Barry Lynn: How China Controls the U.S. Food SupplyApril 28, 2011
Would you rather have a perfectly efficient system that, if hit by a pebble, would shatter? Or, would you rather have an adaptable system that may not give you the exact output you want, but can handle anything? According to Barry Lynn of the New America Foundation, our economy and our entire domestic food supply are being set up to be shattered.
Because of our obsession with efficiency over flexibility, our “lowest-price-above-all” philosophy over fair prices for producers, and our acceptance of a monopolistic commercial distribution structure, lots of essential products are now coming over seasons from a single foreign source.
That includes one critical preservative that is in nearly every food in America’s grocery stores, which China currently has a monopoly on. China currently has a production stranglehold over a critical chemical compound that helps keep food fresh — ascorbic acid. We use this to preserve almost all the food that is on the store shelves. It’s essential to keep food on America’s tables, and we don’t have any control over its production or distribution.
Monopolistic supply chains, because of their single-source distribution system, can easily fail during a catastrophic event. ”When that monopoly vendor decides to buy all of some good or import us some good from some place offshore, if there is any break in trade, then you don’t get “that thing” — and that thing might be really important. It might be an ingredient that goes in your food supply — a really vital ingredient. It might be semi-conductor chips that go into all of the products you use. So if you allow a monopolist to concentrate all of your production of something really important far away like in northern Japan for instance, all of a sudden because an earthquake, or an uprising, or a little spat, a political spat that we might have with the Chinese, all of a sudden you don’t have that thing,” says Barry.
Barry is Senior Fellow at the New America Foundation and author of Cornered: The New Monopoly Capitalism and the Economics of Destruction.
INTRO: Would you rather have a perfectly efficient system that if it hit a pebble would shatter and kill you or an adaptable system that may not give you the exact output but can handle anything?
DYLAN: Welcome to Episode 53 of Radio Free Dylan, pleasure to be speaking with you. Our subject today: American companies flying the American flag that are actually Chinese companies screwing you. An interesting phenomenon. Barry Lynn, Director of Markets, Enterprise, and Resiliency Initiative, Senior fellow at the New America Foundation. He recently wrote the excellent book Cornered: The New Monopoly Capitalism and the Economics of Destruction and another book by Mr. Lynn, End of the Line: The Rise and Fall of the Global Corporation. Now Barry it is a pleasure to have an opportunity to speak with you. Walk me through how it is that a patriotic, American company, flying the American flag outside of the American headquarters could possibly be a Chinese company screwing me?
BARRY: Well it seems a little hard to believe but—the classic case, and this is the one that we all know would be the company Wal-Mart. And the fact is that Wal-Mart is if you look at what they sell, actually what we find on their shelves especially in the general merchandise part of the company, most of those items come from China. So, the thing about Wal-Mart is that it is a company that basically functions as an export arm of the Chinese state. We’ve seen this before we just don’t recognize it in the modern world. We saw it about 234 years ago, we called it the British East India Company.
DYLAN: Educate us, how did the British East India Company work?
BARRY: Well, British East India Company was a company that was -- it's job was to take products that were made, manufactured in England and transport them across the sea to America or to India, and sell them there and then import raw materials. And, when someone tried to compete with them, they're trying to sell you textiles, you are trying to make some locally made textiles, they would crush you and they would enforce a monopoly so that they could always sell the products that were made in one company and that stays in one country. That is actually what Wal-Mart has the power and they use it all the time to force the manufacturers, the suppliers in this country to shift as much of their production abroad as possible and the reason they could do that is because they control the marketplace just the way that the British East India Company controls the marketplace.
DYLAN: And how did we get into this situation?
BARRY: Oh gosh, I mean it was a combination of things. We kind of blame it on the sort of radical liberalization of trade, and that played a big part in it. But it also has to do with the fact that we stopped enforcing our anti-trust laws, or actually sort of more accurately our anti-trust or anti-monopoly laws were overthrown a generation ago. So, we stop thinking about well, engineering competition and making sure there was no concentration of power and we started to like celebrate this thing called efficiency. And, Wal-Mart is like supposedly the most efficient company in the whole world at delivering stuff to us. So, it is a radical inversion of what we were in this country 30 years ago and the main reason is because we stopped fighting, stopped breaking apart monopolies.
DYLAN: And you say we start stopped doing that a generation ago, could you pinpoint when that happened?
BARRY: It took place—I mean there is the most dramatic change took place when the Reagan administration first took power in 1981. And before that we had a general rule which is when we are dealing with monopoly which is we weren’t going to have it, we are going to have competition. And then the Reagan administration came in and said “Hey, you know what? Let’s go for efficiency instead.”
And they actually wrote the word "efficiency" into law. We now know this change the law is something called consumer welfare. So when the anti-trust department goes out and looks at some kind of acquisition, like AT&T has proposed acquisition of T-Mobile. They don’t say, “Oh, how do we preserve competition?” What they say is "is this efficient? Is this supposedly good for the consumer in terms of will this lead to a lower price? Perhaps, maybe." And that is the only thing that they look at. So we actually changed the law 30 years ago and it has a radical, has had a radical effect.
DYLAN: And if you were to look at this -- what is wrong with saying, listen, the most efficient thing is to have a single supplier managing everything because it gives American customers the lowest price.
BARRY: Well for one thing, you actually don’t know -- if you only have a single supplier you don’t even know what the real price might be. Because what you only have is a single supplier, the price is naturally arbitrary -- there is no marketplace to discover a price. Now the other problem, this is actually going back to your first question, there is a much bigger problem which is that when that monopoly vendor decides to buy all of some good or import us some good from some place offshore, if there is any break in trade, then you don’t get that thing and that thing might be really important. It might be an ingredient that goes in your food supply. A really vital ingredient. It might be semi-conductor chips that go into all of the products you use. So if you concentrate, if you allow a monopolist to concentrate all of your production of something really important far away like in northern Japan for instance, all of a sudden because an earthquake, or an uprising, or a little spat, a political spat that we might have with the Chinese, all of a sudden you don’t have that thing or you might not have many things.
DYLAN: And when you look at the monopolies that exist, what do you see as the most dangerous monopolies. You mention Wal-Mart -- that really wield the power over our own economic stability and economic viability?
BARRY: Yeah, Wal-Mart is just—it is a good examples of how power is concentrated and how stuff from abroad is kind of thrust upon us. But the much more dangerous problems attended the hidden way down in the supply chain, the supply system. Here is the case of Vitamin C which is also called "ascorbic acid." We use this to preserve almost all the food that is on the store shelves, our store shelves. And, vitamin C is something that was first identified by American scientists, it was first synthesized by an American scientist, it was first mass produced by an American company. 100% of our ascorbic acid or vitamin C now comes from China. And in terms of pricing just so you know, the day -- that is just about to the day that the Chinese finished capture and control over our supply of Vitamin C, ascorbic acid, they jacked up the price by 400%.
DYLAN: How did that happen? In other words, walk me through how it is a foreign country could come to control a 100% of a critical food preservative in this country and where was the political establishment when this was going on? Was the political establishment helping them do this, or were they simply ignorant to the fact that it was happening?
BARRY: Well they were both. I mean it is like -- most of them were ignorant that this was happening, but even when they became aware of it, many of them would just either continue to allow it to happen because that was easiest or actually help it to happen. I mean this is something, you know Larry Summers -- this view of the world that you have all of something made of one country and all of something made in another country something that Larry Summers has actually come out and defended. He thinks that is a good thing. Tom Friedman, he is not in power but he's preached this idea that we should have this kind of concentration because it's efficient, it makes people, countries work together. So, we’ve actually had many of our most powerful leaders including our Presidents in recent years. These are in recent years, recent as Clinton, promoting this kind of offshoring of 100% of vital products. It is really kind of an insane thing when you think about it, but that is what they’ve been doing.
DYLAN: And it is interesting because I feel like there’s been a battle that has clearly been won by the efficiency crowd between those who advocate hyper-efficiency as described with the liabilities you just offered up and then another crowd people like Nassim Taleb, author of Black Swan and others like this, who really advocate an adaptable structure as the most valuable thing -- not a hyper-efficient structure that is incredibly rigid and lacking in adaptability. Why is it that this hyper-efficient systems always seem to be so rigid and so vulnerable, and why is it that there is not more of a push towards these adaptable systems that clearly are both safer -- provide more choice -- and are more honest about the fact that we don’t know what the future does hold on this earth, whether it is from natural disaster to political disaster.
BARRY: That was a great question and the reason that there is — the reason that people, that this systems have become so rigid, they’ve become so brittle as opposed to becoming flexible and resilient is precisely because -- it's not because of globalization. Globalization actually gives us the ability to spread things out more carefully than they are if you have it all in one country. It is not because of outsourcing, that is just a way of organizing marketplaces. The problem is -- going back to this issue of monopolization -- allowing a single company to capture control of the supply of some vital component and then place all of that production in one place because it is a little bit cheaper for them.
But when you place all your production in one place, that means you’ve also placed all of your risk in one place, you’ve concentrated physically all of your risk. And there is another actor in this besides the monopolistic corporation which is also the mercantilist nation state. You have all these nation states -- is not just China, the Japanese do this also, the Taiwanese and the Koreans and the Germans also do this, they try and capture control over some keystone technology or other because that gives them a little bit of power in the world.
It gives them something to trade with these other monopolists out there. So, when you allow countries and private monopolists to collude together, to concentrate power over vital components, you end up with the system that is built to crash. And that is exactly what we have now. We have a system that is about to crash. We almost saw with Japan, this earthquake. The head of procurement for GM said that it was a miracle we did not see a catastrophic crash. A miracle. So we got lucky once again -- but we are not going to continue to get lucky. We are going to see some event, a political event, a natural disaster, a financial disaster that is going to knock this system over.
DYLAN: And the end game will be from that shambles, the need to create an adaptable, flexible system, the question I guess is do you see any hope for political pressure or social movement to demand the adaptation or the creation of an adaptable, flexible system prior to the necessary shattering of the brittle, rigid, hyper-efficient system that has been built by our political leaders and monopolists.
BARRY: The short answer is no. And I’ve been covering this since 1999 when we saw this first modern, industrial crash. Actually the first industrial crash ever and that was after an earthquake in Taiwan, September 21, 1999 and you saw the shutdown of computer factories all around the world because of the cut off of the certain kind of semi-conductor. We’ve seen crashes after September 11, after the West Coast Port lock out during the SARS epidemic that didn't really take off. We saw an incipient crash after the panic of 2008 and every time people say -- just like they’re saying about Japan now -- is that “Oh, we better fix this.” and nothing has happened, it’s only become worse. Every time it’s become worse, because the moment the crisis passes, the monopolists get back to work and there is no one, not in Europe, not in Washington, not in Japan, not in Beijing who stands against them.
DYLAN: Barry Lynn it is a pleasure to have the chance to speak with you as difficult as it is to be honest about the very ideas that you present to us -- but I think that more and more people in this country are coming to realize, their perils of this rigid, top down system that has no adaptability and no capacity to accommodate the inevitable changes that are part of the earth that we live on. A pleasure to get a chance to speak with you. Again, Barry Lynn, author of Cornered: The New Monopoly Capitalism and the Economics of Destruction. A fellow as well at the New America Foundation. We are back on Radio Free Dylan right after this.
DYLAN: Welcome back. Again, our problems are simple and the root of them is our bought political structures. We can talk about the risks of the monopolies. We can talk about the costs of our health care. We can talk about the inefficiency of our energy system. But all of these things have a singular root cause which is that the Democrats, the Republicans, I don’t care what you call them, are totally bought politicians who are working in effect for the monopolists and in the process are leading America and the earth on a path toward destruction. Unless we -- together -- work to obliterate, to shatter money’s role in our political construct, to allow for our transparent and honest debate about real issues that not only forces the acknowledgement of the liability of a rigid and inefficient, and rigid and inflexible system like the one that has been built for us by the oligarchs, we cannot possibly move forward.
I hope Barry Lynn is wrong. I fear Barry Lynn is right. And I look forward to speaking with you next time on Radio Free Dylan.