Floating Market

Four Fixes for Market Failures Driving Obesity

Three international business professors — Aneel Karnani, Brent McFerran, and Anirban Mukhopadhyay — have looked at the market failures driving obesity and explored four tools for fixing those failures in a new working paper from the Ross School of Business at the University of Michigan. They argue that obesity is a market failure because the qualities of food bought and sold in global markets are contributing to devastating health and economic consequences. They conclude that meaningful progress will require using all four of these tools in some fashion:

  1. Government Intervention. Taxes and subsidies, market regulation, and education are interventions that governments can use to address market failures contributing to obesity. Much of government action has been in the realm of education, which the authors conclude “will certainly fail without other structural changes.”
  2. Corporate Social Responsibility. Despite increasing attention to corporate social responsibility and some promising results from initiatives like the Healthy Weight Commitment Foundation, the authors suggest that corporate social responsibility cannot play a significant role unless the entire industry participates. This, they say, is unlikely in the fragmented global food industry.
  3. Industry Self-Regulation. Accounting, financial services, software, and agriculture are industries with significant self-regulation. The limits of self-regulation become apparent when self interest diverges from the public interest as it has in the growing impact of obesity on public health.
  4. Social Activism. To bring change, social activism can be a potent force. But in obesity, much activism has been misdirected toward personal responsibility as the root problem, which has in turn added harm and isolated the people affected. More attention should go toward accountability for failures of the marketplace.

These tools come into play any time normal market forces fail to bring maximum benefits to the public from economic activity. Karnani and his colleagues find that significant progress in the near term is unlikely because of the political challenges of meaningful reforms and the complexity of the problem. They conclude by saying:

Obesity is a difficult challenge that will require a multi-faceted solution involving all the four mechanisms to correct market failures, and especially government intervention. For this to happen in a democratic society, there needs to be a widespread understanding of the problem, its causes and potential solutions. This requires a broad public debate rooted in science, empirical evidence on consumer behavior, and business logic rather than ideological positions and vested interests.

The reality is that food accounts for a big chunk of the global economy. Fixing the markets for it will require a better knowledge of what’s broken. Markets don’t work in the absence of good information.

Click here for more from the University of Michigan and here to read the paper.

Floating Market, photograph © Bruno Bernardes / flickr

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September 1, 2015