No end to ingenuity of poison milk perpetrators
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[By Liu Rui/Global Times] |
The dairy industry is probably the sickest industry in China. Their products are sick. Their managers cheat. And their company stocks suck.
The industry provides fertile ground for con men throughout its supply chain. It is a perfect example of how the market fails and regulatory authorities become incompetent.
But you have to admire their creativity in coming up with new chemical tricks. After the melamine-contaminated "plastic milk" scandal only two years ago, the latest scam they came up with is called "leather milk."
"Leather milk" gets its name from an additive called leather-hydrolyzed protein, a substance that is extracted from leather scraps. This stuff can boost protein content in a watered-down product to fool the Agriculture Ministry's inspection tests. But it contains toxic chemicals such as potassium dichromate and sodium dichromate that are used to soften leather in the manufacturing process.
Those who ingest it are at risk of developing osteoporosis. Long-term exposure to the chemicals can lead to cancer and death among children. The infant formula scandal in Anhui Province several years ago is speculated to have been linked to leather-hydrolyzed protein. Nevertheless, the cold-blooded scam has returned once more.
In fact, back in the days of melamine milk two years ago, I know this would not be the last scandal in the diary industry. As an economist, I would like to shed some light on why such scandals are so difficult to root out.
The first thing to point out is that there will always be companies willing to cut corners out of greed or desperation.
Scammers' attempt to elude regulatory authorities is a cat-and-mouse game that over the long run generates what is called "fraud cycles." This insight was elaborated in a recent paper of mine, where we documented historically cyclical occurrences of several common types of frauds and developed a theory to explain it.
In essence, new types of cheating and fraud in the industry are met with new or modified inspections and measures, which leads to innovations in techniques of cheating and new types of frauds, which leads to more changes in anti-fraud measures, and so on. This is somewhat similar to the ups and downs in occurrences of corporate accounting scandals.
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