Amid the ongoing scare over banned chemical additives in food, people are asking how even major food factories and well-known biotechnology companies have been found to be using harmful clouding agents in their products. If large, well-known brands and products carrying government-certified good manufacturing practices (GMP) labels are so unreliable, what is left to trust?
Common sense tells us that it is not a good idea to buy things when you don’t know where they come from. Goods sold under well-known brand names and those carrying official certification may be a bit more expensive, but most people are willing to spend a little extra because they have faith in the quality of these goods.
Indeed, that faith and confidence are the essential foundations of capitalism. Two centuries ago, Adam Smith, who is often considered the father of modern economics, showed how the division of labor leads to higher efficiency and wealth creation. Division of labor leads to economies of scale at each link in the production chain, which in turn allows products to be sold more cheaply. Cheaper prices stimulate consumption, which expands the market and creates more jobs.
This idea that the division of labor allows a market economy to flourish has come to be a central concept and proposition of economics. The theory behind globalization and economic liberalization is that there is a positive relationship between division of labor, efficiency and rising benefits.
As Smith saw it, the market is like an invisible hand that can allocate resources in the most effective way. In particular, radical free-market economists often talk about this idea of an invisible hand when they argue that the less governments intervene in the economy, the better.
The real world, however, is not as simple as those who have absolute faith in the market would like to believe. When labor is divided layer upon layer, the face that different manufacturers present to one another and the face of manufacturers as seen by consumers become very blurred, so that economic players don’t know much about each other. It is because of this phenomenon that brands and their reputation and people’s trust in them are so important in a market economy.
In the ongoing case of banned clouding agents, the plasticizer maker which stood at the head of the supply chain and sold raw materials to the firm that made the questionable clouding product claims that it did not know and did not need to know what these chemicals were really going to be used for. As for food and supplement manufacturers, which are further down the supply chain, they say they did not know that these cheap clouding agents contained banned substances — and if they didn’t know, how could consumers know?
This kind of “ignorance” and lack of transparency are widespread in all kinds of purchasing and consumption. If downstream manufacturers and consumers had to find out for themselves how safe the raw materials were, the cost of trading would soar and the result of that would be twofold: One, downstream manufacturers might simply integrate upward by making their own raw materials; and two, consumers could just make these items at home and stop buying them on the market. Both of these would break down the division of labor and undermine the existing market economy.
From this angle it can clearly be seen that brands, commercial reputation and trust have emerged in response to the market economy. A market economy cannot flourish by relying on market mechanisms alone; an effective functioning system of regulation is also needed to ensure that an elaborate division of labor can operate smoothly. If effective regulation is absent, poor products will tend to drive out better quality ones; in this case, cheap industrial clouding agents have been used in place of healthy food-grade ones throughout Taiwan’s foodstuff market.
In theory, market competition ought to eliminate poor-quality manufacturers, but in reality, under the capitalist logic of seeking maximum profit amid fierce competition, cutting costs is often the chief concern for manufacturers. Even well-known or certified manufacturers have shirked their duty by failing to conduct basic quality control over their raw materials and products. Their excuse is they “trusted” their suppliers.
It is clear, then, that consumers’ interests cannot be safeguarded by relying on market mechanisms alone.
Industrial clouding agents in food have harmed the health of Taiwanese and the ongoing scare has damaged the country’s image abroad, but the logic described earlier applies in other countries, too. Taiwan is by no means the only place to have experienced incidents like this. They have happened in the past and could continue to happen in the future.
How can this crisis be turned into an opportunity? One impetus for establishing an effective market mechanism would be for consumers, the victims of the scandal, to get together and demand heavy compensation from all the manufacturers involved and from the state. As to the government, in future it should get to grips with the logic that drives the market economy. Only by so doing can it transform Taiwan’s economy into a system in which both consumers and manufacturers can emerge as winners.
C.J. Wu is a researcher at the Taiwan Thinktank.
TRANSLATED BY JULIAN CLEGG
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