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obesity, market failure, neo-liberalism « Previous | |Next »
July 5, 2006

Ross Gittins had an article on obesity in The Age a week or so ago. Looking at it from an economic perspective he argues that the fundamental causes of the developed world's obesity epidemic are economic, that it is a case of market failure, and that government intervention is required.

As Harry Clarke points out at Kalimna the 'extent to which you want the state to intervene in people's lives is a major issue distinguishing different camps of political philosophy.' Samuel McSkimming over at Catallaxy says that Gitten's argument for state intervention is incoherent. Is it?

So let us look at Gittin's argument, and then we can see how far the debate has progressed beyond the idealogues saying that privatising socalised medicine is the grand solution or that nothing should be done. Gittins says that the obesity "epidemic":

...constitutes a damaging side effect of technological advance and economic growth....the sudden surge in weight seems to be better explained by developments on the consumption side. According to a study of obesity in America by two economics professors at Harvard, David Cutler and Edward Glaeser, in the 1960s, the bulk of food preparation was done by families that cooked their own food and ate it at home. Since then, there's been a revolution in the mass preparation of food. Technological innovations — including vacuum packing, improved preservatives, deep-freezing, artificial flavours and microwaves — have enabled food manufacturers to cook food centrally and ship it to consumers for rapid consumption. This greatly reduced the "time cost" of food production, both at home and commercially.

That is about right. The way we prepare and consume food has changed with industralization in late modernity ---today we eat more snacks, and these are more likely to be mass-produced, high-kilojoule (that is, high-fat, high-sugar) treats and as processed snacks from the supermarket.

Gittins then highlights the consquences for public health:

I need hardly remind you that our growing obesity problem has serious implications for our health and the cost of health care. It's leading to increases in type 2 diabetes (what used to be called late-onset diabetes until kids started getting it), heart disease, several types of cancer, musculoskeletal disorders, sleep apnoea and gallbladder disease.

That is about right too, in spite of those who say that junk food is just a matter of personal taste or that fat is okay.

Gittins then makes a move that many would disagree with. He says that what we have here is an unusual but serious case of "market failure" as a result of 'capitalists using all their wiles to flog their food and make a quid is major social and economic dysfunction.' That inference strikes me as about right. As the consequence is rising health costs, then prevention is the best health policy to contain the health costs. So governments have an interest in doing something to prevent obesity. Gittins then makes the classic social democratic response to market failure. He says:

When market failure is demonstrated, and is known to have serious consequences, the case for government intervention is established. One obvious corrective would be to limit the use of advertising to induce over-consumption — particularly by children
That is a limited response for sure. You could also change the food sold in the tuckshops in public schools, or regulate to put health warnings on the fatty foods. Gittins concludes that 'there's ample precedent for government intervention to protect our health against the excesses of an unfettered market: tobacco control (pricing, advertising and promotion restrictions, smoke-free restrictions), road trauma minimisation (mandatory seat belts, speeding and alcohol restrictions) and injury prevention (restrictions on firearms, fireworks and safety regulations).'
The neo-liberal response is to deny market failure and the usefulness of government regulation. Thus Chris Berg, writing in reponse to Gittins in The Age, disputes the conclusion that government intervention is needed, as it is a matter of individual responsibility. He says that we are getting heavier (not necessarily fatter) and that:
Part of this is to do with the composition of our diet. But most of the recent growth in weight is not directly attributable to our food. A study by the economists Darius Lakdawala and Tomas Philipson found that only 40 per cent of weight gain since the 1970s is due to changes in diet. Rather, the large part of our weight increase can be attributable to changes in lifestyle and work practices.Contrary to what Gittins has argued, this is not an opportunity for government to intervene.

What about food? Or encouraging companies and bureaucracies to help their workers to increase their exercise during the lunch hour?

Berg's response is to say that government regulation doesn't seem to work, (citing Sweden), that the market is remarkably good at educating people on the negative consequences of their decisions, and that consumers are becoming more aware of the consequences of fatty and unhealthy food. A few books do not counter the advertising of the junk food industry. As Harry Clarke points out information is a public good so we can expect it to be underprovided unless it services a private interest. Thsi avoids the implication of the libertarian argument that those consumers who get fat are flawed--stupid; ie., a small minority of pathetic fools.

Berg concludes the neo-liberal case:

The notion of a government regulating to protect people against obesity used to be unthinkable, used as a parody of anti-tobacco legislation. Unfortunately, it shows us how far the political debate has moved from personal responsibility to government responsibility. But is there a clearer area in which individual responsibility must take the fore than when choosing what we eat? Government regulation is not the solution to the obesity crisis.

So if its all a matter of individual responsibility, then how do we deal with junk food, fat people and lack of exercise and so prevent called late-onset diabetes heart disease, several types of cancer, musculoskeletal disorders,with their implications for the cost of health care? We should be concerned because they cost all of us more in health costs’. A substantial component of health costs will be taken up with obese people with diabetes.

Samuel McSkimming at Catallaxy adds to this neo-liberal position by saying that:
My general view is that provided consumers face the correct price signals (and arguably they currently do not), they can do whatever they like - including smoking/drinking/eating themselves to an early grave.

There is no market failure.The problem from a liberal perspective is that though we have the failings (self-harm) of a significant minority of the population, the rest of the population are able to control their desires. So though there is a market externality, there is no market failure, because those who rarely eat junk food suffer no negative effects. Hence the problem for the libertarians becomes one of fat people getting cheap donuts.

Why not introduce a tax on junk food as has been done with cigarettes? The libertarian response is that you impose costs on people who consume the food occasionally, which means that in effect, those of us who like the occasional indulgence (eg., McDonalds or Hungry Jacks as a treat) are subsidising those with no self-control. So? They can choose to eat something else than McDonalds, if they do not want to pay extra for their luxury indulgence.

I do not see that the libertarian case against state intervention has been made. It is a case of both individual and government responsibility, not an either or. The question then becomes, what kinds of intevention are best?

| Posted by Gary Sauer-Thompson at 8:28 AM | | Comments (3)


The national security state has to keep us free from saturated fats too? :)

Gittens is arging that intervention in this market failure is to stave off, "major social and economic dysfunction."

Apparently about 200 in 1,000 of population are obese in Au. So approx 20% have a weight problem; that means 80% dont.

There are also plenty of food outlets that do not serve junk food. For instance we get a weekly delivery from a regional farm of fresh goods. There are avenues for good food even outside of the supermarkets.

There is also anti-junkfood media out there. I watched "Super Size Me" and was revolted at how quickly he gained weight in conjunction with limiting his steps to 1200 a day.

I am not prepared to agree that it is market failure, nor a major social and economic dysfunction.

It is probably closer to 25% than 20% and rising despite the health promotion.

Why cannot this be seen as market failure in the same way that problem gamblers are a market failure for the gaming industry? Or would you argue that externality is not a market failure?

Why is a public policy strategy of harm minimisation such a no no?

Gary, There are no barriers to entry for competing healthy food vendors.

My anecdote is an example. Subway in the US is another. They have made commercial hay from advertising how low in fat and calories their sandwiches are. Their media 'face' is a fellow who lost weight eating subway every day.

Another issue is that the overweight minority are exceptionally well served in commercial support groups. TV is full of advertising for weight loss and fitness programs.

Compulsive gamblers and alcoholics dont have the same breadth and depth of commercial services targeted at them.

There are options. McDonalds isnt a food industry monopoly.