On arms races

There’s a nice headline in the Times today:

Make us sell healthy food, supermarkets implore May.

This invites the obvious reply: if you want to sell healthy food, why don’t you just do so?

The answer lies in competitive pressures. If any individual supermarket tries to cut salt in its products or refrains from special offers on unhealthy foods, it would lose market share to rivals.

Each individual supermarket’s rational attempts to maximize profits thus leads to an outcome which none of them really wants – the over-marketing of unhealthy food. This is an example of an arms race, a process whereby individually rational behaviour has results which are collectively undesirable. Here are some other examples:

 - If all companies try to pay above-average wages to attract the best CEO, the result is no better quality of management but ever-rising salaries. The same thing is true for football transfer fees.

 - If everybody works long hours in the hope of promotion nobody’s chances improve, but everybody ends up working (pdf) longer than they’d like.

 - If everyone buys a flash car to impress the neighbours, nobody’s impressed but everyone’s in more debt.

Such processes are well described in, for example, Robert Frank’s Darwin Economy and Tom Slee’s No One Makes You Shop At Wal-Mart.

Arms races are a counter-example to free marketeers’ claims that, via the invisible hand, individual choices within a free market lead to optimal behaviour. This isn’t to say that such claims are wrong; they are often right. Instead it’s just to corroborate Jon Elster’s point that in the social sciences there are no (or very few) iron laws but rather different mechanisms that work or not depending upon particular contexts.

When there are arms races, it’s reasonable for the parties to make the appeal that supermarkets are making: “save me from myself.”

This, of course, should be the essence of politics. Politics is – or should be – the art of solving problems of collective action. If individually rational actions always led to outcomes which were optimal in aggregate there wouldn’t be a role for the state.

However, one feature of David Cameron’s governments was that they didn't see this. The most egregious example of this was of course the failure to see that attempts to pay off “the nation’s credit card” would fail because of the paradox of thrift. But there were others, such as encouraging panic-buying of petrol during the threatened lorry-drivers strike of 2012, or demanding that shareholders take more control of companies without seeing the obvious free-rider problem in doing so.

From this perspective, the “damp squib” of the government’s obesity strategy suggests that Ms May is continuing to make the same mistake as her predecessor.

Comments

[droog]

I agree in part with this but I have doubts.

The supermarket business model in itself relies in stocking items with long shelf life, specially non-refrigerated ones. You can argue that there are plenty of healthy "dry" items that keep in the shelf but a)they don't make up a healthy diet and b) many of the healthy ones will have low profit margins. Ready made meals go for more than the sum of the ingredients and so on.

So I think these companies would contradict themselves if given enough time to think about what they are saying today.

[Matt Moore]

You are correct that such issues, and only such issues, are the proper concern of politics.

However, I'm not sure the supermarket situation is an example of it. They are currently competing to provide what people want (tasty food very cheap).

They want to be banned from competing on margin, and instead forced to compete on quality. This is a cartel-lite. They are asking for the government to enforce a cartel that promises not to provide cheap products, but only expensive ones, in order to minimise price competition.

PS the blanket solution to conspicuous consumption arms races is a progressive consumption tax.

[Matt Moore]

PPS

'If all companies try to pay above-average wages to attract the best CEO, the result is no better quality of management but ever-rising salaries. The same thing is true for football transfer fees.'

That is only true if the supply of such labour is fixed. I don't think that is true in the long term.

[Anarcho]

"That is only true if the supply of such labour is fixed. I don't think that is true in the long term."

CEO wages have been rising steadily for the last 30-odd years -- what is the definition of "in the long term"?

Over that same period wages have been steady while productivity has risen -- not a coincidence, as senior management have been monopolising the value created by their workforce for themselves.

And all this dates from when the state turned on the unions in both the USA and UK -- again, not a coincidence.

[Phil Beesley]

Droog: "The supermarket business model in itself relies in stocking items with long shelf life, specially non-refrigerated ones."

Human beings have always operated this way, to survive or make a profit or travel. Scientists at the British Antarctic Survey eat hen eggs which are six months old (apparently they are a bit smelly but taste OK; eggs, not the scientists). Egyptians couldn't have built the pyramids without stocks of grain to feed workers. Today supermarkets sell chilled (non-frozen) ready meals with a shelf life of four-plus weeks -- and you are more likely to contract food poisoning from a sloppily cooked fresh chicken than a microwave dinner.

The fact that supermarkets wish to extend food life doesn't mean that the result is dangerous, less nutritious or tasteless. Supermarkets -- or perhaps we mean suppliers who make or grow the stuff -- will play a system if it can be gamed. But big brand supermarkets will not intentionally sell food which makes you throw up the next morning.

If there is a food arms race, it is being conducted by suppliers to fast food shops, to caterers who don't have an army of supply chain inspectors. Who is the most likely buyer -- often innocent -- in a scam to sell pet food as chicken nuggets? If we care about food safety, we have to think like 1800s campaigners against adulteration.

The horse-as-beef scam was about well organised conspiracies -- multiple scammers -- beating a regulated market.