In a time of crisis, more oversight and “putting the people first” needed

Wall Street banks are finally paying the price for years of speculation, and yet who is really suffering? The people's whose money was invested and those who lost their homes. My analysis of how the financial crisis fits in to the current crisis in China, which has all of us scared of eating anything with milk and infants in the hospital with kidney stones. Also here.

By Jennifer Haskell

While both China and the world welcomed the opening of the Olympics with great anticipation and ceremony, the Paralympics are closing with much of the world in crisis mode. With Lehman Brothers declaring bankruptcy, the US government bailing out AIG, and the stock market taking its largest fall since 9/11, the US financial crisis appears to only be worsening, with the long term and global effects still not fully known. With its stock market also reeling, China is concurrently facing issues of worker and consumer safety. An accident at a mine operating illegally in Shanxi caused a mudslide that killed more than two hundred and led to the resignation of the provincial governor, for lack of oversight (coincidentally, the former governor, Meng Xuenong, had been fired from his position as mayor of Beijing in 2003 for his failure to report the SARS crisis).

Of course, the most devastating and wide-reaching crisis affecting China comes from the dairy industry. In mid-September, the Sanlu Group announced that it was recalling 700 tons of its infant formula after it was discovered to be contaminated with melamine, which was causing kidney stones in infants. At the time of the recall, one child had already died, and Sanlu originally blamed the problem on the mislabeling of other products under the company's name. However, the crisis quickly expanded as more and more cases of sick infants came to light. It turns out the root of the problem lay at private milk collection centers, where melamine was added so the milk could appear to have more protein and thus pass inspection. Furthermore, the crisis quickly escalated from a problem for Sanlu to a systemic national problem in the dairy industry, as formula produced by 22 out of 109 dairy companies failed to pass inspection. Big names were on the list of 22, including Yili and Mengniu. The Ministry of Agriculture initiated special inspections of fresh milk as well as cow feed, as public distrust of all dairy products increases. At the time of this writing, 3 infants have died and more than 6000 have been affected.

Heads have started to roll, as people from milk collection stations responsible for the problem have been detained, as has a company chairwoman. The most tragic part of this incident is the cover-up that took place, which likely allowed hundreds more infants to be affected. According to a Caijing report, the vice governor of Hebei claimed that Shijiazhuang city officials knew of the problem on August 2 but failed to report it to higher officials as the law requires, and city officials have thus been fired for their negligence. There is much speculation that officials' reason for not reporting the problem lies with pressure to not cause trouble during the Olympics. Now the government is trying to resolve the issue by providing medical care for those affected. Still the brunt of the responsibility falls with Sanlu, as the company allegedly knew of the problem five months earlier, preventing the story from breaking by "trying behind-the-scenes remedies such as private compensation for victims, customer refunds, and a local media advertising campaign promoting the quality of its products."

Anger is palpable as parents desperately worry about their babies' health and the general populace doesn't know if it can trust any products made in China. The country faced a similar problem last summer, as exports ranging from toothpaste to dog food and toys were found to be contaminated. While this time it is predominantly a national rather than international issue, it proves that the quality control system remains horribly broken.

Seemingly very different, the dairy crisis is actually related to the US financial crisis and the mining accident in Shanxi in two ways: first, they all reflect a lack of oversight. The US government has failed to institute any effective oversight of many of Wall Street's activities, while in Shanxi "no one dared to blow the whistle on the mine owner because he was so rich that he could settle everything with money." Oversight obviously would have prevented the disastrous affects of contaminated baby formula. Secondly, such lack of supervision allowed elites to act in selfish ways that eventually caused great harm to the common people. While the mortgage companies, banks, and insurance companies are beginning to pay the price for their actions, it is the common people who have lost their homes and suffered due to the economic downturn who are the real losers. Similarly, the hundreds of mudslide deaths could have been avoided if the owner's money did not make him immune to regulation. Finally, the cover-up of the discovery of tainted baby formula caused unforgivable misery for the families of babies who have died or fallen ill. While the government claims to "put the people first," ineffective oversight, especially at the local level, makes officials and regulators seem more like those on Wall Street who put their own interests first. In the end, it is the common people who suffer.