Dr. Daniel Sutter: What happened at Abbott?

The February shutdown of an Abbott Laboratories plant in Michigan due to contamination precipitated the nationwide baby formula shortage. The plant finally resumed production this month. Whether these events reflect corporate greed or bureaucratic bungling illustrates why we so often disagree about policy.

Let’s start with some facts. Abbott is one of the four largest formula producers and makes the Similac and Elecare brands. The Food and Drug Administration (FDA) closed the plant after investigation of a whistle-blower’s report confirmed poor sanitation and Abbott recalled potentially tainted formula. Contaminated formula has been linked to two deaths. The resulting shortage has left parents scrambling madly.

What do these facts show? In one view, Abbott put profits ahead of babies. As the left-wing Guardian observes, “The embattled baby formula producer Abbott used windfall profits to enrich investors instead of replacing failing equipment that was likely injecting dangerous bacteria into its infant nutritional products.” The “prioritization of shareholder wealth” shows the “rot in the nation’s economic system.”

Abbott’s actions demonstrate the need for consumer protection. But policing corporate greed is hard. The regulations consumers enact must be enforced. Companies lobby to keep regulators’ budgets small, resulting in too few and poorly paid inspectors, who then curry favor with companies in hopes of getting hired for better salaries. Companies “capture” the protectors.

An alternative view starts with bureaucratic bungling. The FDA mailroom took four months to get the whistleblower’s report to the proper office. After ordering the shutdown, the FDA did not tell the Biden Administration about the impending shortage.

Bad policy also contributes. A complicated tariff-quota system protects U.S. formula makers from European competition. FDA labeling requirements, not safety concerns, keep this formula from being legal in the U.S. These policies could have but were not waived when Abbott’s plant closed. President Biden eventually sent military planes to retrieve some.

Government regulation of food safety is poor policy based on Upton Sinclair’s view in The Jungle. Yet all purchases in a market economy are voluntary, so how does sickening or poisoning customers yield long-term profits? Food processors would still face litigation without the FDA and insurance companies would cover these losses. Insurers (and consumers) would demand assurance of quality, perhaps from a third party like Underwriters’ Laboratories.

Quality assurance requires accountability. Who at the FDA will lose their job for misplacing the whistleblower’s report or not alerting the rest of Washington? Politicians pass laws and regulations appearing to protect Americans without truly delivering.

Which side is correct? Difficulty determining this arises largely from how world views shape our thinking. Economist Thomas Sowell such views “visions” and saw most policy disagreements as arising from two conflicting visions, the constrained and the unconstrained.

Visions are simple but often form the basis for theories, labeled paradigms by Thomas Kuhn. Paradigms shape inquiry in all fields, including economics. I would distinguish economics’ two main world views or paradigms as markets are incredibly complex and work amazingly well, versus markets frequently fail and enlightened economists can improve outcomes. Although sounding like cover for laissez-faire or government activism, most economists see these as describing how the world works, with policy advice following.
Paradigms are often difficult to tested against each other. Economics cannot conduct controlled, society-wide experiments. Consequently evidence, like the events at Abbott, never conclusively demonstrates markets failing or working. No simple test will ever confirm which worldview is more accurate.

When paradigm shifts occur, they do not typically involve one side conceding. As Professor Kuhn demonstrated, revolutions occur as young scholars recognize the new paradigm’s superiority and the old paradigm’s proponents retire. This reflects another reality: once we embrace a worldview, abandoning it is very difficult.

Getting the facts correct is always important. But disagreements arise from interpretation through different world views. Listen to economists with different world views describe events and decide for yourself which view makes more sense.

Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.