Schansberg: Government Grocery Stores

June 11, 2021

Editor’s Note:  This was written a few years ago but is a useful primer on the difficulties of government arrangements being considered today for food “deserts” in Indianapolis and Fort Wayne. It also relates those difficulties to government management of any politically commanded program that ignores economic realities, specifically K-12 education.

by Eric Schansberg, Ph.D.

With the grocery store crisis in downtown Louisville, we should consider some out-of-the-box approaches. Recent closures have made this food “desert” increasingly bleak. Grocery stores in urban centers 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. Let’s divide downtown Louisville into six districts. We could put one full-service grocery store in the middle of each district. Everyone would be within a mile of a large grocery store and could get there by walking, driving, taxi, Uber/Lyft or riding a bus. 

The problem is that such grocery stores would not be profitable. So, we could use taxpayer dollars to make up the difference, subsidizing the grocery 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 subsidy to sustain a downtown grocery system. We could pursue a waiver to get that money sent directly to Louisville 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 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 much 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 the government is competent to toll bridges and regulate health insurance, it can probably be trusted with making food. With six large grocery stores, they would be able to achieve economies of scale in purchasing and producing the food needed by its customers. 

One might reasonably worry about who will 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 six 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. Or you may have noticed that this 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 K-12 is equally crazy. 

With the election of a Republican legislature in Kentucky, “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” (which are the same as food stamps) or “backpack funding” (where funding follows the child — an extension of the G.I. Bill from college to K-12).

Those who struggle with analogies will likely say, “But groceries are not the same as education.” Right — and pizzas are not the same as haircuts or cars. The question then 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., professor of economics at Indiana University Southeast, is an adjunct scholar for the Indiana Policy Review Foundation and author of “Poor Policy: How Government Harms the Poor.”


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