It struck me that the city functions more like a single business, producing something that the market wants (capsaicin, silicone) through decree by fiat over its own infrastructure and workers. So it gets the tax revenue of a municipality plus the C-suite autonomy of a privately held corporation. What do you think of that analogy?
You are exactly right. Tiemenguan functions as a single firm but with two advantages no private CEO has: (1) it collects taxes instead of paying them and (2) it cannot lose market share because its "customers" are captive.
The better analogy is not a corporation. It is a state owned enterprise that learned to write its own budget.
The question your comment raises is: what happens when every city competes this way?
The answer is not efficiency. It is the end of the market as a discovery process.
I know very little about economics, but is this related to the Communist structure of post World War II USSR? Where demand and production were mandated?
Yes: The Soviet model also used command allocation, Gosplan set production targets, factories were told what to make and labor was assigned rather than recruited. Tiemenguan shares that DNA: land by decree, workers by assignment, industrial spikes by coordination, not market discovery.
But there is a major difference, the USSR tried to command everything from tractors to toilet paper. The result was legendary inefficiency because the center could not process the information required to run a complex economy.
Tiemenguan does not try to command everything. It commands one thing: the processing of captive commodities (chilies, tomatoes, silicon, cotton) that move through a single chokepoint it controls. Everything else; construction materials, consumer goods, services it lets the market handle.
So Tiemenguan is not the USSR. It is the USSR applied to a narrow vertical, surrounded by market mechanisms.
Think of it as a command cell embedded in a market body. The cell grows fast because it has no internal friction. But it survives because the body around it provides the oxygen; food, labor, construction that the cell does not produce itself.
The Soviet Union died because it tried to make the whole body command. Tiemenguan works because it is just the tumor. And sometimes, in economics, tumors outgrow the organs around them.
It struck me that the city functions more like a single business, producing something that the market wants (capsaicin, silicone) through decree by fiat over its own infrastructure and workers. So it gets the tax revenue of a municipality plus the C-suite autonomy of a privately held corporation. What do you think of that analogy?
You are exactly right. Tiemenguan functions as a single firm but with two advantages no private CEO has: (1) it collects taxes instead of paying them and (2) it cannot lose market share because its "customers" are captive.
The better analogy is not a corporation. It is a state owned enterprise that learned to write its own budget.
The question your comment raises is: what happens when every city competes this way?
The answer is not efficiency. It is the end of the market as a discovery process.
I know very little about economics, but is this related to the Communist structure of post World War II USSR? Where demand and production were mandated?
You are asking the right question.
Yes and no.
Yes: The Soviet model also used command allocation, Gosplan set production targets, factories were told what to make and labor was assigned rather than recruited. Tiemenguan shares that DNA: land by decree, workers by assignment, industrial spikes by coordination, not market discovery.
But there is a major difference, the USSR tried to command everything from tractors to toilet paper. The result was legendary inefficiency because the center could not process the information required to run a complex economy.
Tiemenguan does not try to command everything. It commands one thing: the processing of captive commodities (chilies, tomatoes, silicon, cotton) that move through a single chokepoint it controls. Everything else; construction materials, consumer goods, services it lets the market handle.
So Tiemenguan is not the USSR. It is the USSR applied to a narrow vertical, surrounded by market mechanisms.
Think of it as a command cell embedded in a market body. The cell grows fast because it has no internal friction. But it survives because the body around it provides the oxygen; food, labor, construction that the cell does not produce itself.
The Soviet Union died because it tried to make the whole body command. Tiemenguan works because it is just the tumor. And sometimes, in economics, tumors outgrow the organs around them.
I see, thank you for this explanation!
Most welcome. AM here for that