The Unbound Economy
Coronary Capitalism
Kenneth Rogoff
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FRANKFURT – A systematic and broad failure of regulation is the elephant in the room when it comes to reforming today’s Western capitalism. Yes, much has been said about the unhealthy political-regulatory-financial dynamic that led to the global economy’s heart attack in 2008 (initiating what Carmen Reinhart and I call “The Second Great Contraction”). But is the problem unique to the financial industry, or does it exemplify a deeper flaw in Western capitalism?
Consider the food industry, particularly its sometimes-malign influence on nutrition and health. Obesity rates are soaring around the entire world, though, among large countries, the problem is perhaps most severe in the United States. According the US Centers for Disease Control and Prevention, roughly one-third of US adults are obese (indicated by a body mass index above 30). Even more shockingly, more than one in six children and adolescents are obese, a rate that has tripled since 1980. (Full disclosure: my spouse produces a television and Web show, called kickinkitchen.tv, aimed at combating childhood obesity.)
Of course, the problems of the food industry have been vigorously highlighted by experts on nutrition and health, including Michael Pollan and David Katz, and certainly by many economists as well. And there are numerous other examples, across a wide variety of goods and services, where one could find similar issues. Here, though, I want to focus on the food industry’s link to broader problems with contemporary capitalism (which has certainly facilitated the worldwide obesity explosion), and on why the US political system has devoted remarkably little attention to the issue (though First Lady Michelle Obama has made important efforts to raise awareness).
Obesity affects life expectancy in numerous ways, ranging from cardiovascular disease to some types of cancer. Moreover, obesity – certainly in its morbid manifestations – can affect quality of life. The costs are borne not only by the individual, but also by society – directly, through the health-care system, and indirectly, through lost productivity, for example, and higher transport costs (more jet fuel, larger seats, etc.).
But the obesity epidemic hardly looks like a growth killer. Highly processed corn-based food products, with lots of chemical additives, are well known to be a major driver of weight gain, but, from a conventional growth-accounting perspective, they are great stuff. Big agriculture gets paid for growing the corn (often subsidized by the government), and the food processors get paid for adding tons of chemicals to create a habit-forming – and thus irresistible – product. Along the way, scientists get paid for finding just the right mix of salt, sugar, and chemicals to make the latest instant food maximally addictive; advertisers get paid for peddling it; and, in the end, the health-care industry makes a fortune treating the disease that inevitably results.
Coronary capitalism is fantastic for the stock market, which includes companies in all of these industries. Highly processed food is also good for jobs, including high-end employment in research, advertising, and health care.
So, who could complain? Certainly not politicians, who get re-elected when jobs are plentiful and stock prices are up – and get donations from all of the industries that participate in the production of processed food. Indeed, in the US, politicians who dared to talk about the health, environmental, or sustainability implications of processed food would in many cases find themselves starved of campaign funds.
True, market forces have spurred innovation, which has continually driven down the price of processed food, even as the price of plain old fruits and vegetables has gone up. That is a fair point, but it overlooks the huge market failure here.
Consumers are provided with precious little information through schools, libraries, or health campaigns; instead, they are swamped with disinformation through advertising. Conditions for children are particularly alarming. With few resources for high-quality public television in most countries, children are co-opted by channels paid for by advertisements, including by food industry.
Beyond disinformation, producers have few incentives to internalize the costs of the environmental damage that they cause. Likewise, consumers have little incentive to internalize the health-care costs of their food choices.
If our only problems were the food industry causing physical heart attacks and the financial industry facilitating their economic equivalent, that would be bad enough. But the pathological regulatory-political-economic dynamic that characterizes these industries is far broader. We need to develop new and much better institutions to protect society’s long-run interests.
Of course, the balance between consumer sovereignty and paternalism is always delicate. But we could certainly begin to strike a healthier balance than the one we have by giving the public far better information across a range of platforms, so that people could begin to make more informed consumption choices and political decisions.
Kenneth Rogoff is Professor of Economics and Public Policy at Harvard University, and was formerly chief economist at the IMF.
Copyright: Project Syndicate, 2012.
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ajmendes 11:08 02 Feb 12
Blaming the food industry and finding market-failures everywhere is a road to state serfdom as pointed long ago by Hayek. The nanny state rarely knows better than common wisdom in an area where scientific knowledge is laking. For instance, for many years I have been avoiding eggs because they were supposed be bad for my colesterol. Now the doctors said to me that they found out that it may actually be good for colesterol. The food industry has always been one of the msot regulated industries, but regulation is more for the protection of incumbents than to prevent the vodoo science in this field.
christnr 03:07 02 Feb 12
Perhaps the capitalist system is actually working all too well with regard to food excesses. The data on costs is well established: shorter lives, higher health care expenditure, evironmental impact. But how do we quantify the benefits of pleasure derived from eating tasty sweet and fatty foods?
The moralist in me votes in this case for the exercise of sacrifice (less pleasure) toward a worthy goal: no pain, no gain. I admit to being pretty vigilant about how I eat. But that could be the residual puritanism of a culture formed in times of scarcity.
If the measure of an economic system is maximizing population well-being which includes pleasure (as well as individual sovereignty) as a positive good, then we need to see a full accounting of the capitalist food system before pronouning it broken.
lukelea 04:33 03 Feb 12
Tobacco, the widespread use of, was a similar problem was it not?
SwedishLex 07:59 03 Feb 12
This post could be read as an implicit follow up on the previous ones about rethinking the growth imperative.
What makes perfect sense from a short-term market perspective is utter nonsense and dangerous in the long-term. Taking it one step further, the pharma and health industries will thrive and "contribute" to increases in GDP when they will have to deal with an escalating health disaster. Increased GDP is a good thing under the current bean counting paradigm, but also contributing to humanity's outdrawn collective suicide.
Increased "Paternlism", as put in the post, would infringe what we call personal freedoms. Sure, but include all externalities in the price of products and services would be a start.
The U.S. could also model its food and agriculture safety regulations of those of the EU. The latter are far from perfect but probably better than the former.
luisgue5731 05:37 03 Feb 12
Estimado don Kenneth. Le escribo desde Costa Rica. He leído su artículo publicado en en períodico La Nación. Muy acertado, muy bueno. Hace unos días el Ministro de Educación de nuestro país emitió un Decreto mediante el cual se regula lo que los niños y niñas consumen en las sodas escolares. La industria "alimentaria", así entre comillas, se le ha venido encima. Un ataque fuerte y artero. Su artículo ha caído como del cielo. Permítame expresarle mi admiración. Cordialmente, Luis Guevara Rivas
gamesmith94134 02:53 04 Feb 12
Gamesmith94134: Coronary capitalism
Kenneth Rogoff,
In studying life or economic,” too much of a good thing is not a good thing” indicated the imbalance which one may overwhelmed with the good thing; that nutrition to health that its application must meet its body of health. I recalled once Mr. Zsolt mentioned Homeostasis in physics of body governance; so, it does apply to health and economics too since each could have its own capacity to growth and risk factors to defects. Just like the perpetuity on growth imperatives, it must give in after the balance is off the capacity either to the body or economy because we are in a very physical world; it dictated the limitations based on its physiques. Obesity is the outcome of its imbalance to health, so is depression to economy.
There are no defects on the principles of capitalism or socialism till someone applies them to their systems with lesser acknowledgement of its capacities to growth, because both theories have its advantages and disadvantages and its limitation based on its physique that is relatively the contention of its populace. They paraphrased the paternalism and consumer sovereignty as the water mark which lost its significance as the water mark you intended to search on the wrecked ship, since it have already landed on the sand bar, in which coronary capitalism or depression is already shown. This is the same as the food and nutrition that are regulated in the industry or media that promoted or served on its own purpose rather than the welfare or health of an individual that many of various physique pursuit.
“The pathological regulatory-political-economic dynamic that characterizes these industries is far broader. We need to develop new and much better institutions to protect society’s long-run interests.” It mainly falls on a mutual understanding of the exposure on the specifics that are being evaluated. Each, like the paternalism and consumer sovereignty, ia attempted to influence the government to legislate and manufacturers to produce food or goods that suit for consumers under the commercialism. Perhaps, capitalism is not dead after all; it is just have to change itself to gain its consumers in order to survive. If most understand process food cause obesity, the producer should change its menu before it is thinking to open its doors next month. If government realizes what the 99% to 1% means for its citizens, it must find its way to cool them down or they may be occupied and replaced. May be capitalism or socialism is just another excuse to revolt. Open doors to acknowledgement in all sides is the best solution just prior the disaster occurs; if we all understand our physique, capacity, appetite, digestion and consumption are bounded to a finite world.
May the Buddha best you?
aepxc 11:08 07 Feb 12
We do not need more powerful governments, we need less powerful businesses. Trouble arises only when the power of our instituitions – be they governments, businesses, chucrches, or whatever else – begins to grossly exceed the power of the average individual. When that happens, our institutions stop serving us and begin trying to force us to start serving them.
mholzman 10:40 15 Feb 12
aespxc,
I agree with your statement: "We do not need more powerful governments,.... Trouble arises only when the power of our institutions ....begins to grossly exceed the power of the average individual. When that happens, our institutions stop serving us and begin trying to force us to start serving them".
However, it seems to me generally, that we have been so well indoctrinated by these institutions that "force" is unnecessary. The illusion is compete.
A fan of Kafka
HistorySquared 04:15 19 Feb 12
The argument that the US is suffering from an obesity epidemic because of the government is absurd: research and information on diet and food contest is pervasive and a google search away. The food industry produces unhealthy food, because that is what people want and demand, less they go out of business. This is America. We want freedom, not social engineering according to what politician feels is right for us to live. Perhaps we should go back to the church-state singularity of the English monarchy.
kirkomrik 09:33 22 Feb 12
We have another winner. Slowly more and more commentators are catching on: "neo-liberal western democracy" is a farce and capitalism is a key component of it. But Marxism isn't the answer. The answer must come from novel approaches, such as Zero-Zero Banking which you can read about here http://wp.me/p26aPU-aO
kirkomrik.wordpress.com
- kk
Zsolt 03:36 02 Feb 12
Your example through obesity is a very good example as it represents basic human nature.
We only care about stuffing our own stomach regardless of the consequences until it becomes too late.
The same describes the constant growth, increasing profit oriented, expansive, competitive economical system that has run into a dead end as a morbidly obese person when all the dieases start to break out.
In our closed, finite, interdependent global system no infinite growth is possible, and the profit chase slowly cripples the public, including the middle class who could drive it forward, as they lose their jobs money and confidence, bubble bursts after bubble as the debt burden necessitated by abnormal consumption has been stretched too far, we deplete our resources, moreover more and more people realize that all the products were have been chasing are unneccessary and directly harmful.
We are in a vicious cycle now and we will be forced to change either by significant blows or by recognizing the dead end, and changing our ways before it is too late.
As the writer says:
"...Of course, the balance between consumer sovereignty and paternalism is always delicate. But we could certainly begin to strike a healthier balance than the one we have by giving the public far better information across a range of platforms, so that people could begin to make more informed consumption choices and political decisions..."
The solution is a global information sharing program teaching all of us about the global system, its laws and implications and how we can return to the balance and harmony that characterizes every closed living system. If we are successful making people everywhere to understand that by doing so we become healthier, more prosperous and can build a sustainable future instead of the present uncertainity, we will be able to break free from our present brainwashed consumer slavery.
The global crisis is providing a helping pushing hand from behind as gradually there is nothing attractive left from our present way of life, even the so called 1% might find themselves in bankrupcy or under threat very soon if we do not start changing together.