Tuesday, July 12, 2005

Free Markets Aren’t Free

Imagine yourself in the city. There is a place in the city that you go to by bus or train. Driving is out of the question, since parking is a nightmare.

Upon arrival, you squeeze past a dispersed group of people only to be met at the entrance of a large building by crowds of people, some pushing in, some pushing out. You manage to get in the door and make a beeline for the escalator. From higher up, you can see the swath at the entrance through which you just passed.

The second floor is still too crowded so you continue up to the third floor.

On the third floor, you exit the escalator and turn right. Opening up before you are rows and rows of glass counters, each with several people and boxes out in front. There is not enough time to let your eyes absorb all the activity so you continue moving forward.

Passing the first row, you go down the second row. About three counters in, you see a sign in English reading “DIY.” You stop.

Behind the counter, a young man looks up. “Assemble a computer?” he asks.


Your own personal Dell website, right here in the Hilon Electronics Market of Zhongguancun. Of course, you could have gone to Dinghao “Top” since they do DIY, too. But Hilon is still the most popular. And besides, what is shopping without the hullabaloo?

The young man is from Hebei, and has been in Zhongguancun for 2 years. Migrant-cum-computer specialist, he pulls out a piece of paper listing memory, CPU, disk-drive, keyboard, monitor, etc. He asks you what you want, and they builds a computer to your specification, leaving himself 100 yuan ($12.5) in profit. You walk away with a new desktop computer after one hour.

In China, this is DIY, on-the-stop computer assembly. It is omnipresent in Zhongguancun. Why is computer DIY so popular?

Why is DIY so popular for home decoration (Home Depot) and automotive care (Kragen) in the U.S.?

Are there similarities between the functions that each of these industries play in their respective markets?

Free markets are not free. In the U.S., the market is free only because of intense, hard work to make them so: to make competition fair, to make products that do not harm people, to create a transportation system that integrates with the markets.

Many things we take for granted. These external costs are absorbed without thought. Cars are the most obvious example. How could “suburbs” exist with any sort of specialized goods were it not for cars to transport individuals into cities (for work) and trucks to transport goods out to suburbs (for consumption)?

In China, suburbs do not yet exist. They are coming, but slowly. Instead, Zhongguancun, a centralized IT, electronics, and high-tech zone, exists. Everyone in the city, and even those outside the city or from other cities, comes to Zhongguancun for computers. This is not the only place to buy computers, but here the prices are lowest, brands most varied, and service (including on-the-spot computer assembly by our Dell-technician-in-training Hebei migrant) the best.

For China’s markets to become more “free,” what is required is more, not less, regulation. Instead of “freeing” Zhongguancun’s computer markets from government influence--something that happened when they were formed in the first place circa 1980--what is missing is a court system that can enforce laws, a provincial and national system of credit and identification, and more protection for property rights.

The people who are hurt the most by a lack of free markets are businesses in Zhongguancun, despite the fact that they are commonly viewed as the beneficiaries of loose property rights and fly-by-night businesses.

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