E-letter: Competition and consequences

The news broke on 60 Minutes March 1 that Lumber Liquidators is suspected of selling engineered wood flooring with unsafe levels of formaldehyde from three Chinese mills. You can click on the link to see the story in the Financial Post if you are interested. Our links are tested and safe.

So are Lumber Liquidators’ flooring products, according to Lumber Liquidators.

For me, this is a classic case of stuck-in-the-middle. On the one hand, 60 Minutes has a history of credibility and of attacking special interests, much like Charlie Hebdo’s before January 7. On the other hand the story shows Lumber Liquidators as being everything people love to hate. Big China, Big Retail and Big Toxic Offgas. As one of the Financial Post’s sources said, formaldehyde is likely going to be the new asbestos.

Kerry Knudsen

Kerry Knudsen

However, when you look over at China (Big being the only variant; there is no eeny China), you can see the country does not enjoy being shamed on the world stage. I was at a wood summit in China several years ago, and the government addressed the issue. China is aware, the speaker said, of the international opinion of China’s commitment to quality, which was bad. He admitted there are many unscrupulous Chinese vendors that are adulterating, under-engineering, substituting and counterfeiting. However, he said, their existence is a matter of numbers and the government is having trouble tracking them. The switch to capitalism in free-trade zones has had its cost. “We see these people as pirates,” he said, as they commandeer the reputations of all for their own short-term gain. China, he said, is capable of and is supportive of quality.

I am inclined to believe him, both on the issue of piracy and of quality, as I have seen both. I also believe his assertion that the government is intent on dealing with the pirates, since every time a reputation-wrecking news story hits the West, there is a spate of “suicides” and executions in the East. I put the quote marks around suicides because I was recalling Erwin Rommel’s death at the end of WWII. Hitler “allowed” Rommel to chew up a cyanide capsule in return for a promise his family would be spared. Rommel’s fault was his involvement in a plot to assassinate Hitler, and Hitler was hypersensitive at the time, being shown, finally, to be an infamous metagalactic loser and nutbar.

If you want to read some really interesting, inside stuff about life inside the Third Reich, read Bonhoeffer: Pastor, Martyr, Prophet, Spy, by Eric Metaxas. Bonhoeffer was a German Lutheran pastor from one of Germany’s aristocratic and old families, and the story deals with the early days of the ‘30s, Hitler’s rise through the eyes of the German citizenry and Bonhoeffer’s own religious decision to become part of an assassination plot, for which he was ultimately executed a few short weeks before the fall of Germany.

Back to China, it is clear the Chinese government does not tolerate being shamed. It is not so clear that the government pursues all cases of piracy. While my source there said the main reason for the prevalence of piracy was the volume of people doing it, another factor may well be the volume of officials looking the other way with a few hundred-thousand yuan in their pockets. There is no secret; corruption is a problem in China.

Corruption is also a problem in Canada. It does not take a genius to see what happened last year with Quebec construction, the year before with Dalton McGuinty and Ontario’s hydro-construction dollars or Chretien’s AdScam scandal back in the ‘90s. I know… some say it was Martin’s scandal. You call it what you wish, and I’ll call it what I wish. This is a commentary, not an investigation. Besides, how could Martin be involved, since he was huddling with McGuinty over how to split up $23 billion in transfer payments?

Big China and Big Retail are clear and obvious targets when it comes to villains and competition. However, my sense is that our industry, while paying due attention to the outcome of the 60 Minutes story, should consider our most devastating competition to be inside our infrastructure and not outside it. In my view, what may once have been the good-old-boy practices of a good-old club has become more widespread and dangerous, where payoffs are in the billions and lying is a spectator sport. For an example, you can observe Hillary Clinton’s current difficulties surrounding her e-mail system. She may or may not be charged with a felony, but she certainly is not telling the truth. The problem is, the public accepts lying from a Clinton the way the public accepts fish-eating from a seal. It’s what they do.

Or how about the cash economy? In China, corruption is so broadly accepted that the country only prints bank notes in denominations up to 100 yuan (about $20) to make dealing with large sums more difficult. My guess is that the effect has been a run on counterfeit Coach luggage.

I ran into the cash economy in Canada in December. My wife had a flat tire, so she called CAA. True to form, they sent out a truck and I arranged to meet them at our service centre. When I got there, the driver informed me we had exceeded the allowed kilometers, and I owed either $117 on a card or $80 cash. I said I would pay cash and handed him the $80. He said thanks, and I said, “No problem. Can I have my receipt?”

He said there is no receipt with cash, so I gave him a card, he charged the $117 and I went home and called CAA. I don’t know the end to that story. I suppose CAA saw it as stealing. I hope so.

I am reminded of America’s Mayor, Rudy Giuliani, cleaning up New York City. His position was that you have to enforce the small crimes because big crimes are spawned in a criminal environment. Maybe reporting some poor guy driving a wrecker over $37 is petty, but maybe I cannot do a thing about Obama’s relationship with Solyndra or McGuinty’s sudden fondness for the States, and I see dealing with what affects me as the best way to make a start.

One thing for sure, Lumber Liquidators’ stock-in-trade is not engineered wood flooring, but price. If the Chinese mills want to play over here on price, the law says they can play. The same law says there has to be a level playing field. If they are trifling with it, I really hope they have reviewed the consequences.

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