Idols of the professional left

Stern Idiocy

A leading Obamaite union man would impose the Chinese model on his own country -- and he's hardly alone.

By Ross Kaminsky 

The professional left in America and their chattering-class useful idiots have followed a consistent pattern for a century: sympathizing with tyranny in their musings over how to implement policies fueled by jealousy and an undying fear of economic liberty.

There has hardly been a better example in recent years than Andy Stern's Wall Street Journal December 1st op-ed entitled "China's Superior Economic Model." In his article, Stern approvingly quotes Intel Corporation co-founder and former CEO Andy Grove who stated in a 2010 Business Week article that there is "emerging evidence that while free markets beat planned economies, there may be room for a modification that is even better."

Before getting to the details of why Mr. Stern, until recently the head of the Service Employees International Union -- which spent at least $27 million to help Barack Obama get elected in 2008 -- is wrong in almost every detail, can I take you back more than two decades to the "Japanese Miracle" (and American near-panic) of the 1980s?

As someone who was studying economics in college in the mid-1980s, I endured countless comments about how American corporations' narrow focus on "next quarter's earnings" (as if that were true) was congenitally inferior to the longer-term view supposedly taken by Japanese companies.

Over the next several years, the Japanese bought Rockefeller Center (from my alma mater, Columbia University), CBS Records (purchased, renamed, and still owned by Sony), and the famed Pebble Beach golf course.

Harvard professor Ezra Vogel published (actually in 1979) a book called Japan As Number One: Lessons for America, in which he argues, as a reviewer for the Economist magazine put it, "that the United States should give itself a political and cultural heart transplant. A more competitive America, he says, needs a much stronger government, an elite civil service composed of 'the ablest young people of their generation' and a White House staffed by these new mandarins." Not surprisingly, given the natural human impulse toward ego-boosting,Professor Vogel's Harvard web page (which makes no mention of his ever having studied economics) notes that the book "remains the all-time best-seller in Japan of non-fiction by a Western author." (Whether this points to Vogel's ego or the egos of Japanese readers I shall leave to your determination.)

In 1995, the Mitsubishi Group, which had purchased Rockefeller Center, forced the project into Chapter 11 bankruptcy, losing nearly two billion dollars for their efforts. And a few years later, as Golf Digest's Mark Seal put it, when Peter Ueberroth put together a group to buy Pebble Beach for less than the Japanese had paid for it, the deal "bankrupted a Japanese boom-time golden boy, and, most recently, sent an army of Japanese bankers back home with little to show for their seven years of superlative stewardship but their good names."

Since then, Japan has turned in not just one but two "lost decades" with its persistent near-zero interest rates frequently being described as "pushing on a string." According to a recent Heritage Foundation study, "In 2010, the Japanese economy looks to have been smaller than it was in 1992, an incredibly poor result. It is not just a matter of a decline in output; it is also a remarkable decline in total wealth. In 1991, excluding micro-states like Luxembourg, Japan was the fourth-richest country in the world as measured by GDP per capita. In 2010, it was no longer in the top 20, was below the OECD average, and would have likely fallen further but for Europe's own economic troubles."

So when you hear people -- especially non-economists with political agendas -- long for the statism that characterizes most of America's economic competitors, listen with great skepticism.

Now, back to the two Andys.

As you read Mr. Grove's article from which Stern gathers inspiration, it is worth noting Grove's political bent: A search of Andy Grove's political donations shows a distinct left-leaning bias. Other than small donations to the presidential campaigns of John McCain and Rudy Giuliani during the 2008 cycle , his only contribution to a Republican in the past decade was to Arlen "I lost my last election as a Democrat" Specter. (The McCain and Giuliani donations combined were less than Grove's gift to Barack Obama's presidential campaign.)

Grove argued that America is good at startups but bad at scaling up and thus bad at allowing a new technology company to jump from a few guys in a garage to something that employs hundreds or thousands of people. Yet he makes no attempt other than looking at labor costs to determine the cause of this problem and instead simply assumes that since China creates more technology manufacturing jobs than American does, it must be the fact that China's government is more involved than the U.S. government in a "strategic role setting the priorities and arraying the forces and organization (necessary for job creation)."

Could it instead be the massive regulatory burden imposed on manufacturing companies and the uncertainties created by our government, such as whether Barack Obama will get his wish and cause "electricity rates [to] necessarily skyrocket"? And if all that weren't bad enough, who would risk any business growth that might subject management to dealing with unions and the true tyrants at Obama's National Labor Relations Board? Really, if you were going to start a business that would be likely to hire a thousand or ten thousand workers, wouldn't you go out of your way to avoid people exactly like Andy Stern?

Grove, refusing to understand how the global market works rather than how he wants it to work, then turns to the left's cure-all: he calls for "an extra tax on the product of offshored labor" and adds, "If the result is a trade war, treat it like other wars -- fight to win."

But Andy Grove forgets that wars come at great cost, even to victors -- which it is far from certain we would be despite Mr. Grove's tough talk.

In a solid refutation of Grove's article that ran in the subsequent edition of Business Week, Vivek Wadwha responds to the former Intel CEO's trade militarism: "The problem is that American companies will be the first casualties in such a war, and American jobs will be lost. There is no way to win."

The foundation of all Human Rights

Property Rights

by Armen A. Alchian

One of the most fundamental requirements of a capitalist economic system—and one of the most misunderstood concepts—is a strong system of property rights. For decades social critics in the United States and throughout the Western world have complained that “property” rights too often take precedence over “human” rights, with the result that people are treated unequally and have unequal opportunities. Inequality exists in any society. But the purported conflict between property rights and human rights is a mirage. Property rights are human rights.

The definition, allocation, and protection of property rights comprise one of the most complex and difficult sets of issues that any society has to resolve, but one that must be resolved in some fashion. For the most part, social critics of “property” rights do not want to abolish those rights. Rather, they want to transfer them from private ownership to government ownership. Some transfers to public ownership (or control, which is similar) make an economy more effective. Others make it less effective. The worst outcome by far occurs when property rights really are abolished (see tragedy of the commons).

A property right is the exclusive authority to determine how a resource is used, whether that resource is owned by government or by individuals. Society approves the uses selected by the holder of the property right with governmental administered force and with social ostracism. If the resource is owned by the government, the agent who determines its use has to operate under a set of rules determined, in the United States, by Congress or by executive agencies it has charged with that role.

Private property rights have two other attributes in addition to determining the use of a resource. One is the exclusive right to the services of the resource. Thus, for example, the owner of an apartment with complete property rights to the apartment has the right to determine whether to rent it out and, if so, which tenant to rent to; to live in it himself; or to use it in any other peaceful way. That is the right to determine the use. If the owner rents out the apartment, he also has the right to all the rental income from the property. That is the right to the services of the resources (the rent).

Finally, a private property right includes the right to delegate, rent, or sell any portion of the rights by exchange or gift at whatever price the owner determines (provided someone is willing to pay that price). If I am not allowed to buy some rights from you and you therefore are not allowed to sell rights to me, private property rights are reduced. Thus, the three basic elements of private property are (1) exclusivity of rights to choose the use of a resource, (2) exclusivity of rights to the services of a resource, and (3) rights to exchange the resource at mutually agreeable terms.

The U.S. Supreme Court has vacillated about this third aspect of property rights. But no matter what words the justices use to rationalize such decisions, the fact is that such limitations as price controls and restrictions on the right to sell at mutually agreeable terms are reductions of private property rights. Many economists (myself included) believe that most such restrictions on property rights are detrimental to society. Here are some of the reasons why.

Under a private property system the market values of property reflect the preferences and demands of the rest of society. No matter who the owner is, the use of the resource is influenced by what the rest of the public thinks is the most valuable use. The reason is that an owner who chooses some other use must forsake that highest-valued use—and the price others would pay him for the resource or for the use of it. This creates an interesting paradox: although property is called “private,” private decisions are based on public, or social, evaluation.

The fundamental purpose of property rights, and their fundamental accomplishment, is that they eliminate destructive competition for control of economic resources. Well-defined and well-protected property rights replace competition by violence with competition by peaceful means.

The extent and degree of private property rights fundamentally affect the ways people compete for control of resources. With more complete private property rights, market exchange values become more influential. The personal status and personal attributes of people competing for a resource matter less because their influence can be offset by adjusting the price. In other words, more complete property rights make discriminationmore costly. Consider the case of a black woman who wants to rent an apartment from a white landlord. She is better able to do so when the landlord has the right to set the rent at whatever level he wants. Even if the landlord would prefer a white tenant, the black woman can offset her disadvantage by offering a higher rent. A landlord who takes the white tenant at a lower rent anyway pays for discriminating.

But if the government imposes rent controls that keep the rent below the free-market level, the price the landlord pays to discriminate falls, possibly to zero. The rent control does not magically reduce the demandfor apartments. Instead, it reduces every potential tenant’s ability to compete by offering more money. The landlord, now unable to receive the full money price, will discriminate in favor of tenants whose personal characteristics—such as age, sex, ethnicity, and religion—he favors. Now the black woman seeking an apartment cannot offset the disadvantage of her skin color by offering to pay a higher rent.

Competition for apartments is not eliminated by rent controls. What changes is the “coinage” of competition. The restriction on private property rights reduces competition based on monetary exchanges for goods and services and increases competition based on personal characteristics. More generally, weakening private property rights increases the role of personal characteristics in inducing sellers to discriminate among competing buyers and buyers to discriminate among sellers.

The two extremes in weakened private property rights are socialism and “commonly owned” resources. Under socialism, government agents—those whom the government assigns—exercise control over resources. The rights of these agents to make decisions about the property they control are highly restricted. People who think they can put the resources to more valuable uses cannot do so by purchasing the rights because the rights are not for sale at any price. Because socialist managers do not gain when the values of the resources they manage increase, and do not lose when the values fall, they have little incentive to heed changes in market-revealed values. The uses of resources are therefore more influenced by the personal characteristics and features of the officials who control them. Consider the socialist manager of a collective farm under the old Soviet communist system. By working every night for one week, he could have made, say, one million rubles of additional profit for the farm by arranging to transport the farm’s wheat to Moscow before it rotted. But because neither the manager nor those who worked on the farm were entitled to keep even a portion of this additional profit, the manager was more likely than the manager of a capitalist farm to go home early and let the crops rot.

Similarly, common ownership of resources—whether in the former Soviet Union or in the United States—gives no one a strong incentive to preserve the resource. A fishery that no one owns, for example, will be overfished. The reason is that a fisherman who throws back small fish to wait until they grow is unlikely to get any benefit from his waiting. Instead, some other fisherman will catch the fish. The same holds true for other common resources whether they be herds of buffalo, oil in the ground, or clean air. All will be overused.

Indeed, a main reason for the spectacular failure of the 1980s and early 1990s economic reforms in the former Soviet Union is that resources were shifted from ownership by government to de facto common ownership. How? By making the Soviet government’s revenues de facto into a common resource. Harvard economist Jeffrey Sachs, who advised the Soviet government, once pointed out that when Soviet managers of socialist enterprises were allowed to open their own businesses but still were left as managers of the government’s businesses, they siphoned out the profits of the government’s business into their private corporations. Thousands of managers doing this caused a large budget deficit for the Soviet government. In this case the resource that no manager had an incentive to conserve was the Soviet government’s revenues. Similarly, improperly set premiums for U.S. deposit insurance gave banks and S&Ls (see savings and loan crisis) an incentive to make excessively risky loans and to treat the deposit insurance fund as a “common” resource.

Private property rights to a resource need not be held by a single person. They can be shared, with each person sharing in a specified fraction of the market value while decisions about uses are made in whatever process the sharing group deems desirable. A major example of such shared property rights is the corporation. In a limited liabilitycorporation, shares are specified and the rights to decide how to use the corporation’s resources are delegated to its management. Each shareholder has the unrestrained right to sell his or her share. Limited liability insulates each shareholder’s wealth from the liabilities of other shareholders, and thereby facilitates anonymous sale and purchase of shares.

In other types of enterprises, especially where each member’s wealth will become uniquely dependent on each other member’s behavior, property rights in the group endeavor are usually salable only if existing members approve of the buyer. This is typical for what are often called joint ventures, “mutuals,” and partnerships.

While more complete property rights are preferable to less complete rights, any system of property rights entails considerable complexity and many issues that are difficult to resolve. If I operate a factory that emits smoke, foul smells, or airborne acids over your land, am I using your land without your permission? This is difficult to answer.

The cost of establishing private property rights—so that I could pay you a mutually agreeable price to pollute your air—may be too high. Air, underground water, and electromagnetic radiation, for example, are expensive to monitor and control. Therefore, a person does not effectively have enforceable private property rights to the quality and condition of some parcel of air. The inability to cost-effectively monitor and police uses of your resources means “your” property rights over “your” land are not as extensive and strong as they are over some other resources such as furniture, shoes, or automobiles. When private property rights are unavailable or too costly to establish and enforce, substitute means of control are sought. Government authority, expressed by government agents, is one very common such means. Hence the creation of environmental laws.

Depending on circumstances, certain actions may be considered invasions of privacy, trespass, or torts. If I seek refuge and safety for my boat at your dock during a sudden severe storm on a lake, have I invaded “your” property rights, or do your rights not include the right to prevent that use? The complexities and varieties of circumstances render impossible a bright-line definition of a person’s set of property rights with respect to resources.

Similarly, the set of resources over which property rights may be held is not well defined and demarcated. Ideas, melodies, and procedures, for example, are almost costless to replicate explicitly (near-zero cost of production) and implicitly (no forsaken other uses of the inputs). As a result, they typically are not protected as private property except for a fixed term of years under a patent or copyright.

Private property rights are not absolute. The rule against the “dead hand,” or perpetuities, is an example. I cannot specify how resources that I own will be used in the indefinitely distant future. Under our legal system, I can specify the use only for a limited number of years after my death or the deaths of currently living people. I cannot insulate a resource’s use from the influence of market values of all future generations. Society recognizes market prices as measures of the relative desirability of resource uses. Only to the extent that rights are salable are those values most fully revealed.

Accompanying and conflicting with the desire to secure private property rights for oneself is the desire to acquire more wealth by “taking” from others. This is done by military conquest and by forcible reallocation of rights to resources (also known as stealing). But such coercion is antithetical to—rather than characteristic of—a system of private property rights. Forcible reallocation means that the existing rights have not been adequately protected.

Private property rights do not conflict with human rights. They are human rights. Private property rights are the rights of humans to use specified goods and to exchange them. Any restraint on private property rights shifts the balance of power from impersonal attributes toward personal attributes and toward behavior that political authorities approve. That is a fundamental reason for preference of a system of strong private property rights: private property rights protect individual liberty.

From Bankruptcy to Tyranny

The Golden Age of Government Is Just Beginning

By Mark R. Crovelli

When I talk to self-identified “conservatives” today, I am surprised how many of them have, finally, awakened to the fact that governments all over the Western world are bankrupt. It has taken a long time for them to do the math, but it is finally dawning on them that when a government’s debts and liabilities massively outweigh its current and future assets and “income” (a more-accurate word would be “loot”), that country is headed for disaster. While they cannot be praised for their quickness in recognizing something so blatantly obvious, at least these “conservatives” have bested their “liberal” friends in solving the problem, since most of the latter are, sadly, unable to add and subtract numbers with 12 zeros.

While I am pleasantly surprised that many so-called “conservatives” can now spot an obvious bankruptcy when they see it, I am less than impressed with their understanding of what bankruptcy entails for a government. Almost invariably, they naively assume that government bankruptcy is analogous to the bankruptcy of a private company. Just as a bankrupted company like Enron shrivels up and disappears from the economic stage, they assume, bankrupted governments will shrivel up and, if not disappear from the world stage, at least take on severely limited roles.

The bankruptcy of governments is, thus, assumed to be a positive development for individual liberty, according to many so-called “conservatives,” because governments will be forced to live within their means and abandon most of their unsustainable and meddling schemes. A golden age of liberty and respect for the Constitution is assumed to be right around the corner.

This idea that government bankruptcy is a positive development for individual liberty is just plain wrong, however. More than that, it is just plain delusional. Governments are not, in any way, analogous to private companies, and it cannot be sanely assumed that they will shrivel up or disappear like private companies, just because they are bankrupt.

Governments obtain their wealth by “taxing” people, and bankruptcy in no way impedes their ability to seize wealth (unless they, like the Romans, stupidly neglect to pay police and military salaries). On the contrary, their desperate need for money during bankruptcy should be expected to induce them to try to suck even more money out of their subjects than they did before.

And why shouldn’t they? A politician’s job always entails spending other people’s money. Some of this money is seized in the form of taxes from the hapless taxpayers of the country, some is printed out of thin air and some is borrowed from people or politicians in other countries that are too stupid or economically ignorant to know better. When a government goes bankrupt, as Greece and Italy are currently in the process of doing, and the flow of funds from the suckers abroad dries up, the government loses only one of these three sources of other people’s money. It can still tax the daylights out of its own subjects, and it can still print money. What’s to stop it?

The example of interwar Germany is instructive in this regard. As a result of the disgusting Treaty of Versailles following World War I, the German government was made insolvent in exactly the same way that today’s Western governments are insolvent. The gigantic war “debt” foisted on the German government’s books was, literally, impossible to pay off, just as most Western governments today have debts and future liabilities on their books that cannot possibly be honored.

What was the result of this de facto bankruptcy of the German government in the 1920s? Did it automatically usher in a golden age of individual liberty and limited government in Germany in the 1930s? Did the German government stop taxing its subjects or printing money? Did the German government learn its lesson about wasting its people’s money on pointless and extravagantly wasteful wars? (N.B.: If you don’t know the answer to these questions, you are about as bright a “conservative” as Newt Gingrich or Mitt Romney.)

The problem with assuming that governments will shrivel up just because they are bankrupt is that governments, unlike private companies, can still strong-arm people into giving them money, even when they are bankrupt. When Enron went bankrupt, it was not in a position to send armed thugs to the homes of its investors to hustle up more money. Nor was it able to simply print a pile of money in order to pay off its mounting debts. In other words, it went down, as it should have gone down, because it couldn’t force people to keep funding its idiotic and wasteful operation. Government, by contrast, does have a literal army of enthusiastic and sadistic men on the payroll, who will follow orders to kick in doors, bust heads and gas people in order to hustle up money to keep the wasteful operation rolling along. (N.B.: If you think people pay their taxes out of the kindness of their hearts, instead of out of fear that cops will haul them away to the American gulag, you, too, are about as bright a “conservative” as Newt Gingrich and Mitt Romney.)

Moreover, governments are very careful to continuously waste a very large chunk of money on the military and the police. After all, governments claim that their primary purpose is to “protect” their subjects from foreign threats, so they are mindful to spill a nice chunk of their budget on these strongmen when times are good. (Whether government does, in fact, “protect” its subjects from foreign threats can be gauged by the fact that governments often bankrupt themselves trying to fund their militaries. With a “protector” as financially irresponsible as Enron, how much protection are we really getting?)

So when a government goes bankrupt, there exists a giant horde of armed men in the military and police who expect to get paid, and who will not take kindly to budget cuts. Ever mindful that a horde of armed men is a constant threat to the civilian government when they are unpaid and unhappy, the political class should be expected to do whatever it takes to keep paying the salaries of the horde. And where, do you suppose, will this money be hustled up when the government has bankrupted itself and can no longer borrow money from foreign suckers? (N.B.: If you don’t know the answer to this question, you are definitely as bright a “conservative” as Newt Gingrich and Mitt Romney.)

Hustling enough money up to pay the salaries of the military and police (and other privileged and militant bureaucrats, as in Greece) is not always easy, however, because subjects don’t often appreciate having more and more of their money confiscated by wildly irresponsible politicians.

Fortuitously for governments, shaking people down ain’t what it used to be. They no longer need to send their armed thugs to kick down doors, crack skulls and gas their subjects in order to confiscate money. They can simply print money out of thin air and — voila! — now they can make payroll! If their subjects are stupid enough to trust paper money, then why not skin them a little in order to “solve” the government’s problems? Do you really think that an organization with a budget problem that has the ability to print money will not choose to do so for its own benefit? Do you really think Enron would have refrained from printing money to prop itself up if it had had the ability to do so?

The reason so many so-called “conservatives” cannot grasp these obvious and foreseeable consequences of a government bankruptcy is that they do not have a true understanding of what government is. Government is not a private company or a charitable organization. It does not abide by the same laws as the rest of society. It can continue to exist — nay, thrive — even when its debts vastly outweigh its assets and income. It can print its own money and continue to tax its subjects even when it has bankrupted itself. Hence, government cannot be likened to an Enron or a Lehman Bros. as a relatively benign entity when it goes bankrupt. It is an economic vampire that will not shrivel or die easily. It can continue to suck its citizen victims in order to nourish itself even when the absurdity of its balance sheet is evident to everyone.

Hence, if you are a self-identified “conservative” and you are sick and tired or scared to death of the government we have today, you should not look to our government’s impending bankruptcy as some sort of cathartic and purifying event that will usher in a new age of liberty. It will not. More than likely, if history is any guide, the slew of government defaults that are in the pipe in the Western world will usher in a golden age of government.

Government bankruptcy is not a substitute for the hard work of liberty-minded people to advance the cause of freedom. In and of themselves, a thousand government defaults would not advance the cause of liberty one iota. What is needed in the time leading up to the government’s default is a cadre of devoted, almost fanatical, freedom-fighters who are willing and able to teach the masses about the nature of government and the nature of money. Only with the persistent help of this devoted cadre will there be any chance of fighting the growth of government and the devaluation of money that government default will inevitably tow in its wake.

Scary for just about everybody

This is what a real market crash looks like

By Scott Cendrowski

FORTUNE -- Investing sage Jeremy Grantham sounded a little guilty in his latest report to clients, titling it "The Shortest Quarterly Letter Ever." He should hold the apologies. Grantham, one of the pithiest market writers around, includes a chilling graphic in the four-page note that is one of the most mesmerizing market visuals of 2011.

Grantham is a value investor who oversees nearly $100 billion at his Boston-based firm, GMO. Using historical averages of prosaic data like profit margins and price-to-earning ratios, he's made a series of prescient market calls. This spring, as U.S. stocks quickly rose, he told investors to flee the market because of escalating global fears. (He was right.) And back in 2009, he famously published a bullish note titled "Reinvesting When Terrified" at the market's nadir.

Today he's sounding the alarm again on stocks, and he seems as wary as ever. "Since the spring," Grantham explains, "the equity markets have been absolutely bombarded by bad news." Between the eurozone crisis and fears of a slowdown in China, there's as much bad news as ever, he says. Yet the S&P 500 keeps recovering whenever crises ease for a just few days, thanks to sky-high profit margins and historically low inflation. Those two factors are driving U.S. stocks past Grantham's estimate of the market's fair value of 975-1,000 for the S&P 500 (SPX).

This is where his analysis starts to get scary. Profit margins will fall back to historical levels eventually, he says, and stocks will come down with them. Then there's an inflection point. If any unresolved crises remain on the table when this happens -- the eurozone crisis; a slowdown in China; budget impasses in the U.S. -- then U.S. stocks could start to look a lot like those in Japan.

For two decades the Federal Reserve has bailed out stock markets, he argues. Former Fed Chairman Alan Greenspan cut interests rates to near zero percent at the slightest indication of economic decline. And today, Chairman Ben Bernanke has followed the same course, stimulating the market so drastically in 2009 that after stocks crashed they took only three months to recover to a long-term upward trend.

"This pattern is unique," Grantham writes. And now that the Fed's balance sheet is stuffed full with debt, he adds, it may not come to aid during another stock downturn.

"GMO has looked at the 10 biggest bubbles of the pre-2000 era and has calculated that it typically takes 14 years to recover to the old trend," Grantham says. The important point of all this, he writes, is that almost none of today's professional investors have experienced anything like this because the Fed has come to the rescue.

"When one of these old-fashioned but typical declines occurs," he writes, "professional investors, conditioned by our more recent ephemeral bear markets, will have a permanent built-in expectation of an imminent recovery that will not come."

That sets up an environment that Grantham dubs, "No Market for Young Men." Grantham shows how long it may take U.S. stocks to recover if they crashed today:

It's important to note that Grantham isn't calling for stocks to languish like this past 2020. But he shows how they could, and that's scary for just about anybody.

Anti-humans

Time for an injection of common sense

Groups opposed to modern agriculture are using scare stories to try to have antibiotics banned on farms.

by Jason Smith 

‘A world without effective antibiotics is a terrifying but real prospect. Now, the situation is so acute that the director-general of the World Health Organisation, Dr Margaret Chan, has warned of “a post-antibiotic era, in which many common infections will no longer have a cure and once again, kill unabated”... [O]ver-use of antibiotics in factory farming, especially at low doses over several days, is contributing to the huge threat of a world without effective cures for bacterial infections.’

So said Compassion in World Farming, launching a report last month with two other campaign groups, the Soil Association and Sustain. The report, Case Study of a Health Crisis is part of an ‘Alliance to Save Our Antibiotics’. But does factory farming really threaten human health?

The emergence of antibiotic resistance as a serious problem in human medicine has prompted concerns about the public health implications of antibiotic use in agriculture. Opponents of intensive agriculture argue that bacteria become resistant to antibiotics in the guts of animals that are exposed to routine antibiotic use. Then, humans ingest these bacteria through the consumption of animal products and by drinking water contaminated by ‘run-off’ from factory farms. But is there a basis for these fears?

Antibiotics have been used for over 40 years on farms for three main purposes: to treat identified illnesses; to prevent illness; and to increase growth rates. The use of antibiotics as growth promoters added to animal feed was banned in the European Union, against the advice of the EU’s own Scientific Committee for Animal Nutrition, in January 2006. In a press release from the European Parliament in October, it was argued that the EU should also phase out the pre-emptive ‘prophylactic’ use of antibiotics, too. MEPs agreed that active ingredients used in veterinary and human medicines should be kept as separate as possible to reduce risks of resistance transferring between animals and humans.

Antibiotics are sometimes used to prevent diseases that might occur in a herd or group of animals. In situations where the proportion of animals suffering a disease during a defined period reaches a threshold, all animals in the herd are treated, as the probability of most or all of the animals getting infected is high. However, in animals as in humans, a significant proportion of those treated for infectious disease would recover without antibiotics, so it could be deemed that such use is unnecessary. But does this application of antibiotics create resistance?

According to scientists from the US Center for Disease Control and Prevention and the National Institutes of Health, there is ‘no scientific study linking antibiotic use in food-animal production with antibiotic resistance’. The most thorough study on this topic, from the Journal of Risk Analysis in 2008, concluded that the risk of a human experiencing an infection from antibiotic-resistant bacteria because cattle were fed antibiotics is one in 608million, which means it is over 2,000 times less likely than being struck by lightning.

There is, however, ample evidence to suggest that bacteria - including resistant strains - enter a farm from many different sources and that transmission of resistant bacteria may occur even when livestock are not being given antibiotics. According to the US National Academy of Sciences, humans may acquire resistant infections, via livestock, even if antibiotics are not given to those animals. Epidemiological studies have identified other risk factors for infections in humans, including contact with their own pet dogs and cats. These animals may be treated with antibiotics but are rarely tested as potential sources of human infection.

There is also evidence that the removal of antibiotics from veterinary medicine would cause welfare problems. Recent analysis of antibiotic use on farms in Denmark, where a voluntary ban on the use of antibiotic growth promotants (AGPs) was instituted in 1998, reports that antibiotics are now being used sparingly. Farmers and veterinarians must now wait until animals are exhibiting clear signs of illness before treatment is applied. However, this has led to higher doses of antibiotics being used overall. The Denmark ban led to an increase in diarrhoea in pigs and an increase in deaths by more than 20 per cent according to the World Health Organisation.

It is important to understand that the antibiotics used to prevent disease in animals are not used to treat humans. However, the antibiotics used to treat disease amongst animals are also used to treat humans. The ban actually increases the use of antibiotics that are also used in human medicine. Since the Danish ban, antimicrobial use has increased by nearly 110 per cent due to higher dosages being required to treat, rather than prevent, disease.

Since the antibiotic ban was introduced pig farmers in Denmark have begun utilising zinc to help control diarrhoea in hogs. Ironically, it is highly likely that this may be encouraging the incidence of the so-called ‘hospital superbug’, Methicillin-resistant Staphylococcus aureus (MRSA). Most importantly, WHO stated in 2002 that there had been no evidence of improved public health since the ban. In fact, resistant salmonella in humans has increased and Denmark had its largest outbreak of MRSA in 2008.

The Danish ban may have also contributed to a decrease in the number of farms in Denmark from nearly 25,000 in 1995 to fewer than 10,000 in 2005. Farmers, who were already finding it difficult to make a living, faced the increased cost of cattle lost to illnesses that, in the past, would have been saved by using antibiotics. Antibiotics reduce suffering and distress and speed recovery, and since an animal cannot be allowed to suffer the only alternative is to kill it.

Given that there have been few studies into the link between antibiotic resistance and agricultural use, and that these studies have found no evidence of a link, we might ask what all the fuss is about? But when it comes to modern, highly productive and safe farming methods, evidence is not important to groups - like the disingenuously named Alliance to Save Our Antibiotics - who would apparently rather we used Victorian-era methods for food production. The same evidence phobia seems to have afflicted EU bureaucrats and faceless Euro MPs trying to find some connection with the public by implementing ‘popular’ but counterproductive policies.