Abolish government regulation of food, what could possibly go wrong? Over the last few weeks the Irish and UK food industry has been rocked by the discovery that many beef products actually contained horse meat. This has raised all such of questions and it is highly likely that other frauds were committed. In this context, it is worth examining why we have government intervention in the economy. It is regularly asserted that the government is only a burden on the private sector and that we would all benefit if the market was left alone. Do consumers need the government to protect them from unscrupulous businesses or can the market regulate itself?
Let’s begin with the market view where there is no government regulation. In theory all businesses will have an interest in providing safe food, after all if not, they will get a reputation for unsafe food and people will not buy from them. Businesses could voluntarily join private regulatory bodies who will charge for an inspection. These firms too will have an incentive for high standards as it will give them a good reputation. If any business is caught say, selling horse meat disguised as beef, they will lose their customers. Therefore in the libertarian view, the market will protect the consumer far better than any possible government bureaucrat.
Were it only so simple. In reality there are numerous problems with leaving market forces to protect consumers which is why almost all countries have government regulation of food. The main problem is that consumers do not know the conditions of what they are buying. To use an economic term, they suffer from asymmetric information (a situation where one party knows more than the other). If I buy a packet of beef, how can I know if it actually is beef? How can I possibly know how hygienic it is? The simple fact is I can’t. There is no way for me to find out the conditions of the abattoir or the farm the cows were raised on. If it was raised in filthy conditions or isn’t even beef, there is no way the consumer can tell.
This is a serious problem as food is necessary for life and it can also kill us. How can I tell if my food is poisonous? There are so many diseases that food can contain that it is impossible for any non-scientist to be able to identify them. A libertarian may claim that someone dropping dead midway through a meal is something of a giveaway. However, diseases generally do not kill instantly, but rather over a period of time. It takes years for cigarettes to give someone cancer. If your food contains diseases that slowly diminish your health over time then someone would never know and the business could continue operating (and poisoning). Likewise considering the vast diversity in the food we eat and places we eat in, it is near impossible for a consumer to narrow a case of food poisoning to a single restaurant (without professional help).
Contrary to what libertarians argue, government regulation actually helps the market function. If there is no regulation of food, a situation best described as the wild market (free market is too value laden) uncertainty would distort the market. If there is a chance my next meal will poison me then I am less likely to eat out. By providing a guarantee that all food is safe, government regulation removes this uncertainty and provides a boost to all restaurants. Likewise it prevents a race to the bottom where a business can gain a competitive advantage by undercutting its rival’s safety standards. Businesses could be placed in the unfortunate position of having to choose between cutting standards or losing customers. Government regulation is therefore beneficial to honest businesses that hold high standards as it penalises dishonest businesses that can subsidise their inefficiency by cutting safety standards.
The libertarian argument is based on the false belief that people will choose how safe they want their food. It creates an artificial divide between risk takers and safety conscious. Everyone wants safe food and few will deliberatively pay less and consider it a fair trade off. Then who will buy the cheap food of questionable safety? The people who always lose out in a libertarian world, the poor. Poor people do not prefer more dangerous food nor do they get extra utility from it. They but it because they have no choice. That is what being poor means. The people who bought the cheap Tesco horse burgers were those who were too poor to afford anything better. Not for them is the luxury of comparing different restaurants and choosing the one that best meets their standards. They have to take what they are given. That is why we have government regulation, to protect the poor who otherwise would be defenceless victims.
But can people not exert consumer sovereignty? Can they not switch to businesses with safe food? Would the dishonest not be driven out of business? Well, that depends; do you think Tesco will go bankrupt because they sold horse burgers? Will Aldi be the victim of market forces as consumers vote with their feet? Will the next Pope be a Protestant? Consumers hold far less power than is often claimed and are less effective at holding business to account as they are at holding politicians accountable. Such is the market power if corporations like Tesco (due to brand and size) that people will continue to shop there, presuming the problem has been fixed. Of course, if Tesco suffers no loss in sales then it has no incentive to keep a tight each on safety standards. Therefore the libertarian claim that unsafe foods will be driven from the market is unrealistic.
But what about private regulation? Could it provide the benefits of government without, you know, being the government? The problem is that they have no incentive to do so. Look at the financial crash. All those banks were subject to private market accountants yet that did little to deter them. This is because a private firm’s aim is not to ensure the highest standards are met, but that they make the highest profits. In order to do this they must make sure that businesses hire them. No business will pay for accountants to say their food is unsafe; rather they would use it as a PR exercise. There is an unspoken agreement that the private regulators praise the business in return for getting rehired the next year. Regulatory capture happens in the private sector too.
No business will willingly impose standards on itself if it knows it will not meet them. It will only agree to what it would have done anyways. Businesses held accountable on the quality of their food, gets replaced with exercises in marketing and advertising, where all companies try to give the impression their food is safe, but not through quality standards but through spin. Take the green washing as an example. Polluting industries hire PR firm to make them look environmentally friendly while still polluting. Firms will have to spend extra resources in “signalling” to consumers that they are safe. This can be done by buying impressive looking furniture and buildings, that don’t make the business any healthier, but gives the impression that it is. (Ever wonder why banks have such grand offices? It is to give consumers the impression that they are reputable institutions, not scams to steal their money).
The recent scandal over horse burgers shows why we have government regulation. Without some kind of government food regulation we would never have known about this in the first place. In a libertarian world, there would be nothing to stop unscrupulous businesses from tampering with their food products, safe in the knowledge they will be neither caught nor punished. We all like to moan about government bureaucrats, but its times like these that remind us why we have them in the first place.