Noodles In China, New York City Rent Control, Legal Fees In Poland, And Zimbabwe. I Have A "Beef" With All That.
Great post over at the always excellent Heritage Tidbits Blog (worth reading just for the quotes of the day alone) on the city of Lanzhou capping the price its restaurants can charge for beef noodles. The post is entitled, "Free Market Believers in China, Even When It Comes to Beef Noodles," and it details how the city government's decision to regulate beef noodle pricing at restaurants in Lanzhou is being criticized throughout China.
A CCTV International article, entitled, "Price control on beef noodles sparks debate across China," details the criticisms:
Local noodle eaters warmly welcomed the price control effort, saying that the government is concerned about people's lives. But many experts and netizens across China criticized the action, questioning whether the five administrations had overstepped their functions and saying that the price controls are a denial of market economy laws.
The price of noodles is easily fixed in a free market, said Song Chaoying, economic administration professor with Lanzhou University.Beef noodles do not figure in the national list of price controlled goods. Moreover, the city abolished ceiling prices for beef noodles in 2001. "So the latest price control is a step backwards," said Song.
Even if the restaurants had tried to form a price alliance, it could be broken by Chinese law and the ceiling price is unnecessary, many experts say.
Fixing a unified price will not contribute to the improvement of food quality and the sound development of the sector, according to Song, who has been studying the issue for a long time.
Oh, and guess what? In a classic case of supply and demand, the supply/quantity of beef noodles is becoming rather scarce in Lanzhou restaurants these days:
Just a couple of days after the order was issued, reports were coming in of restaurants cutting back on the amount of noodles and beef they serve."It doesn't fill me up anymore. Before, a big bowl of beef noodles really made me feel full," said Miao Huihui, a Lanzhou native who always eats noodles in the morning before going to the office.
There has been no backlash in well-known restaurants, but similar complaints have been heard in many small-sized eateries.
A boss of a restaurant in downtown Lanzhou, who refused to provide his name, pledged that he would not cheat customers and reduce portions despite having to face rising costs.
"There are only two solutions: either close down or find ways to absorb the extra cost," said the boss.
Some restaurants might be tempted to play tricks with the quantity and quality of food, transferring the cost to customers, Song warned.
But the Lanzhou city authorities are holding firm:
However, the five administrations involved in the issue said in a press conference held here Wednesday that noodles could not be compared with real estate, especially in Lanzhou.Trusting in the market and ruling out macro control just doesn't suit the local situation, they argued, claiming that those who have never lived in Lanzhou cannot understand the overriding importance of noodles to local people.
Recent price mandates in Zimbabwe are causing product shortages so severe many predict they will lead (at last) to the President Mugabe's being overthrown. I have a friend in New York whose wealthy parents pay $500 a month to live in a 4,000+ square foot luxury apartment due to rent control. Perhaps most troubling of all, Poland is talking about capping lawyer fees. Quelle Horreur!
Price controls are bad news, and if you want good noodles, avoid Lanzhou.
Keep China capitalist.
Comments
In practice, very little of the NYC rental market is under rent control. Somewhat more of it is under rent stabilization. You basically have to have inherited an apartment from someone living in it before 1971 to get one.. Also there is really very little way you can monetize the low rent. If you move out, the apartment loses the rent control, and it's illegal to sublet a rent controlled apartment. There are so many ways of getting an apartment out of rent control, and no ways of getting an apartment into rent control, that it is pretty much an interesting historical relic more than anything else.
Price controls cause a lot of problems. In some exceptional cases, they are better than the alternatives, and getting rid of price controls usually involves some grandfathering in of people that already benefit from them (which was done both in NYC and China.)
Also in the case of Zimbabwe, price controls are the least of the governments problems. The entire economy has been so mismanaged, that price controls are "yet another sign of incompetence" rather than the main reason the economy is a mess.
Posted by: Twofish | July 18, 2007 9:23 PM
TwoFish --
I assume you are right about NYC rent control, but so what?
I predict price controls (really, more the shortages those controls have wrought) will push Mugabe over.
Bottom Line: Real economies don't use price controls.
Posted by: China Law Blog | July 18, 2007 9:27 PM
Dan, I won't presume to be in any position to comment on price controls. I just want to say that should you be in Beijing when Mugabe falls I will shout you a pint of Guinness and we will celebrate.
Posted by: chriswaugh_bj | July 18, 2007 10:56 PM
chriswaugh_bj --
Deal. I'm going to be in Beijing on or about (that's legal language) September 19. If he has not fallen by then, I'll shout [that I presume to be NZ language] you out the pint.
Posted by: China Law Blog | July 18, 2007 11:09 PM
Okay, so the authorities in Lanzhou sound like they really care about the peoples' livelihood.
What about subsidizing to lower the cost for the noodles eateries, then? Would it be just as anti market rules as price capping? Am just wondering aloud.
Posted by: Handan | July 19, 2007 4:24 AM
Price controls can be useful in some limited circumstances. The classic example is to keep people from charging $5.00/gallon for gas when a hurricane is coming.
Also if you want to see an example where state-set prices does work better than market driven prices, New York yellow taxis. There is makes more sense to have a city-wide set price for taxis, because the transaction cost of haggling with the taxi driver is high, because there are information asymmetry and public safety issues, and because there are alternative services that keep the price from getting too high, and supply and demand keeps the price from getting too low.
About Mugabe, I don't think that he is going to be overthrown by a popular uprising no matter how bad things get. The thing about dictators is that they can amass so much power that only death (Stalin, Mao, Hoxha, Franco, Kim Il-Sung) or foreign invasion (Pol Pot, Amin) can get rid of them. If people in Zimbabwe could have gotten rid of Mugabe (and they came close to it once), they would have already.
The only thing Mugabe has to fear is an internal coup, and if he's stomped that down (and it seems that he has), he'll probably die in power, no matter how bad things get. What I've seen in these situations is that when the situation is bad, it makes it even less likely that people will be politically active since they are spending so much effort trying to survive, to think of anything else.
Posted by: Twofish | July 19, 2007 7:22 AM
I think this needs to be looked at in another direction. The noodles issue is reflecting, as with home prices, a whole hell of alot of inflation. The Chinese gov't doesn't want to allow waged based inflation (instead, asset inflation), so they try to cap prices instead of increasing interest rates or currency values alot.
That way, it's a heads I win, tails you lose situation. They get to do what you want, when you react, and it doesn't work, you're decried as inefficient or naive...
Posted by: shah8 | July 19, 2007 2:16 PM
Twofish, given that the rent increases allowed under rent stabilization are miniscule, rent stablizition ends up being pretty much the same as rent control.
Lanzhou is indeed famous for its noodles but these price controls are way overboard. Those in charge of enacting them certainly seem to be in violation of the anti-administrative monopoly provisions of the draft Anti-Monopoly Law, which is expected to pass later this year, and as soon as next month.
Posted by: Ben | July 19, 2007 11:13 PM
In NYC, rent stabilization applies only to construction before 1974 and once an apartment hits $2000/month it moves out of stabilization. I don't get the sense that it plays that much of a role in the rental housing market, since most of the areas in which there is demand pressure have lots of new construction.
Posted by: Twofish | July 22, 2007 9:07 AM