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If Globalization Meant China Could Turn off Your Fridge, Would You Still Like It?

The pill many people take in the morning may have come a long way to the breakfast table, from the other side of the world, in fact. "America needs generic drugs. They make up 90 percent of the American drug supply. Without them, every large-scale government health program — the Affordable Care Act, Medicare Part D, the Veterans Health Administration, charitable programs for the developing world — would be unaffordable." In the fall of 2012, an FDA employee tasked with "inspecting the Indian manufacturing plants that make many of America’s low-cost generic drugs" discovered that its reputation as "the world leader in aseptic manufacturing" was a fraud.

On his second day at the Wockhardt plant, Mr. Baker and a colleague caught an employee trying to smuggle out a garbage bag of documents. The documents led Mr. Baker to discover that the plant had knowingly released into Indian and other foreign markets vials of insulin containing metallic fragments. These had apparently come from a defective sterilizing machine. He learned that the company had been using the same defective equipment to make a sterile injectable cardiac drug for the American market. The willful deception there and at other plants so shocked him that he overhauled his inspection methods, with significant results. ...

Mr. Baker kept digging. Over the next five years, first in India and then in China, he uncovered fraud or deceptive practices in almost four-fifths of the drug plants he inspected. Some of the plants used hidden laboratories, secretly repeated tests and altered results to produce fake data that fundamentally misrepresented drug quality, then submitted that data to regulators.

But the problem isn't confined to India. "A metals manufacturer faked test results and provided faulty materials to NASA, causing more than $700 million in losses and two failed satellite launch missions, according to an investigation by the U.S. space agency. The fraud involved an Oregon company called Sapa Profiles Inc., which falsified thousands of certifications for aluminum parts over 19 years for hundreds of customers, including NASA."  The fraud involved multiple individuals and went on for nearly two decades.

For almost two decades, employees would doctor failing numbers or violate other testing standards, such as increasing the speed of testing machines or using sample sizes that didn't meet specifications. They'd then provide clients, including government contractors, with falsified certifications. SPI itself was motivated by profits and the need to conceal the inconsistent quality of its aluminum products, while its employees were motivated by production-based bonuses.

Welcome to supply chain risk, the chance that somewhere along the long process that puts a pill on your breakfast table or a satellite in space, a faulty component sneaks into the product. Supply chains have become ever more complex in recent years. Customized products, globalized operations, and multiple suppliers have increased the variety of products at the cost of complexity. "[Supply chain] complexity does not mean complicated, but rather it describes a condition of inter-connectedness and inter-dependencies across a network where a change in one element can have an effect on other elements."

Each element in a supply chain is a product within its own ever-changing supply chain, making the whole akin to a living thing, constantly changing and endlessly reacting to itself: a complex adaptive system. Like living things or the weather, they cannot be easily modeled. Even NASA can be fooled. The cost of supply chain risk is often overlooked in the public debate over globalization and Trump's trade war with China, which is often viewed as irrational. But it is a major consideration in planning for 5G cellular networks in the West.

The Department of Homeland Security's top priority is stopping China from tampering with the US supply chain, including 5G networks, so Chinese technology vendors should brace for more pushback from the US government, a DHS official said today. ...

DHS took the same approach in 2017 when it issued a directive calling for federal agencies to remove software from antivirus provider Kaspersky Lab because the Moscow-based Kaspersky had access to US federal government data and was beholden to the Russian government.

"I don't tend to trust the Russian legal system," Krebs said. "So that gave me pause. That meant these (Russian) military intelligence services theoretically had access to (US) federal networks."

Krebs suggested the same logic will apply to Chinese vendors such as Huawei. The company has been trying to sell its 5G networking technology to mobile carriers worldwide only to face resistance from the US. Federal officials are worried Huawei's technology could one day be exploited by the Chinese government to secretly spy on Americans and on the communications of US allies.

It is the hidden risk of globalization, the ever-present devil in the details. Almost everything is dependent on something else to a surprising degree. The EIA writes that "about 7% of the uranium delivered to U.S. reactors in 2017 was produced in the United States and 93% came from other countries."

Canada–35%

Australia–20%

Russia–18%

Kazakhstan–12%

Uzbekistan–5%

Hungary, Malawi, Namibia, Niger, South Africa, Ukraine, and unknown–10%

Much of the public debate surrounding the Uranium One deal has centered around whether the Clintons committed any wrongdoing in the role they played in a sale to Rosatom (and no evidence of such wrongdoing has been found) but less attention has been paid to whether it is good public policy for the U.S. to import such a large percentage of its uranium or sell control of such assets to Putin, yet that is perhaps the more important issue.

As outsourcing expands to the lowest-cost countries of the world, the chain extends into what are the most unstable regions on the planet:

Eastern Europe and Southeast Asia are two areas where global sourcing is expected to expand the most. Political risks have increased dramatically since 2014 in the BRICS countries (Brazil, Russia, India, China and South Africa). In a recent study ... 63% of respondents acknowledged that their suppliers are located in areas of the world experiencing political turmoil.

That's where our future dependencies are. While we can surmise this increases the amount of global risk, it is hard to say exactly how much. But it could be substantial. The Telegraph recently reported that:

The Chinese state could cut off cars and household appliances from Britain's 5G network if the country's telecoms giant is allowed to help build the system, according to a former government security adviser.

Peter Varnish, who was a senior Ministry of Defence official, suggested a decision by Theresa May to allow Huawei to help build even limited parts of the network such as antennas and other “non-core” infrastructure, could allow Beijing to "shut down" signals to vehicles and everyday objects.

In a report due to be published this week, Dr Varnish warns that a manufacturer could "interfere" with antenna designs and even block or divert signals away from individual devices.

Our world is enmeshed in a global chain with a mind of its own. The dependency boat has sailed, but where it is bound, nobody knows.

No man is an island,

Entire of itself,

Every man is a piece of the system,

A part of the chain.

If a spy chip be planted by 5G,

Europe is the less.

As well as if a camera were.

As if a microphone in the manor of thy friend's

Or of thine own were:

Any man's fraud diminishes me,

Because I drink the pills made by him,

And therefore never send to know for whom the bell tolls;

It tolls for thee.

Follow Wretchard on Twitter

Tipjar at wretchard.com


Support the Belmont Club by purchasing from Amazon through the links below.

Books:

Voices of the Pacific: Untold Stories from the Marine Heroes of World War II, by Adam Makos (of A Higher Call) and Marcus Brotherton. An oral history of the Pacific War in the words of the men who fought on the frontlines, this book follows 15 Marines from the Pearl Harbor attack, through battles with the Japanese, to their return home after V-J Day.

Bottle of Lies: The Inside Story of the Generic Drug Boom, by Katherine Eban. An investigation of the generic drug boom that reveals fraud and life-threatening dangers on a global scale. With almost 90% of our pharmaceutical market comprised of generics, the majority of which are manufactured overseas, it's time to ask if the savings are worth the risks.

Generic: The Unbranding of Modern Medicine, by Jeremy Greene. How do we know what parts of a pill really matter? Decisions about which differences are significant and which are trivial in the world of therapeutics are not resolved by simple chemical or biological assays alone. As Johns Hopkins physician-historian Greene reveals in this book, questions of therapeutic similarity and difference are also always questions of pharmacology and physiology, of economics and politics, of morality and belief. This is the first book to chronicle the history of generic drugs in America and shows the evolution of the generic drug industry from mid-twentieth-century "schlock houses" and "counterfeiters" into an agile and powerful group of multinational corporations in this century.

For a list of books most frequently purchased by readers, visit my homepage.


Did you know that you can purchase some of these books and pamphlets by Richard Fernandez and share them with your friends? They will receive a link in their email and it will automatically give them access to a Kindle reader on their smartphone, computer or even as a web-readable document.

The War of the Words, Understanding the crisis of the early 21st century in terms of information corruption in the financial, security and political spheres

Rebranding Christianity, or why the truth shall make you free

The Three Conjectures, reflections on terrorism and the nuclear age

Storming the Castle, why government should get small

No Way In at Amazon Kindle. Fiction. A flight into peril, flashbacks to underground action.

Storm Over the South China Sea, how China is restarting history in the Pacific.