1. Will China continue to export toxic toys?

Yes, China is poisoning everyone especially its own people. 16 of the most polluted cities are in China. 90% of urban ground water and 75% of urban surface water is polluted. 60% of drugs in developing countries are fakes, which are either ineffective or harmful. The FDA stopped a shipment of fake Tamiflu into the US.

2. The Chinese government has promised the US that it will closely monitor its toy exports, why won’t this solve the problem?

The Chinese have a “command and control problem”. As the Chinese expression goes, “the mountains are high and the Emperor is far away.” There is no legal system. Law can function in two ways. It can extend power or limit it. The Communist party, who control most of the factories who produce these products have no wish to limit their power by protecting consumers.

3. Should consumers worry about toxic Chinese products?

Yes and no. Yes, consumers should worry, because China will keep exporting them. No, because the legal systems in Canada and the US work. Companies in the US are being sued and their products boycotted. So they have both legal and economic disincentives to insure that their products are safe. The government in the US is increasing funding to the United States Consumer Product Safety Commission. Both the companies and governments will test more than ever. Companies will have to reassess their China strategies and most likely start to source more of their products in countries with legal systems like India, which also has lower wages.

4. Will there be a global recession in 2008?

Yes. The present thinking is that although there will be economic problems in the United States, the rest of the world especially China will continue to grow. In the past few weeks while the US stock market has dropped 7%, the Chinese stock market, the Shanghai A share market, has dropped 12%. Most commentators have correctly pointed out that few Chinese own shares and that foreigners cannot own Chinese A shares. What they have not understood is that large Chinese companies are gambling with their cash flows on the Chinese stock market. It’s as if GE, Microsoft and Boeing had used their cash flow to invest in the Dot.com bubble. As the Chinese bubble collapses, the Chinese companies that have been driving the commodity boom will have to retrench, slowing the economy. The lack of demand for commodities will affect everything from oil to copper and the countries that produce them.

5. Will jobs from the US and Canada continue to be outsourced?

No. There are certain limits to outsourcing, both from supply and demand. As I point out in my book, the Indian and Chinese education systems do not produce enough educated people who have the ability to be employed in the outsourcing industry. Both the US and Canadian economies are based on services, many of which cannot be outsourced. You cannot out source your barber.

6. Which country will benefit most from globalization?

The US. In the last three years, US trade with India has tripled. Other countries have not developed flexible institutions that can adapt to constantly changing market conditions.

7. What institutions specifically?

Most emerging markets have very large state owned sectors. These range from banks to oil companies. Some of these companies are the largest in the world. They include Saudi Arabia’s Aramco, Venezuela’s Petroleos de Venezuela, and Russia’s Gazprom. Although these companies have huge incomes and huge assets, they often do not make any money. The reason is simple. State owned companies are run for political reasons, not profit. So a company like Gazprom does not make any money because it sells gas at low prices in Russia and has enormous costs due to corruption.

8. Will China surpass the US economically?

No. There are many reasons, but one of the most important is about information. Free markets are about choice. To make an informed choice you need accurate and timely information. To get accurate information you need free speech. If speech is not protected, or as in China active suppressed, so no one knows anything including China leaders. It is impossible to make the right decisions about investments or government policy because the information in inaccurate.

9. Will China surpass the US in innovation?

No. You can get a thousand brilliant Chinese scientists in a building. They will undoubtedly come up with some great innovations. The problem is that China does not have intellectual property laws, so these innovations will be stolen the next day. Bank loans go to state owned industries, so private entrepreneurs have no access to money.

10. How will future changes in the global economy affect global warming?

I believe it could impact the world in a positive manner. A slowdown in China will most likely decrease its need for energy, which, since most of it comes from coal, will no doubt help the environment. It may also cause political instability. China last year experienced over 80,000 large scale riots. The combination of pollution, slow growth and large wealth disparities may be toxic to the communist party. In contrast, the US has huge economic, environmental and political incentives to go green. Since the incentives exist in almost every economic sector, it may be the impetus for economic growth in the same way that the internet revolutionized almost everything we do. If it does happen, it could remove much of what is strategically important about the Middle East and Russia. As a former Saudi oil minister once said, “The stone age did not end for lack of stones.”