Schansberg: Government Groceries

February 16, 2017

Not for publication. For the use of the membership only.

by Eric Schansberg, Ph.D.

The downtown of Louisville across the river is now a food “desert” in that it has few significant grocery stores. Last year, four prominent groceries closed there and a proposed WalMart was sacked by legal hurdles and social hassles. Grocery stores in urban centers throughout the nation face difficult economic challenges. Ironically, these include efforts to help the poor — e.g., free breakfast and lunch at school, and charitable efforts to provide food and meals. Often, they face political barriers as well.

Let me propose an approach similar to one in another public-policy area. Let’s divide downtown into districts and put a full-service grocery store in the middle of each. Everyone would be less than a mile away from a large grocery store and could get there by walking, driving, taxi, Uber, Lyft or riding a bus.

Problem solved? Not yet, such grocery stores would be unprofitable. So, we could use taxpayer dollars to make up the difference, subsidizing the stores or subsidizing their customers (allowing them to spend enough to make the stores profitable).

The federal government provides food stamps but that’s not enough to sustain such a downtown grocery system. Perhaps we could pursue a waiver to get that money sent directly to city government. Then, we could get local taxpayers to kick in some more money. The greater government spending on groceries would reduce government services elsewhere or increase tax rates and hurt the local economy. But providing food to the poor is really important, so let’s assume that we’re willing to pay that price.

From there, we could give city residents a certain amount of food for free, depending on family size. We could provide an amount of store credit to spend. Or even easier, we could determine what would be required for a nutritionally adequate diet and simply allocate that food to each family.

Who would run these grocery stores? We could depend on the private sector. But many people would be concerned about a profit motive. And we’d be subsidizing companies, engaging in crony capitalism. So, let’s have the government run them.

Who would make the food? Again, we could rely on the private sector. But if a government is competent to toll bridges and regulate health insurance it can probably be trusted with making food. The grocery stores would be able to achieve economies of scale in purchasing and producing the food needed by its customers.

One might reasonably worry about who would monitor the government grocery stores — on spending, quality, red tape, meeting consumer preferences, etc. But we could elect City Grocery Boards (CGBs) and Manager/Customer Associations (MCA’s) to serve that function.

We could make customers go to the government grocery store nearest their house. But we could probably allow them to go to whichever grocery they want — at least with the CGB’s permission. We could allow each grocery store manager to make a number of decisions. But it’d be easier to have the CGB make the big decisions for the groceries.

Private-sector groceries would still be allowed to operate, but practically, they would only be able to compete with government groceries by getting their own subsidies or by serving niches. Jewish people might subsidize a kosher store. And a small store could be successful selling popular Hispanic food.

At this point, you may be wondering if this is all crazy. You may have guessed that it is the system we use to get K-12 education to the poor and most of the middle class. The comparison invites the question of whether our approach to public education is equally crazy.

With the election of Republican legislatures in many states, “school choice” initiatives are on the table. In all of this, the question is not whether government will be involved with K-12 but rather what this involvement should look like. Should government be in the business of running schools — and if so, should it encourage flexibility through charter schools?

Or should the government even be the dominant player in providing K-12? Instead, it could subsidize lower-income and middle-class parents to obtain K-12 services in a competitive educational marketplace. This would be through vouchers (equivalent to food stamps) or backpack funding (where funding follows the child, an extension of the G.I. Bill to K-12).

Those who struggle with analogies will say, “But groceries are not the same as education.”

Right, and pizzas are not the same as haircuts or cars. But the question is whether the analogy holds. Or to be more direct: If this arrangement is absurd in the realm of groceries, why would one expect it to be glory in K-12?

Eric Schansberg, Ph.D., an adjunct scholar of the Indiana Policy Review Foundation, is a professor of economics at Indiana University Southeast. 


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