Guess, where the largest company in the world is located?  You guessed wrong.  U.S.- based ExxonMobil has just been bumped off the top spot by a Chinese company, PetroChina.  China’s state-owned oil and gas producer became the world’s largest company after an initial public offering valued the company at $1 trillion this week.  China now has five of the world’s 10 biggest companies.  This is “size” in terms of the market value.  In terms of sales, only two out of top fifty companies in the world are Chinese. 

What does it mean to be the “world’s biggest company”?  Biggest in the global marketplace generally means the best.  In order to become the biggest, a company has to offer the best product quality; its employees have to work the hardest; and its management has to provide the best vision and leadership.  That is how a company beats out the rest of the competition and gains the number one position in the market place. 

Are all those conditions true for PetroChina?  Not quite.  PetroChina is a state-owned enterprise.  Because it is state-owned, it also is a monopoly in its market.  So, in the absence of competition, PetroChina can grow as gargantuan as possible; no other company is there to check its growth. 

What about the IPO that valued the company at $1 trillion?  When PetroChina was offered up on the stock exchange, only 2% of the company’s shares were released by the government.  That is because the government still wants to maintain control of PetroChina, even though it is now publicly traded.  The ease with which a Chinese company can raise capital on the domestic stock exchanges, shouldn’t be discounted, either.  The massive Chinese population saves at the rate of over 40% and those savers don’t have much choice on where to invest their money.  Chinese banks do not offer rates that would even safeguard the savings from inflation, much less bring income.  And Chinese citizens are not allowed to invest their saving overseas. 

For all these reasons, experts, such as Fraser Howie, an independent financial analyst, and a co-author of two books on China’s stock markets To Get Rich is Glorious and Privatizing China, in an interview with National Public Radio contended that it is at best “misleading” to compare Western publicly-traded companies and the Chinese state-owned enterprises.  However, there are no distinctions made when the companies meet in the world market place.  Our own government unfathomably does not recognize that the playing field is not even for the U.S. private companies that are trying to compete with the state-owned behemoths that are the Chinese companies, such as PetroChina.
 
Take for instance the steel industry.  The U.S. International Trade Commission recently held a public hearing on the subject of the Chinese Government policies that affect U.S. trade.  At that hearing, the representatives of the domestic steel industry drove home the point that the main reason why the U.S. steel companies can not fairly compete with their Chinese counterparts is the issue of state ownership.  Witness after witness testified to the subsidies the Chinese government-owned steel enterprises receive–preferential loans, subsidized inputs, such as energy and key raw materials, and debt- equity swaps between the state, the state-owned banks, and state-owned enterprises–making it impossible for the U.S. companies to beat out competition from China.

We should not be blinded by the sheer size of the Chinese companies, or the speed with which the Chinese economy is growing.  It all comes at a tremendous cost to our own companies and workers, and our own government needs to assess those costs and enforce an even playing field for our companies that play by the rules.
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This week consumer-product regulation has been on lawmakers’ minds.  The Senate Commerce Committee approved on Tuesday the Consumer Product Safety Commission (CPSC) Reform Act of 2007 that would expand the CPSC’s authority and increase its budget and staff.  On Thursday, the House Energy and Commerce Subcommittee on Oversight and Investigations held a hearing on FDA’s Foreign Drug Inspection Program, putting Commissioner Andrew C. von Eschenbach in the hot seat over his agency’s inadequate inspection of foreign drug manufacturers.

All this Hill activity is certainly appropriate: consumer anxiety about the safety of the products we buy every day remains high and mainstream media reports about new potential dangers posed by Chinese-made products keep coming. 

We’ve already highlighted the New York Times story this week that exposed the frightening reality of the Chinese pharmaceutical market.  What does it mean for the American consumer?  Over the last six years, manufacturing of active pharmaceutical ingredients (AIPs) has been increasingly moving to China and India, to the point that now, approximately 80 percent of the active pharmaceutical ingredients that go into the finished medicines Americans will consume are manufactured abroad, mostly in those two countries.  

Neither China nor India has the same regulatory standards as the U.S. and the European Union.  Moreover, U.S. regulators are not able to carry out the same degree of oversight at foreign production facilities as they do at home.  By law, FDA has to inspect domestic drug manufacturers at least every 2 years.  However, of the 700 FDA-registered firms in China, the agency was able to carry out inspections at only 17 last year. 

Even more alarmingly, firms that are not registered with the FDA, such as Chinese chemical companies that are making pharmaceutical ingredients illegally, never get inspected.  According to the Times, China has an estimated 80,000 chemical companies, but our FDA does not know how many sell ingredients used in drugs consumed by Americans. 

The pharmaceutical industry stresses that there is a duality to the regulatory system: government oversight on the one side and the company’s own quality control on the other.  Yes, the pharmaceutical companies try to ensure that their supply chains are not compromised, but how successful can they be when even the local authorities in countries like China have no idea who is producing what components for the medicines that end up on the world market?

The U.S. has a state-of-the-art regulatory system, but even our system has gaps.  When manufacturing shifts to developing countries, the high quality and safety standards that the American consumers have come to expect from products made in America can no longer be guaranteed, as we have seen time and time again.  When production shifts abroad, the costs of production may decrease, but society’s costs rise, whether to pay for better regulation, or to deal with the consequences of consumer exposure to inferior, or dangerous products.

We’ve already seen recalls of toys, pet food, toothpaste, and many other goods, that may be dangerous to consumers.  If more medicines are imported from China, the health and lives of our most vulnerable citizens may be put at risk.  

There’s no question that production quality, inspections, and the level of regulation need to be dramatically enhanced.  But the only way to guarantee the highest possible quality standard for our pharmaceuticals is to manufacture more of them in the U.S. under our close scrutiny, rather than trust others to take the matter of consumer safety to heart.
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The news on income inequality is in: NPR reported this morning that the top 1 per cent of the richest Americans earned more than 20 per cent of all U.S. income in 2005.  And the IRS says these income figures surpass what the top earners made in the 1990s when our economy was booming.  This is to say nothing of the share of the country’s overall wealth that the top 1 per cent controls. 

The headline of yesterday’s Wall Street Journal article asked with the sense of puzzlement: “Why job market is sagging in the middle?”  Here’s their explanation: “Technology and globalization are eroding demand for workers who do routine tasks in factories and offices, many of whom are high-school or even college grads.”  Routine tasks–sounds second-rate, doesn’t it?  Sounds so much less exciting than being a hedge fund manager, or a lawyer, or a nanny to the rich—one of the many personal service occupations that is expected to flourish, fueled by the demand from the top earners in our society.

The truth is these “routine tasks” have sustained our economy and communities across the nation, fed families, and were a source of pride for many, who felt that they were working to be a part of the American dream.  Americans who knew that if they worked hard, they could own a home, have a middle-class standard of living, and give a solid foundation to their kids, who would be able to do anything they wanted to do in the future. 

For those of us who have been following what has happened to manufacturing in our country, this news about growing income inequality is no news at all.  For well over a decade, our manufacturing base has been steadily eroded by unfair competition from abroad and government policies that encourage U.S. companies to take production overseas. 

While consumers in many cases gained from the increased trade in their ability to consume more, that gain came with a cost.  It costs us in the quality and safety of the products that we purchase; it costs us in the loss of good-paying jobs, and the decline of communities that were supported by those jobs.  And it does cost us in the increasing inequality in our society.  America is becoming a nation of haves and have-nots, not a nation where every American can succeed regardless of where he or she has come from.

We can fight the rising inequality with income redistribution through the tax system.  But when was the last time a comprehensive tax reform that effectively redistributed the income from the rich to the poor was enacted in this country?

Neither is the wealth redistribution mechanism alone the best solution for income inequality.  For most Americans subsisting on a check received from the state is not a dignified way to live.  We were brought up with the idea that we work to make a better future for ourselves and our families.  American workers would rather be given the opportunity to make a life for themselves than simply be given a government hand-out

That is why it is crucial that we keep good-paying manufacturing jobs in the U.S.  We want to preserve the middle-class in this country to have confidence in the prosperity of our nation for years to come.  That and because not everyone wants to be a rich man’s butler.