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Food and Drug Scandals in China: the Wonders of the "Free Market"

By Dennis Loo (7/11/12)

The Chinese magazine Caixin, writing on June 20, 2012 ("China's Food Fright") about the burgeoning food contamination disaster in China, relates,

"In the three-plus decades since China began reform and opening up, regulatory standards have not been able to keep up with the ingenuity of food manufacturers."

"Reform" is the euphemism to describe capitalism's restoration to formerly socialist China. The innocent and positive sounding term was coined by the regime, led by Deng X'iao Ping, that covertly seized power after Mao's death in 1976, under the duplicitous signboard of being Mao's true revolutionary heirs, only to, after a few years of consolidating their power, set about undermining and ultimately jettisoning the fundamental principles and practices of socialist rule.

Of course, when you release the forces of the market in this "reform," you will not be able to keep up with the "ingenuity of food manufacturers." To give you a sense of the dimensions of this disastrous scene in food and medicines, here are some appetizers:

At the end of May 2012, the State Food and Drug Administration announced the results of inspections of nearly every pharmaceutical company. The report found that 5.8 percent of all capsules on drugstore shelves contained excessive levels of chromium, a toxic heavy metal substance. According to the report, 254 companies replaced edible gelatin with industrial grade gelatin when producing drug capsules. The number of firms accounted for more than 12 percent of total drug producers in the country.

Zhu Yi, a food safety expert at the China Agricultural University, said the discovery has implications that cross over to other industries. While medical products are more carefully monitored, the food and cosmetics industries receive even less government scrutiny.

The central government continues to expend a huge amount of resources quelling the panic that follows media reports of food safety scandals. In April 2011, the Ministry of Health issued a list of 47 possible toxic additives in the food system. However, food safety experts say such lists issued by the government are far from complete, adding that razor-thin profit margins among food producers continue to drive the use of toxic chemicals.

It comes down to a simple cost-benefit analysis – the cost of violating food safety regulations remains low compared to potential payoffs.

A recent Ministry of Health investigation found that it is not uncommon for legal edible additives to be used in excessive amounts in over 22 categories of food. The excessive intake of many of these additives has been proven to increase the risk of cancer and fertility problems.

If you follow the other articles mentioned next to this article at Caixin you will get a good glimpse of the hidden story behind the so-called economic miracle of China. In one, for example, entitled "China: A Country Where No One is Secure," you will see the following:

In opportunities for education, employment, promotions and overall improvement of their lives, people are discovering that society's resources and opportunities are increasingly concentrated in the hands of a few. People in the middle and lower strata of society are becoming increasingly marginalized and are finding that improving their lives is getting harder.

The 2004 China Social Mobility Report published by China Academy of Social Sciences said that people whose fathers have power or capital have an easier time becoming party cadres than people in general. Research into the changes in private businesses ownership after 1993 showed that the elite in non-business fields were more likely to own businesses today. Thus, opportunities for common people to start private businesses are fewer and fewer. It is exceedingly difficult for farmers moving to a city to find success. The registered permanent residence system and economic factors conspire to make this move very difficult.

A social trend has been captured by the phrase "returning to the system," which refers to resorting to traditional means of advancement. The number people signing up for the national civil service examination was 600,000 in 2007, 800,000 in 2008, 1.1 million in 2009, and 1.5 million in 2010, a clearly rising trend. "Returning to the system" has become the main method for members of society to climb the social ladder.

Imbalances in social rights, the reduction of social mobility and the hardening of the social structure will inevitably lead to the rich getting richer and the poor poorer, the strong permanently strong and the weak permanently weak.

The stagnation of social mobility will inevitably bring about a series of consequences. The biggest harm may not be in the gap between rich and poor itself, but the deterioration of the overall societal ecosystem and the fall of civilization. The social ecosystem is similar to the natural ecosystem. "Running water doesn't stink" is an old Chinese saying that indicates that a pool of standing water will become putrid. The deterioration of the social ecosystem resulting from stagnating opportunity is evident, and the picture is not pretty.

I was led to these stories by an article in The New York Times, published first in its Global Edition, the International Herald Tribune, which begins with this:

There’s mercury in the baby formula. Cabbages are sprayed with formaldehyde. Gelatin capsules for pills, tens of millions of them, are laced with chromium. Used cooking oil is scooped out of gutters for recycling, right along with the sewage.

Accounts of dubious or unsafe food in China are as mesmerizing as they are disturbing — “artificial green peas,” grilled kebabs made from cat meat, contaminated chives, chlorine showing up in soft drinks.

There have been stories of imitation soy sauce made from hair clippings, ink and paraffin being used to dress up cheap noodles, and pork buns so loaded with bacteria that they glow in the dark.

Is it any wonder that the 99% movement has captured the imagination and sentiments of people around the world, with China being but one example of the hoary consequences of neoliberal policies that extol the alleged virtues of the "free market?" As Deng was fond of saying before his death, "Some must get rich first." To which the Western version of this tyrant, Ronald Reagan and Margaret Thatcher and their latter-day missionaries could only applaud. "Trickle down economics" is what they call it here in the West.

As I state at the beginning of Globalization and the Demolition of Society in the Preface:

Reminiscent of H.G. Wells’ depiction of extraterrestrial aliens invading the US in his classic The War of the Worlds, no arena has been spared from this full-scale assault. The proponents for free market fundamentalism bring with them not only concrete programs that they are fervently and meticulously inserting into place but an entire army of philosophers of privatization who hector us from every media outlet conceivable, generating a drumbeat of scorn for any who object. “There is no alternative, this is the panacea,” this army’s foot soldiers and generals tell us; nowhere and nothing is immune from their demand that they must take over and take charge. The acolytes of the invisible hand are visible everywhere we look.

This book refuses and refutes these invaders’ agenda. Using market forces and individualism as the organizers for economic and political affairs is a recipe for ever-expanding inequities and the shredding of the social fabric, leading inevitably to myriad disasters on the individual, regional, and global level. It will not do to attempt to mildly modify this invasion, gesturing and gesticulating at the margins. The response to this assault that is occurring on every conceivable level requires an equally comprehensive retort, an alternative vision for our society.

To address this here on the most general level, in a highly concentrated distillation of the key themes of this book: Humans are not first and foremost individuals. Everyone and everything that exists does so only in relationship to other beings and to other things. Individuals and groups, in particular, are not separate from and opposed to each other but in fact different expressions of a single integrated process. Individuals cannot accomplish what they do without group support and group sustenance; groups, in turn, rely upon individual leaders to organize the group and thereby advance the groups’ interests. We are not fundamentally solitary, autonomous, and exclusively self-interested individuals driven to maximize personal material rewards; we are beings who are primarily shaped by our relationships, especially those generated by our society’s political and economic structures. Individuals do not principally give systems the character that those systems possess; systems and structures principally shape individuals’ behavior.

Genuine freedom does not and cannot come from ignoring one’s obligations to other people and by spurning necessity and material reality. Freedom can only exist on the basis of first recognizing and coping with necessity and then acting to transform it. Moreover, material wealth is not the proper measure of the worth of a person or a society. The pursuit of individual¾and corporate¾opulence and the downgrading or outright dismissal of the intimate and indispensible connection we have to each other and to the earth are the road to catastrophe for the people and for our planet.

The proponents of free market fundamentalism like to tout capitalism's virtues of promoting inventiveness and ingenuity. Leaving aside for the moment the fact that capitalism actually also interferes with innovation when that innovation might interfere with profit-making, the food and medicine disaster in China does provide evidence for the ingeniousness of those who are driven by material incentives (the god before which neoliberals worship) and whose desire for profit leads them inevitably to injuring and killing people if it allows them to make more money.

For those who believe that the solution to this problem is to restore more governmental regulation over corporations, the problem here goes deeper than the relative lack of governmental regulation. The problem grows out of the very nature of capitalism itself and the solution to this problem has to address itself to this fundamental fact. There are different facets to this and a larger historical treatment of the question - how we got to where we are and what it's going to take to get us somewhere else - is what I go into in GDS. I'm going to excerpt something further about that here, however, to give the reader a sense of this. This excerpt comes from Chapter One:

The shift from “free enterprise” to monopoly in the capitalist citadels by the beginning of the twentieth century occurred for two reasons.

First, economies of scale undermine free market competition; big fish eat up little fish. The drive for profits impels businesses to seek competitive advantages, to expand their market shares, and to eliminate their competition, either through buying out competitors or by driving them out of business. Anyone who has played the Parker Brothers’ best-selling board game Monopoly is familiar with this dynamic. After a few hours of play at most, one player emerges as the big winner and everyone else has either been bankrupted or is soon to be bankrupted. This happens in Monopoly despite the fact that all of the players start out with exactly the same amount of money, unlike the real world where resources are distributed extremely unevenly (one does not choose one’s parents, after all).

It is in the nature of free markets to cease being free markets. Libertarians’ belief that free markets are the solution to all ills, therefore, cannot be realized and implemented any more than a butterfly can go back to being a caterpillar. Small may be beautiful, but big is cheaper and more powerful. Small businesses can, and always will, emerge just as small saplings spring up amongst the towering pines, but the economy’s key players will continue to be big businesses. Some of the big businesses will be supplanted—witness General Motors’ bankruptcy plight even though for a long time it had been the world’s largest corporation—but the companies that supersede their previous competitors will then assume the monopolist position themselves. The players may change, in other words, but the disparities of position between big and small remain structurally and fundamentally the same.

Second, capital seeks profit-making opportunities everywhere. This ceaseless drive for profits leads—indeed, compels—the largest companies to burst past national boundaries and roam the globe in search of still cheaper labor and resources. Sam Walton, Walmart’s founder, believed that his company should sell only American-made products. His insistence on this, however, has obviously passed away like eight-track stereo. Walmart would be non-competitive today if it did not seek the cheapest labor it could find. This fact, put very briefly, is what imperialism is in the economic sense. Imperialism is a compelling and inevitable consequence of capitalism itself within the more advanced capitalist countries. It represents capitalism’s underlying logic carried forward into monopoly capitalism and expressed and active on an international scale. Imperialism is, therefore, not a choice; it is not something that could be dispensed with by corporations and their governments any more than a vampire could choose to be a vegetarian.

This compelling and inescapable dynamic can perhaps be best illustrated by first comparing capitalism to the economic system that preceded it: feudalism. Capitalism differs from feudalism in one decisive respect. Under feudalism the economy’s underlying logic is primarily the production of “use values”—that is, goods and services are created and exchanged primarily for their use. For example, you exchange goat’s milk for shoes because you need shoes. You need the shoes to wear and walk around in because the ground is hard and rough.

Under capitalism, by contrast, production exists for the principal purpose of exchanging commodities for profit—for their “exchange value”—not for their use value. (A commodity is anything to which anyone attaches value. It could be a loaf of bread, a painting, or a handkerchief once used by Elvis Presley.) In mathematical language it would look like this: exchange value > use value. Thus, a Pet Rock, if it can be sold for a profit, serves the purpose of acquiring profit, even though a Pet Rock serves no useful purpose in and of itself (except perhaps amusement at its lack of usefulness.) While it is possible, to use a different example, to have too many bananas—you can only eat so many and make only so much banana bread before the bananas rot—it is not possible to have too much money. Money does not spoil (although it may be subject to inflationary loss). Use values continue to be important (people need to do things such as eat) but they are not as important as exchange values in capitalist systems. In a system dominated by exchange value, even eating takes second place to the production of profit, and around the world over thirty thousand people a day starve to death because of it. More than thirty thousand people. Imagine a neutron bomb being set off in downtown Los Angeles that kills all of the city’s four million residents plus another one million from the immediate surrounding areas. Visualize what the city would look like with all of its people lying dead in the streets, buildings, bedrooms, living rooms, kitchens, vehicles, pools, and elevators. Imagine this happening every year. That is how many people die of unnecessary starvation every year in the world—five million people.

An economy based principally on producing use values differs fundamentally from an economy based principally on producing exchange values. As a former CEO of General Motors once correctly put it, “General Motors is not in the business of making cars. General Motors is in the business of making money.” Cars are simply the incidental vehicles for the real activity—the production of profit.

Feudal economies do not experience depressions; depressions are creatures of capitalism. Depressions occur when the capital accumulation process is interrupted because the amount of profit to be made no longer suffices. No matter how useful those goods or services may be (and they could spell the difference between life and death for millions of people), if they cannot be exchanged for enough profit, then their production will cease until such time as profitability can once more resume. Moreover, if these commodities are profitable but not as profitable as some other economic activity, then the latter will win out over the former. This has nothing to do with the social or individual importance of the items in question. It has to do with profit making as the be-all and end-all of capitalist economies.

Let us suppose, to illustrate this further, that a specific capitalist decides that she will buck convention and do something very different. Imagine a new Walmart CEO who decides that she will make a change that will benefit Walmart employees and suppliers. At the next shareholders’ meeting, she announces that Walmart is expanding its employee benefits program to include a living wage, pension, and medical insurance so that Walmart employees will no longer have to seek government assistance to make up for Walmart’s niggardly benefits package. (Half of Walmart’s full-time employees now seek government assistance, explicitly encouraged to do so by Walmart itself.) Walmart, this enlightened CEO declares with much fanfare, will also cease driving down suppliers’ prices ruthlessly.

“We will henceforth pay suppliers enough,” she announces with great pride, “so that their workforces will be able to live decently and have bathroom breaks and meal breaks. Walmart has a social conscience.”

“This will promote goodwill among our employees,” she continues, “and improve the living and working conditions for those who have been working for the subcontractors supplying Walmart products, elevating living standards in Third World countries and promoting better lives for multitudes of people.”

Imagine the stockholders’ shock at this declaration. Let us suppose, nevertheless, that this CEO is unbelievably persuasive and charismatic and that she convinces the shareholders that this is a good idea. She successfully fends off their first impulse to fire her, even though implementing her daring plan will cut into shareholders’ dividends and profit shares. After the shareholders’ meeting the financial press and the rest of the media report the dramatic developments at Walmart. How does Wall Street react at the next day’s opening to Walmart’s amazing initiative? The answer is obvious: Walmart’s shares would get clobbered.

Walmart, after all, is not only competing for money from those who invest in retail businesses. Walmart is also competing for the investment monies for all possible investments, retail or otherwise. The new Walmart CEO would lose her job unceremoniously; perhaps she would become the inspiration for a feel-good Hollywood movie, but she would be finished and would likely be treated as insane in the corporate world.

You are not compelled to pursue greater and greater profitability within capitalism, but if as a businessperson you do not pursue profitability aggressively, then one or more of the following will likely occur: your business will remain relatively small, even marginal; you will be taken over by a bigger company; your company, or at least you, will go bankrupt. Even companies that have understood this, as did and does General Motors, are also always at risk of being surpassed. This raises the matter of the next key aspect of capitalism relevant to this discussion: capitalism’s unevenness.

There are different dimensions to unevenness (such as the uneven rates of growth of different companies within the same business), but I will focus herein on the international dimension. Capitalism’s uneven growth and nature means that those companies that started first possess advantages over their smaller, newer rivals, rather as the chicks that hatch first get most of the food, stunting the growth or even resulting in the demise of the chicks that hatch later.[i] These first-in-line advantages, when extended across national boundaries, mean the distortion of capitalist development in so-called underdeveloped nations; their economies are fundamentally shaped by, subordinated to, and selectively and parasitically developed based upon foreign monopoly capital’s interests. Since the service of subordinated nations’ economies to their domestic population is not of interest to foreign capital and is, in fact, significantly contrary to foreign capital’s interests, imperialist domination renders balanced and articulated national economic development impossible. The American Revolution of 1776, in fact, was designed precisely to free the colonies from their disadvantaged position as a colony of British imperialism. Why is this path wrong for Third World nations under colonial domination today?[ii]

From the standpoint of international capital, penetrating into China with lots and lots of McDonald’s franchises is better than China’s developing businesses that produce balanced, nutritious, affordable, small-carbon-footprint domestic meals. Protection of scarce resources and concern about the global environment are also externalities from foreign capital’s perspective.

As the International Herald Tribune article about the Chinese food and drugs scandal recounts, transnational corporations based in the West are taking advantage of these scandals and deaths to buy shares in these food companies at cheapened prices. As the article further recounts, some of these scandals started with these transnationals, such as Kentucky Fried Chicken and Walmart:

“China woke up to its food safety problems with the entrance of multinational companies,” the Caixin report says. “Fast-food giants McDonald’s and KFC were among the first violators caught by media in 2005, when ‘tony red,’ a toxic chemical was found in fried chicken.”

Wal-Mart is another company that has recently had its share of food-quality problems in China.

“A scandal over mislabeled pork led to the closure of stores and the resignation of the country head,” the BBC reported, and the Food Safety Administration in Beijing said in March that a Wal-Mart store in the capital had “sold sesame oil and squid with dangerous amounts of cancer-causing chemicals.”


[i] This unevenness also means that upstart rivals (e.g., Toyota) will sometimes outstrip the formerly dominant (e.g., General Motors). Those that ascend, however, are either already or soon to be themselves monopolists. And so it goes. . . .

[ii] For an excellent expose of this see Ha-Joon Chang, Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism (New York: Bloomsbury Press, 2007).




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