One of the ongoing debates in the US is whether or not (or to what degree) the state should intervene in free market fundamentalism. To those in the republican camp, the free market is akin to individual freedom where citizens exercise their freedom in the market through their purchasing decisions. Any intervention by the government in the free market, such as regulation meant to promote food safety, is considered a breach of this freedom and, in effect, a cost to society. On the democrat side, government intervention is viewed as a necessary condition to freedom as a result of the enormous negative externalities imposed by the free market that impinge upon freedom.
This rather tiring Friedman-Keynesian debate consistently surfaces around the world and indeed represents a major ideological point of separation in American politics; a dichotomy some say motivated the shooting of Congresswomen Gabrielle Giffords. The Daily Show (clip here) does a great job at making fun of the absurdities associated with extremist views on both sides. In a recent episode, comedian Aasif Mandvi (see clip here) makes fun of the San Francisco policy to come into effect this year that would ban the selling of toys in Happy Meals at McDonald’s if the food does not meet certain nutritional standards. The parody tends to lean towards the view that government has no role in imposing such regulations on consumers and that it’s up to the market through parental discipline and child education to encourage changes in food of the Happy Meals in their purchasing of food. As the mayor of San Francisco said:
“It’s a bad idea. We’re getting into private business decisions. It’s not the role of government to decide what is in the best interests of kids, it’s up to parents to decide.”
This is an interesting way to frame the debate because it presumes that business decisions in the market represent a proxy for individual freedom because it is a reflection of what the market wants. The presumption here is that consumers, through the invisible hand, ultimately influence the decisions of companies and thus there is no need for the government to interfere. There are at least three fundamental flaws with this logic in a society where business plays a commanding role.
1. Today’s food system is very complex.
Decades of government subsidies for commodity crops lobbied by the private sector has resulted in a society addicted to unhealthy foods rich in sugar, fat, and salt. Even if parents were aware of the dangers of fast food, the food system makes it nearly impossible for low-income groups to survive without leaning heavily on the availability of unhealthy food. As a result, because some consumers are unable to make better purchasing decisions, the government is stepping in to impose restrictions on the food that companies provide.
2. Companies have a vested interest to make unhealthy food rich in sugar, salt and fat cheaper because it allows them to overcome the limitation of stagnant industry growth (people can only eat so much) by inserting these three ingredients that psychologists have confirmed are sources of addiction. As a result, companies driven by profitability are using this fact to incapacitate consumer choice. The role of government is to protect the public good in situations where the market is unable to correct negative externalities (i.e. obesity and disease). The government is not trying to be a nanny state but rather trying to offset companies’ inherent ambition to take advantage of this psychological vulnerability.
3. The primary objective of business is to make profit. We can only expect that managers of these companies will work hard to weaken the ability of the invisible hand to do its job – which the Daily Show doesn’t really consider. The below two points are examples of this:
a. The view that the market should work its magic to make changes in business presumes that companies merely represent passive recipients to market trends without any influence on that market. We’ve known for quite some time though that companies have played a proactively aggressive role in shaping the market and regulation for food, vehicles, and many other products and services. GM’s advocacy for lower gasoline taxes was a lobbying strategy to assure market interest in high margin vehicles like hummers and SUVs. So when Sarah Palin says that she doesn’t want the government telling her how to feed her children, she doesn’t realize that the private sector is playing an even stronger role in telling her how to feed her children.
b. This view also presumes that consumers have access to information to make informed decisions. Not only is the consumer capacity to absorb all the information related to food nutrition limited, it is in the best interests of businesses to limit or obscure this information. Companies for years have lobbied strongly against policies that would force them to display the nutritional content of food because they know that the market may force the firm to take on more costly practices. In effect, public interference in private sector decisions is reciprocal meaning that the private sector is as influential on public decisions as governments are on business decisions.
This last point is an important one because it illuminates the dangers of trying to separate business from government when in fact they highly overlap. The view that they are separated is a false perception; one conjured up by old school economists who fail to grasp the realities of a blurring of the line between public and private sectors. The ironic thing though is that the need for government regulation is largely due to the increasing influence the private sector has on society and public welfare.
The muzzling of the invisible hand through billion dollar marketing budgets that strongly influence society’s tastes and strong political lobbying that reduces competition and consumer power has, in effect, fostered a greater need for government intervention. Another way of saying this is that companies may have lobbied for the rope that will hang them. But this will ultimately depend on the public’s recognition that the free market isn’t as free as they think it is. Bringing this back to the Happy Meals, believing that business will remove these toys when the market (i.e. the parent) is ready to remove them by no longer buying them overlooks the complexity of business strategy and what students are taught in business schools around the world to prevent this from happening.