, and Confucius happily said that the people of Lu would be incentivised to save drowning persons from now on. What an outstanding observer Confucius was!
Good people like Granny Jin are an important supplement to market mechanisms. Not all problems in society can be solved by market mechanisms. The moral mechanism - the role played by people's consciousness - can also play an important role in social governance. Hence, the market does not intrinsically drive out morality or make people feel that it does not pay to be nice. However, the role of the good person should not be exaggerated as well. If we force everyone to learn from Granny Jin and impose that hair salons are only allowed to charge a fee of 2 RMB - exaggerating the role of good people to replace the market - the result may be that nobody will be a hairdresser anymore. Thus, Confucius' observations of the way of the world are indeed impressive, living up to his name as a sage.
Over 40 years have passed since China began developing its market economy model. But the market economy is a systematic project - its construction and improvement needs to be complemented by various mechanisms and cultures. Then only can an effective wealth creation mechanism be formed, and the people's welfare be truly improved.
This article was first published in Chinese by Caixin Global as "做好人与反倾销". Caixin Global is one of the most respected sources for macroeconomic, financial and business news and information about China.