Just fininshing off Unit 3 of the AS course on externalities/market failure and I came across an article by former IMF Chief Economist and now Harvard Professor Ken Rogoff (co-author of “This Time is Different”) on obesity and the food industry’s link to the wider problems of present-day capitalism.
Obesity causes significant externalities – heart disease, some types of cancer, affects quality of life etc. It also impacts on others in that the health system (which is generally tax payer funded) has to expend more of its income – furthermore there is lost productivity. The chemical additives are well known as the major factors that increase weight gain amongst people but as Rogoff points out “from a conventional growth-accounting perspective, they are great stuff”. Who benefits?
Agriculture – paid (subsidies from Government) for growing corn
Food Processors – paid for adding tons of chemicals that make the food addictive
Scientists – paid for finding the right mix of salt/sugar to make instant food addicitive
Advertisers – paid for advocating it.
Healthcare industry – paid for trying to fix the problems caused by obesity.
Highly processed food also creates a lot of employment in various sectors including research, healthcare and advertising. The issue that Rogoff aludes to is that the policiticans would be very unlikely to try and fix this problem as companies who are making money from this industry are also providing significant funds for political campaigns. But there is huge market failure in that the consumer is provided with little information as to the negative effects of processed food but also children are persuaded by television advertising that dominates the commercial side of running televsion stations. Both consumers and producers have little incentive to internalise these costs.
We need much more regulation of these industries if we are to really consider the long-term interests of society. There is that balance between consumer sovereignty (control) and paternalism (Gov’t knows best) but greater information across a variety of goods/services needs to be evidnet if people are to make more informed choices.