Of Market Power, Models and Policy Analysis

With the controversy around the Food Prize, and Food Security Conference after Food Security Conference being sponsored by large seed and food corporations, it is interesting to consider how the market power of some large enterprises can influence the academic debate and shape public policy discourse.

Dr Margaret Chan, the Director-General of the World Health Organization, just opened the 8th Global Conference on Health Promotion with a speech in which she sharply denounced the influence of the private sector on setting public policy:

“In the 1980s, when we talked about multisectoral collaboration for health, we meant working together with friendly sister sectors. Like education, housing, nutrition, and water supply and sanitation. When the health and education sectors collaborate, when health works with water supply and sanitation, conflicts of interest are rarely an issue.Today, getting people to lead healthy lifestyles and adopt healthy behaviours faces opposition from forces that are not so friendly. Not at all.
Efforts to prevent noncommunicable diseases go against the business interests of powerful economic operators. In my view, this is one of the biggest challenges facing health promotion.
As the new publication makes clear, it is not just Big Tobacco anymore. Public health must also contend with Big Food, Big Soda, and Big Alcohol. All of these industries fear regulation, and protect themselves by using the same tactics.
Research has documented these tactics well. They include front groups, lobbies, promises of self-regulation, lawsuits, and industry-funded research that confuses the evidence and keeps the public in doubt.
Tactics also include gifts, grants, and contributions to worthy causes that cast these industries as respectable corporate citizens in the eyes of politicians and the public. They include arguments that place the responsibility for harm to health on individuals, and portray government actions as interference in personal liberties and free choice.
This is formidable opposition. Market power readily translates into political power. Few governments prioritize health over big business. As we learned from experience with the tobacco industry, a powerful corporation can sell the public just about anything.
Let me remind you. Not one single country has managed to turn around its obesity epidemic in all age groups. This is not a failure of individual will-power. This is a failure of political will to take on big business.”

The funny thing is that, as economists creating and evaluating public policy, we leave market power almost completely out of the picture. The majority of modelling approaches assume “perfect competition”, which means that there are a number of small firms in the sector that cannot set prices themselves but operate in an environment where they are continuously threatened by the possibility of new firms entering the market if the prices are too high. This assumption is clearly unrealistic for the food sector, especially in today’s situation where vertical and horizontal integration has led us to a reality where a handful of huge corporations own the majority of the most important food companies. This is even true in some primary production sectors (think of the vertical integration of the poultry sector or, of course, the seed and chemical input market), which traditionally are considered to be closest to the assumption of perfect competition in reality.

What does that distance between our models and reality mean in practice? Well, not only do big business interests have an influence on public policy making, as Dr. Chan cautions. When we evaluate such policy proposals as scientists we will rarely find the real impact (and probable benefit to corporations) of these lobbying efforts. Instead, we remain in our naive little perfect competition world, and will probably simulate less beneficial impacts for the relevant sectors – allowing them to lobby for even more concessions by politicians. If such research findings are then presented at conferences majorly sponsored by these same companies, you ask yourself where food policy analysis is heading – and whether such approaches are really the best way to achieve global food security.