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Copyright © 2008 Soy-n-Joy®
Greed without Cons:
America's Sub-Prime Financial Crisis and China's Tainted-Milk Crisis.
The two hottest headlines in September 2008 are undoubtedly America's sub-prime financial crisis and China's tainted-milk crisis. They may look like different animals, but they do share a few things in common. Each has to do with human greed and its checks and balances or lack thereof, and, depending on subsequent transformative changes in response to the signals, each has ramifications for the global perception and competitiveness of the respective national brand in the 21st Century.
Greed is defined in the dictionary as a rapacious desire for more than one needs or deserves, as of food, wealth, or power. Michael Douglas, playing "Gekko" in the movie "Wall Street," was famous for advocating that "greed is good." Although greed may sound like a dirty word, yet it must have played an important role in the evolution of the human race; otherwise the trait will not be so ubiquitous, whether it is greed toward the quantity of food consumed, the amount of wealth amassed, or the degree of power concentrated. In fact, human satiety toward food does not set in until roughly 20 minutes after you are full, so that you will moderately over-consume, without overwhelming your digestive system, to accumulate excess fat to sustain your survival in leaner days. Greed in another form, like trying to out-do competitors in the quest for control of more resources, has, in the proper environment, stimulated human performance to higher levels. Even greed translated to speculations in stock or commodity exchanges has served to smooth out market fluctuations and reduce financial risks for producers and manufacturers. However, while we can accept greed's positive role when proper checks and balances are in place, we must also understand and control the potential dangers of unbridled greed that can harm human civilization.
Imagine what can go wrong if human greed goes unchecked. People with hormonal imbalances can easily and habitually over-consume food and become obese, and suffer the consequences of type-2 diabetes, fatty liver, and heart disease. Without the proper mechanisms of checks and balances, individuals who are voracious for power can concentrate authority in their hands, become dictators, and deny others the rights to political participation, share of economic wealth, the freedom of choice, and opportunities to a better life. And greed has been playing major roles in human conflicts since time immemorial. At the family level, fights over inherited wealth had torn many a family apart. At the corporate level, insider-trading scandals and leadership infightings were commonplace. At the national level, there were even more intense power struggles, political assassinations, and sometimes civil wars, and at the international level, international wars or even world wars. The essence of civilized human progress has been toward the peaceful resolution of conflicts, which underlies the spirit of modern democracy and the rule of law. It is in the spirit of democracy and rule of law that parties will try to resolve their clashes of interests in a legal, non-violent manner and accept the results as binding and axiomatic. But it takes years, even generations, for a nation to internalize the core values, beliefs, and assumptions of democratic and legal principles and live the habits of transformation. Once culture-inspired habits are formed, they define what reasonable expectations and acceptable actions are.
Let us examine the interplay of forces on human greed in the current headline news. Without a doubt, the most ubiquitous exhibition of greed is toward the quest for accumulation of wealth. In the U.S. sub-prime financial crisis, the forces in play are mainly the forces of greed and oversight, which include the greed of mortgagors to benefit from a rising real estate market, the greed of financial and sovereign institutions to maximize returns on their investments, the greed of investment bank executives toward maximizing their personal financial gains, the greed of securities middlemen in luring buyers for the mortgage-backed securities, and the credit-rating agencies' oversight, the banking corporations' internal oversight, the government's regulatory oversight, and the media's oversight. There are obviously incongruence of values, beliefs and assumptions, asymmetries of knowledge, and conflicts of interests that shape the behaviors of individual parties. A rising tide lifts all boats. As long as the real estate bubble does not burst, the problems will remain hidden. The mortgagor can make bigger bets on rising asset value, the bank executives can get instant gratification from performance bonuses and rising stock prices, the investment institutions can feel happy about their super returns on investments, the credit-rating agencies can get paid generously for their generous ratings of their clients, the government agencies can feel good about an orderly market unfettered by regulations, the banking corporations can bask in their starry performance that benefits shareholders and employees, and the media analysts can enjoy the good feeling of mutual back-scratching with the industry. Unfortunately, when reality set in and the real estate bubble burst, the assumption of an ever-rising real estate market was broken, the faith in bank securities and agency ratings fell apart, and the habitual trust in government agencies shattered. Like a poorly-designed or poorly-implemented quality control program that let defective products slip through, here, too, all oversight hurdles crumbled. The government's lack of oversight on investment banking was a gaping hole, and the conflicts of interests in the oversights provided by the credit-rating agencies, by the banking corporations internally, and by the media analysts were exposed. The apparent ingenuity of bank executives in engineering derivatives such as mortgage-backed securities suddenly appeared like follies, especially when the banks' unrealistic leverage ratio like 30:1 was exposed. On the surface of it, nobody broke any law, because there was little law in force governing non-deposit-taking financial institutions like investment banks. There might have been unethical practices in attracting unqualified mortgagors and the packaging, rating, and selling of sub-prime mortgage-backed securities, but fundamentally it was the asymmetry of knowledge in favor of the bank executives, the credit-raters, and the securities middlemen that made them the big winners at the expense of everybody else. As a result, many mortgagors lost their real estate properties, many investment institutions had to write off at least part of their investments, and many investment banks had their survival on the line. It was cold exposure of the critical shortcomings of a short-term-oriented culture. But to the bank executives and securities middlemen who were driven by huge performance incentives and bonuses, their short-term-oriented behavior was hard-wired. Believing that the U.S. government could not afford to let Wall Street fail, just like it could not afford to see Fannie Mae and Freddie Mac go down, the bank executives and securities middlemen, driven by greed, acted with dare to maximize their own gains. It was greed without cons (consequences). The fact that the U.S. government jumped to their rescue so quickly justified their assumption. It is now up to the U.S. government to put good oversight in place to restore the health of the financial system and the confidence of stakeholders, including investors and taxpayers who will be footing the bill. When the country badly needs alternate-energy breakthroughs, technological innovations and infrastructural overhauls, will the leadership try to inspire a longer-term-oriented culture than the currently short-term-oriented, get-rich-quick, misdirected deployment of talents, ingenuity, and resources?
In China's tainted-milk crisis, the forces in play were again greed and oversight, but the problem was deep-rooted and needed long-term care. The supply chain was full of opportunities for greed: the milk farmer, the collector, the milk station, and the processing manufacturer. The oversight parties included the government regulators, the parties in the supply chain, medical professionals, the media, the dairy association, consumer unions, and the consumers themselves. The problem started with some people somewhere in the supply chain adulterating low-protein or otherwise water-diluted milk with the industrial chemical melamine to boost the nitrogen content of the milk so that it appears to meet the protein standard. And almost everyone on the oversight side, except for the parents of affected infants and medical professionals treating them, for some reason, appeared blind to the problem. For the benefit of readers not familiar with food chemistry, protein, made up of amino acids, is nitrogen-rich. The nitrogen content of a given protein source is rather constant, so that traditionally the protein content of milk is estimated from its nitrogen content. The traditional method of protein determination is based on the Kjeldahl method of nitrogen measurement, by which the protein content is estimated by multiplying the nitrogen content by a conversion factor (6.25 for milk). Unfortunately, some people have discovered that the industrial chemical melamine also has a high nitrogen content of 66% and misused that material, unfit for human consumption, for their own monetary gains. When added to any food material, melamine will effectively raise the nitrogen content of the food and make it look like higher in "protein" than it actually is. In addition to being an adulterating act, melamine addition to food can also harm the consumer's health, particularly kidney health. That was why many pets died when some pet foods in North America were found adulterated with melamine-laced gluten (to boost the "protein" content) sourced from China, and that was why Chinese infants consuming melamine-tainted milk could exhibit kidney stones and reddened urine from red blood cells leaked through the damaged kidneys, and some even died of kidney failure. The conscious choice was therefore between monetary and other gains for the adulterers and accomplices, and the sacrificed health of the innocent and defenseless infants. This issue involved core value decision, supply-chain cover-up, technical monitoring, legal enforcement, regulatory alertness, and monitoring by the media and by civil organizations like the dairy association and consumer unions. The technical side of the problem is relatively easy to fix. All it takes is to replace the Kjeldahl method of nitrogen determination by one of the spectrophotometric methods (such as infra-red) that measures milk protein, fat, and solids in one go, quickly and accurately. The same methodology can be adopted by the parties in the supply chain and legal enforcement so that the results can be compared and statistically analyzed for continuous quality monitoring. Adulterated products must be quickly removed from the market and destroyed so that they will not harm more innocent people. But looking at the conscious behaviors of adulterating and covering-up parties, the regulatory and enforcement agencies, the dairy association, the consumer organizations, and the media, the hard questions are:
1. Why did people consciously choose to harm defenseless infants for monetary gains?
2. Why did people consciously cover up the toxic adulterations and let harm proliferate?
3. Why did regulatory and enforcement agencies fail to alert the public in a timely manner?
4. Why did consumer organizations and the dairy association not investigate and expose the problem in a timely manner when they heard the news?
5. Why did the media not report the adulterations in a timely manner when they were in the know?
6. How can China pick up the pieces, learn from this crisis, and move positively forward?
These are all tough questions and deserve good answers, if China is going to repair its national brand and compete to win in global competition in the 21st Century. Obviously, when conscious decisions were made, they were made on the basis of prevailing core values, beliefs, and assumptions. These are all cultural elements. Why did people consciously choose to harm defenseless infants for monetary gains? It was probably because either they were ignorant about the potential harm, or because they were so financially stressed that it was a choice between their livelihood and other people's lives. The former is an informational and educational issue (although the excuse is less believable after North American pet fatalities linked to melamine-tainted pet foods made global headline news), but the latter can be a distress signal, such as poor conditions leading to poor feed quality for cows leading to poor protein content in milk, that in turn leads to rejected milk not bringing in revenue for the farmers. If it were the latter case, the milk farmers would need a lot of help. They would need urgent assistance and practical advice on animal nutrition and feed economics, and they would need a rationalized pricing mechanism in the supply chain to help make a viable living without having to resort to deceptive practices that hurt everyone.
Why did people consciously cover up the toxic adulterations and let harm spread? These included people in the supply chain and even some people in regulatory oversight. Obviously the adulterers would not talk. And obviously the people who benefited from the monetary or other gains would not talk, unless the gains were perceived to be inequitably distributed. Looking from the outside, it did not appear to be in the milk processor's best interest to condone the adulteration practice, because both the business' future and the workers' future were at stake. In particular, if the milk were diluted with water, it would take a lot more expensive energy to remove the added water in making milk powder. But there might be a lot of face, relationship, personal gains, and career considerations that were less visible and favored cover-up, especially if the venture involved a foreign partner. The leaders in the organization might consider it too risky to tell the truth. Exposing the truth might make them lose face, lose their positions and power, lose sales and market share, lose favor with superiors, and lose trust with foreign partners and buyers. Letting sleeping dogs lie might be their best conscious strategy. But that conscious strategy was also putting a lot of infants' health at risk, and that, unfortunately, was low priority and sacrificed in their decision equation. It was this conscious weighing of priorities that was most problematic and elevated things to the social moral level. And the bet on that conscious strategy might have worked for some time when the level of adulteration was low, until some people got extra greedy and increased the dose. For the same intertwined face, relationship, personal gains, and career considerations, even people in the regulatory enforcement role might find it better to cover up. For that reason, the regulators had failed to alert the public in a timely manner, at the expense of more innocent infants at risk. Apparently they were also insensitive to the signal of mainland Chinese consumers border-crossing into Hong Kong to scoop up foreign-made milk powders, and news of melamine-related pet-food poisoning in North America, which could be just the tip of the iceberg. Why did consumer organizations, the dairy association, and the media not investigate and report on the issue in a timely manner? Their hands might be tied to report freely, even if their conscience told them they should. The entire issue boiled down to one thing: it was greed without cons (conscience).
Both America's sub-prime financial crisis and China's tainted-milk crisis became crises because private greed inflicted socialized harms which spilt beyond the countries' borders. Both crises hurt the national brands in undermining credibility and trust. But there are qualitative differences in the harms inflicted and remedies necessary. In America's sub-prime financial crisis, the harms were basically monetary, and the regulators, after learning the lessons, would definitely impose consequences, transparency, and leverage control on non-deposit-taking financial institutions to restore market order, credibility, and trust. It is a daunting but not insurmountable task to reshape the environment to induce the desired evolution, within a relatively short period of time. But in China's tainted-milk crisis, the physical harms are far from short-lived, the implications are deep-rooted, and the remedies require long-term, comprehensive, and nationwide commitments. When things are linked to a wide-spread lack of conscience, it becomes a systematic social moral issue that must be addressed at the highest level. The conscious choice of decisions said clearly that it was an issue of core values, beliefs, and assumptions tied to the prevailing culture. And cultural change is very tough indeed. Given the strongest determination, it still takes active leadership, teaching, and inspiration by example at the level of parents, teachers, managers, institutional and government leaders and concerted efforts, perhaps beyond a generation, in order to instill an internalized culture of desired core values, beliefs, and assumptions. It also mandates checks and balances provided by an independent judicial system, press media, and civil organizations to make black boxes transparent and nip rumors in the bud. But there is no choice, if China is to compete and win in global competition in the 21st Century. The national brand stands for soft power and defines expectations. Like the Great Wall, the national brand takes a long time to build, yet if you are not careful, you can also destroy it in one day! The current crisis is a threat, but it can also be turned into an opportunity for national brand revival. For a project of such scale of importance, what are needed are good leadership, a good vision, a good strategy, and relentless commitment and efforts to make that vision a reality.
As the Chinese saying goes, water can float a boat, but it can also tip a boat. The same can be said of greed. Greed must be bounded by internal culture and external oversights. The culture-inspired inner voice will guide behavior, but it will also need help from external mechanisms to contain human weaknesses. The motivation of greed, when subject to proper internal and external checks and balances, can be channeled toward encouraging educational excellence, research and development, technological innovations, outstanding services, economic productivity, social and political stability, infrastructural investments, health-care improvements, healthy environment, entertainment creativity, sports excellence, artistic diversity, opportunity and wealth creation, which together form the foundation of national soft power and attraction for global talents and investments. Civilized competition based on soft power, in a civilized peaceful manner, will be in the best interest of the civilized progress of mankind, in the 21st Century and beyond.
First posted 9-22-2008.
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