|8/9/2016 by mdc|
|Richard Karn reports that a fundamental roadblock to globalization that we are far from overcoming is simply that different cultures and economic systems have different ways of conducting themselves and doing business. Human nature is such that we tend to believe everyone thinks and acts broadly as we do.|
Western companies all too often make assumptions regarding things we take for granted, such as the profit motive or the sanctity of contractual law and property rights, that can be easily exploited by their counterparts in developing countries where such notions are often lax and sometimes wholly lacking.
In short, developed and developing countries often play by different rulebooks. While Karn opines today on rare earth elements (REE), they are broadly consistent for all specialty metals and certainly for those under the control of cartels, such as niobium, beryllium and indium. China, through its centrally planned economy, operates a state-controlled cartel over the production and processing of REE and at least a dozen other specialty metals.
Despite the the West experience with OPEC in the 1970s and 1980s, it chose to disregard the threat implicit in Deng Xiaoping 1992 comment that The Middle East has oil. China has rare earths.
Unburdened by labor, energy or material costs, not to mention competition or environmental concerns, China made a policy decision to seize control of a number of specialty metal markets by undermining project economics wherever it could. The West with its New Economy focus on short-term profits rather than long-term security of supply simply went along with the program from which it clearly benefited. Over the ensuing two decades, while incurring untold losses and massive environmental degradation, China gradually assumed control of a number of specialty metal markets.
But it was not until mid-2010, when China abruptly cut off REE supply to Japan over a fishing incident, that the West finally caught a glimpse of the predicament.