Tuesday, March 28, 2006

From Transparency to...something Else

While I may be the last person to comment on this story...since it's about a week old, I still thought it worth bringing up.  (Special Thanks to Times select for discouraging me from reading the NYTimes.)  And much more sincere thanks to Genya for passing the story on to me.
After this morning's story in the Post about Bernanke trying to open the Fed up to be more transparent, we are given an example of a system that, well, isn't really known for its transparency either: China's tax system.  Law week China announced changes in the taxes on vehicle sales: cars with bigger engines will have higher taxes, and those with smaller taxes will have lower taxes.  Chinese manufacturers tend to like this policy, as their engines are smaller while American manufacturers tend to dislike it as their engines are larger. American firms instead advocate a fuel-economy standard: one in which their larger engines compare favorably to China's smaller (but less efficient) engines.
The remarkable piece, in my opinion, is that the changes will take effect on April first.  Just more than a week after the announcement.  Regardless of where comes down on the idea of this tax--good, bad, or other, my concern is the way it was presented.
If China wants to create a climate that actually is good for business--as opposed to the present situation where cheap labor, massive government investment, and lots of international hype--it will have to start drafting and passing laws in a more transparent way.  In a way that is more predictable.  Or at least in a way that allows businesses the opportunity to adjust to changes, rather than running into them as though they are brick walls.
I'm no business manager.  I don't have an MBA.  But I pay enough attention to know that one thing business avoids with a passion is surprises.  Getting a package a day later than expected--not high up on a "favorite things list" for most people I know.  Having the cable guy show up on Thursday "just to be nice" instead of on Friday when he said?  Just as bad.  A government operating in what constitutes 'radio silence' on issues that impact your market suddenly changing the rules you play by?  Almost as bad as a government saying it will do one thing but implementing the opposite.
To grow and profit, businesses need stability, predictability.  Abruptly changing taxes (and the concomitant production and sales incentives) is not the way to instill the market with confidence.

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