Mad Cows And Mad Politicians

How the government turned the crisis into economic calamity

With the whole world watching, the government of British Prime Minister John Major is turning a grave public-health worry into a management disaster that is leading to a major economic crisis. On Mar. 20, the government announced a connection between mad cow disease, or bovine spongiform encephalopathy (BSE), the brain malady that has plagued Britain's cattle for a decade, and the always fatal human form of the ailment, Creutzfeldt-Jakob disease (CJD), stating that 10 victims apparently got the ailment after eating contaminated beef. Then, on Mar. 25, the bureaucrats backpedaled. "It isn't the cows that are mad, it's the people that are going mad," says Stephen Dorrell, Secretary of State for Health and leader of the government crisis team. "I eat beef, and I let my children eat beef."

No sale. With millions of consumers shunning British beef, the European Union banning its export, and fast-food chains such as McDonald's and Burger King dropping burgers from their menus, Britain faces its worst economic catastrophe since the pound had to be bailed out by the International Monetary Fund in 1976. Major's government, meanwhile, faces a widening credibility gap with voters that could prove fatal in upcoming elections. "The government has handled this matter with mind-boggling incompetence," says Labor Leader Tony Blair.

HUGE FALLOUT. The markets already are meting out their punishment, with stock and bond prices falling in London and sterling slipping against the German mark and the U.S. dollar. The worry: that Britain's economy will suffer extensive damage. The beef industry is likely to lose all $900 million worth of its export trade, swelling Britain's trade deficit from $18 billion to as much as $32 billion. Consumers buying imported meat could pay $800 million more at the grocery, while the cost of importing cattle to start fresh herds could run to $3 billion.

There's more. If the government is forced to destroy cows to restore confidence in British beef, even a moderate culling campaign could require up to $5 billion in compensation to farmers. If the government opted to get rid of just one-fifth of dairy cows, the cost to import milk could reach $4 billion.

Worse, if the beef and dairy industries remain crippled for a year, as many as 100,000 people could lose their jobs, causing unemployment to jump from 7.9% to 8.2%. Inflation could shoot up from 2.7% to 4.6% because of higher prices paid for imported food and shortages of domestically produced alternatives. And Britain's gross domestic product could drop by $14 billion, or 1%. In the end, the economic toll could climb to $15 billion. Says Ian C. Shepherdson, a London-based economist with HSBC Markets: "There could be a meaningful, significant impact on the economy."

Behind the crisis is government research identifying a previously unknown variety of CJD that strikes young people. Some 10 victims contracted the disease and died during the past two years, before they reached age 42. Two others are still alive. The nature of their brain damage, the early symptoms, and the 1shorter incubation period are all different from previous CJD cases. And experts say the victims of this new strain of CJD could number in the hundreds of thousands and rival AIDS as a pandemic. Stephen Dealler, a medical microbiologist at Burnley General Hospital and BSE expert, says the number of new CJD victims shocked him. "It was so high, my jaw dropped," he says.

WRONG MOVES. The government's missteps began as early as 1979, when the Conservatives came to power under Margaret Thatcher. She deregulated agricultural practices so that farmers no longer had to follow strict rules for processing cow meat and preparing feeds. Scientists now believe it was this relaxation that led to the use of diseased sheep in animal feed, kicking off the BSE epidemic, and later on, lax enforcement of various bans that allowed it to continue. Worse, it wasn't until 1988 that ministers ordered the slaughter of infected cows--two years after the outbreak.

Small wonder that since the mid-'80s, 160,000 BSE-infected cows have had to be destroyed. If the same agent is also killing humans, there's more than a nation's economy at stake.

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