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Generational Dynamics Web Log for 17-Nov-2008
A generational view of China's growing melamine food disaster

Web Log - November, 2008

A generational view of China's growing melamine food disaster

On Thursday, the FDA issued a nationwide alert, banning Chinese dairy products and food and feed products manufactured in China that contain dairy ingredients.

This alert by the US Food and Drug Administration is an extremely broad ban because it covers goods from an entire country, rather than from a single rogue manufacturer.

Even though this situation has barely made the news in America, the size of this growing disaster in China is almost beyond comprehension. Over the last few years, Chinese manufacturers of milk products have been adding a chemical called melamine to their products. Melamine is an industrial chemical used to make plastics and fertilizer.

The advantage of adding melamine to food products is that it boosts nitrogen levels in the food, and the higher nitrogen levels give the appearance of higher protein levels, when standard tests are used.

The disadvantage of adding melamine to food products is that not only is it not real protein, but it's actually poison. Melamine can cause kidney stones and renal problems, and eventually death.

And that's what's happened -- to babies on baby formula. According to Beijing's figures, some 54,000 babies have fallen ill and been hospitalized with kidney stones and related problems. Beijing has also claimed that only four babies have died from melamine poisoning, but there is plenty of anecdotal evidence that far more babies have died.

The spreading disaster

There was an early warning of this disaster in 2007. Early in 2007, it was found that dogs and cats were dying in America because pet food imported from China had been contaminated with melamine. The result was one of the largest pet food recalls in American history.

At first, China denied that any such thing had happened, and even claimed that melamine could not harm pets. Finally, in May, 2007, China said that it had found two Chinese companies guilty of intentionally exporting contaminated pet food ingredients to the United States.

Well, the problem was "contained," and it had been resolved by finding the two guilty parties.

But it exploded into the news in China two months ago, on September 10, when China revealed that 14 babies had fallen ill from drinking the same brand of milk powder, marketed by the Sanlu Group. It soon turned out that the milk powder had been contaminated with melamine.

Once again, the problem was thought to be "contained," with only one guilty company. Still, it was shocking that the same contaminant that had been used with pet food was now found to be used with human food.

In the last two months, the tentacles of this scandal have spread throughout China and around the world. Here are some examples:

There seems to be no end to these revelations. Here's how one Chinese analysis describes it:

"The lessons to be learned are painful, but the problems are systemic. The dairy farmers added melamine in order to make more money. Many manufacturers turned a blind eye during quality control, only caring about cutting costs. Local officials covered up the scandal, keeping up appearances in order to protect their own careers. Very little attention was paid to business ethics, or to the harm they could be doing to consumers.

To avoid similar tragedies in the future, the Chinese authorities have vowed to overhaul the chaotic industry and provide the necessary help to affected farmers and some enterprises. However, the most important thing should be to emphasize the importance of business ethics, and to strictly punish those evil-doers. Only then will public trust in China’s dairy sector begin to be restored."

What's becoming increasingly clear is that the melamine problem is becoming widespread and ubiquitous.

To realize how incredible this is, just imagine an American food producer purposely contaminating food, resulting in the hospitalization of even a few dozen babies. Think of how shocked everyone would be, and what an enormous scandal there would be.

Now realize that in China it wasn't just one food producer, but many, many food producers, supported by a wide variety of officials in other organizations -- government agencies, testing agencies, other manufacturers, and so forth.

China's subprime crisis

Astute long-term readers of this web site will have guessed by now where this is going.

I've written frequently about the ubiquity of the deception and fraud that occurred in the subprime crisis: Homeowners who lied on their mortgage applications, and accepted mortgage loans they had no hope of repaying; collusion of homebuilders and lenders to inflate the market value of homes; lenders who praced "predatory lending" practices; financial advisers who misled investors to get commissions; investment banks that created fraudulent mortgage-backed securities; ratings agencies that gave these securities AAA ratings; "monoline" bond insurers that provided near-worthless insurance; hedge fund, mutual fund, money market fund managers who sold these worthless securities to investors; journalists, analysts, pundits and politicians, supposed experts in finance, who lied and said everything was ok; government regulators who banks to commit fraud by lying about the values of their assets.

The same ubiquity applies to China's melamine scandal. The depth and breadth of the criminal activities can only be explained generationally.

On this web site, I've written in extensive detail how it happened. In the 1990s, the risk-averse generation of Great Depression survivors all retired. The arrogant, incompetent Boomers took the senior management positions, and created the dot-com bubble, which burst in 2000. After that, the nihilistic, destructive Generation-Xers reached middle management positions, and created the CDOs and other complex financial instruments that have destroyed the world financial system.

China's melamine poisoning has reached into food products around the world, just as the CDOs have reached into financial portfolios around the world. The financial scandal is farther along than the melamine scandal, and in the end, both may end up being equally destructive.

There's also a parallel with academic support for the activities, according to an Asia Times analysis:

"It's not just a few bad eggs. The trail of greed and negligence that allowed melamine - a toxic industrial chemical - to slip from modified animal fodder into the human food chain has now led to some of China's top scientists - many of whom are widely regarded to have put personal profit over the public safety of billions.

Recent reports have found that China's top scientific research body - the Chinese Academy of Sciences (CAS) - "discovered" as early as 1999 that adding melamine to food could boost its protein levels. In turn, the reports allege that rogue biologists cashed in on their chemical invention by promoting the sale of products containing melamine - even charging for training in how to use them - for years. ...

The prestigious, government-funded CAS was among the first to be linked to the chemical.

Last month, Chinese bloggers exposed that as early as in 1999, a CAS institution placed advertisements for an additive to cattle feed called "DH Composite High-protein Fodder Supplement". The advertisement claimed that the technology could be used to manufacture "high protein fodder using organic nitrogen and special catalysts".

The technology was sold by the Appliance Technology Institute of CAS for 10,000 yuan (US$1,466) plus an extra 5,000 yuan ($700) for training, according to the advertisement. The online ad was soon posted on major websites and forums. Many believed that "DH Composite High-protein Fodder Supplement" was based on melamine.

The CAS, however, was quick to deny the charge. Jiang Xiezhu, spokesman of the CAS, told the media that an investigation launched by the academy showed that the supplement "had nothing to do with melamine". His explanation was that the advertised technology could not produce the high temperature needed for the production of melamine.

Few are convinced by the explanation, however, because the investigation was done unilaterally by the CAS. Without an independent observer, people began to doubt the objectivity of the results. And while denying that "DH Composite High-protein Fodder Supplement" is based on melamine, the spokesman also failed to publicize its formula or ingredients.

The CAS also failed to mention who invented the technology. It only said that the contact person named in the advertisement, Gao Yinxiang, was not a scientist, implying that Gao was not the inventor.

This is not true. In an interview with the Beijing Evening News, Gao acknowledged taking part in the development of the product. The Beijing Evening News later exposed Gao as a former director of the Appliance Technology Institute of CAS, and a biologist."

I won't quote any more - read the original article if you want more details. The point is that there were a cadre of academics and scientists like Gao Yinxiang who developed these poisonous products, and they're now using sleazy lies and excuses to keep from being identified.

Robert Engle and Joseph Stiglitz, Nobel Prize winners in Economics <font face=Arial size=-2>(Source: CNBC)</font>
Robert Engle and Joseph Stiglitz, Nobel Prize winners in Economics (Source: CNBC)

The American equivalents of Gao include Robert Engle, 2003 Nobel Prize Winner in Economics, and Joseph Stiglitz, 2001 Nobel Prize Winner in Economics. I wrote about these two when they appeared on CNBC in an article, "Brilliant Nobel Prize winners in Economics blame credit bubble on 'the news.'"

These two Nobel prize winners actually developed the theoretical support for the CDOs and other financial instruments, but according to Stiglitz, forgot to account for things like recessions and rising interest rates.

I've seen Stiglitz in particular on numerous shows, pointing the finger at everyone but himself. A couple of times I heard him blame the whole subprime crisis on Bush's war in Iraq, which is exactly the kind of stuff that the mainstream financial media loves to hear, even though it makes as much sense as blaming it on the weather.

The melamine crimes have poisoned tens or hundreds of thousands of people, including many babies, perpetrated by people who knew what they were doing, but wanted to make money.

By the beginning of 2007, it was clear that the computer models that supported the subprime securities were wrong, and that the models were falling apart. This did not stop the deception and fraud, as I've discussed many times. Instead, the deception and fraud actually INCREASED, because the greedy Gen-Xers and compliant Boomers wanted to continue to collect their fat commissions and bonuses.

The same kind of thing is also true of the melamine crimes. When the pet food scandal broke in 2007, it was clear that there was a problem, but the melamine contamination didn't stop. Instead, it apparently increased and spread to more and more human food, including milk for baby's formulas.

An article with another analysis describes the situation as follows:

"According to a recent report in the Nanfang Daily, the addition of melamine into animal feed started about five years ago in the aquatic farming industry and has since spread into other agricultural products including poultry, milk, biscuits and candies despite a ban imposed in June of 2007 after large numbers of dogs and cats in the United States died after it was added to pet foods imported from China. Some of China’s top dairies have been embroiled in the scandal.

“The scale of the problem proved that it was clearly not an isolated accident but a large-scale intentional activity to deceive consumers for simple, basic, short-term profits,” commented a spokesman of the World Health Organisation. He said that this was one of the largest food safety events it has had to deal with in recent years."

The people who perpetrated these crimes exhibited the same kinds of behaviors as America's Gen-Xers and Boomers.

China's generations and eras

In order to make a better comparison, it's necessary to identify China's generations. In generational theory, generations follow well-defined archetypes: Heroes (like our World War II GI generation, and the young Millennial generation), Artists (like our Silent generation), Prophets (like our Boomers), and Nomads (like our Generation-X).

(For information about American generations and eras, see "Basics of Generational Dynamics.")

In 2006, I developed a list of China's generations and eras, but I've never posted it on this web site. Now seems like a good time to do so. I believe that the time intervals for these eras are accurate, but the names for the eras and generations are my own, and might be improved upon by scholars.

1852-73: Taiping era (Crisis)

This is the crisis period that triggered the unification of China into a single country, rather than a group of independent provinces. The major war was the Taiping Rebellion, but there were other revolts in other parts of China. (This is an example of what's called "merging timelines," when different regions with separate timelines merge together into a single timeline.) The principal revolts were the following:

Humiliated Generation (Artists) - Growing up during this enormous and bloody civil war, they missed their chance for the fight. As adults, they and all of China were humiliated in 1895 in the Sino-Japanese war.

1874-94: Self-strengthening era (Recovery/High)

The Recovery era began with the “Self-Strengthening Movement," the study of Western skills, government, technology and industry. China had been humiliated in the Opium Wars of the 1840s, and it was argued that China could become stronger by learning Western ways and adapting them to Chinese culture. It was successful, and the next few decades saw China advance far towards catching up with the rest of the world in technology, finance and trade.

Revolutionary Generation (Prophets) - Remarkably, Taiping era crisis did not dislodge the government of the Qing dynasty of the Manchus, although the Manchus (from Manchuria), had governed China for centuries. This generation first brought down the Manchus, in 1912, and then led the Communist Revolution in the 1930s and 1940s.

1894-1918: Revolutionary Awakening (Awakening era)

The Awakening era began with the first of many attempts to overthrow the Qing dynasty by means of secret revolutionary societies. The first was formed by Sun Yat-sen (1866-1925), who failed and was forced to flee to Hawaii and the United States, but later returned after the success of the 1911 revolution to become President of China.

As soon as the 1894 revolution failed, China was defeated and humiliated by the 1895 Sino-Japanese War. China was forced to sign a treaty which ceded Korea, Taiwan and other territories to Japan, a small neighbor on whom China had formerly looked on condescendingly.

The 1911 Chinese Revolution replaced the Qing Dynasty with a Republic that lasted only two years, and was replaced in turn by a military dictatorship.

The Awakening era ended with the Bolshevik Revolution in Russia and the formation of the Communist International (Comintern) and its plan to conquer the world.

??? Generation (Nomads) -

1918-1934 Warlord Period (Unraveling era)

There were massive student demonstrations in Tiananmen Square and elsewhere on May 4, 1919, resulting in a student union of the Republic of China. This became known as the "May 4 movement." (Paragraph updated 2-June-2009)

The central government disintegrated, leaving power in the the hands of small groups of militarists and their armies in constant battles for power. This led to the formation of two power groups:

The two factions fought through an unraveling war until Mao and his army were surrounded and faced with defeat in 1934.

Communist Generation (Heroes)

All the separate revolts and rebellions of the Taiping era were now merged into a single civil war between the Mao and Chiang, resulting in the victory of the Communist Revolution.

1934-49 Communist Revolution (Crisis era)

Mao escaped the encirclement through the Long March, the longest retreat in history, lasting a year. This began the civil war.

The two sides were forced to unify because of Japan's invasion, especially after the "Rape of Nanjing" in December 1937.

The civil war resumed after WW II, forcing the nationalists onto Formosa (Taiwan).

Preparatory Generation (Artists)

(Like our Silent generation). Led by the current president, Hu Jintao, this generation has been preparing China for its greatest challenge, all-out war with the U.S., Japan and India.

1949-1965 The People's Republic (Recovery/High era)

Mao consolidated his power by executing millions of people in the 1950s. Mao said "Let a hundred flowers bloom," meaning that free expression should be encouraged, but intellectuals who expressed grievances were executed or sent off the work camps.

The worst was Mao's Great Leap Forward, 1958-60, during which some 20 to 30 million people died of starvation in a man-made famine. This was a disaster of almost unimaginable proportions and created many enemies for Mao.

Miserable Generation (Prophets)

(Like our Boomer generation) I call them the "Miserable Generation," a name that I picked up several years ago in an article by a Chinese author. They were starved by Mao's Great Leap Forward, and they got no education, thanks to Mao's Great Cultural Revolution. They turned into a political force after he 1989 Tiananmen Square massacre, and now their Falun Gong movement is being violently suppressed.

1965-89 Cultural Revolution (Awakening era)

To retaliate against his enemies, Mao launched the Great Cultural Revolution (1965-68) and formed the Red Guards, mostly young students, to implement the assault on dissidents. They brought the country to the verge of chaos, carrying out summary execution, forcing tens of thousands from their homes or into labor camps. Schools and universities were shut down for several years.

During this period, China developed a rapprochement with the United States, joined the United Nations, instituted many educational and government reforms, and launched the "Democracy Wall" movement. In 1980, China launched the "one-child" policy. By the end of the era, Mao was openly criticized.

Tiananmen Generation (Nomads)

(Like our Generation-X.) Growing up in the aftermath of the chaos of the cultural revolution, this generation formed the bulk of the millions of students that crowded into Tiananmen Square in 1989, in a generational echo of the May 4 Movement that began on May 4, 1919. (See above) (Paragraph updated 2-June-2009)

1989-present Falun Gong era (Unraveling era)

The era was launched by the Tiananmen Square massacre on June 4, 1989, triggering the huge movement, followers of the Falun Gong. Their leaders believe it to be the modern version of the God-Worshipper's Society, a spiritual movement which launched the Taiping Rebellion, and was a form of Christianity combined with Buddhism. By 1999 the movement was so widespread that Beijing clamped down on it. It's rumored that millions of adherents have been jailed. (Paragraph updated 2-June-2009)

Today, China's social structure is unraveling rapidly, as can be seen from the tens of thousands of regional rebellions each year, over 100 million migrant workers, high food prices, high rust belt unemployment, addiction to a bubble economy, unraveling of Mao's social structure and secessionist provinces.

Today, China has either already entered, or is about to enter, a Crisis era.

One-child Generation (Heroes) - This generation bore the brunt of the one-child policy which has created an enormous surplus of young males, meaning that a large segment of this generation will never get married. This generation almost has nothing to lose by going to war -- against Beijing, against Japan, or against the U.S. And they will be guided by the last Prophets - the Miserable generation -- and supported by the last Nomads -- the Tiananmen generation.

The melamine crimes

Since the 1930s, the US has been the world leader in finance. The US developed most of the laws and regulations for finance that are followed around the world. Thus, the subprime crisis is a rejection by younger generations of a major achievement of America's WW II survivors, and expresses contempt for their values.

For China, a principal achievement of the last 70 years has been the conquest of famine. With 2.4 billion people, the spectre of famine is always close in China, but since the 1960s, China has been successful in feeding its population. Thus, the melamine scandal is a rejection by younger generations of a major achievement of China's Communist Revolution survivors, and expresses contempt for their values.

A lot more research into the melamine scandal is needed in order to fully identify completely how it unfolded generationally. But this article provides a first pass at showing how the melamine scandal is very similar to America's subprime scandal, with the same kinds of generational overtones.

(Comments: For reader comments, questions and discussion, see the Geopolitical topics thread of the Generational Dynamics forum.) (17-Nov-2008) Permanent Link
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