I think the key point that he's missing is that the chinese manufacturers are now manufacturing to the market's demand, and this is why China is growing rich. In the old system, the state may have ordered the (state owned) pen manufacturer to make a top-quality pen. The manufacturer would have done its best to comply, but ultimately, would have made a product that nobody wanted. In the new system, the administration at the pen factory can look at the data on what sells, and produce that to provide maximum profit to the company and maximum utility to consumers within the constraints of the factory's capabilities -- in this case, that means cheap, crappy pens. Importantly, these pens sell well, turn a profit for the factory, and provide the income needed to feed, cloth, and house all of its workers.