• Open Access

Childhood obesity – a sign of commercial success, but a market failure

Authors


Victorian Health Promotion Foundation, 15–31 Pelham St. Carlton, 3053, Melbourne, Victoria, Australia, 613 9667 1375 rmoodie@vichealth.vic.gov.au

Abstract

‘Obesogenic’ products, such as energy dense foods, passive entertainment products, cars, and labour-saving devices, are widely available and heavily promoted. Because they are highly consumed and very profitable, obesity becomes the inevitable consequence of their commercial successes. Contemporary market forces heavily favour behaviours for short-term preferences (i.e. over-consumption and underactivity) over long-term preferences (i.e. healthy weight) and this is especially true for children. Hence, if the market, as the main mechanism for determining choices, results in outcomes, which make our children worse off, as is occurring with childhood obesity, then the market has failed to sustain and promote social and individual goals. This is a serious market failure. In the current obesogenic environment, expecting adults, let alone children, to make food and activity choices in their own best long-term interests is, therefore, demonstrably flawed. We argue that significant government intervention is needed to correct this market failure, as has been done for other major health problems.

Introduction

The increasing prevalence of childhood obesity in many countries is now being recognised as an epidemic and a crisis with multiple individual, public health, and societal consequences 1, including predictions that it will result in a decline in life expectancy 2.

Several authors now explain obesity as an economic phenomenon 3–5 proposing that technological change is a key driver of the epidemic. In this paper we extend this by arguing that an even more fundamental driver underpinning the rise in obesity is the power of commerce, and that this represents a clear ‘market failure’ to deliver optimal personal preferences, and that deliberate government policies are needed to counterbalance market forces and promote healthier choices to reduce childhood obesity.

The economic and technological determinants of obesity

Obesity has multiple levels of determinants with the most proximal to energy imbalance being a variety of individual behaviours. Table I outlines some of these key behaviours, which, in turn, are related to commercial products. The table classifies behaviour and related commercial products according to their impact upon promoting obesity (positive energy balance) or reducing obesity (negative energy balance).

Table I.  Key behaviours associated with energy balance and their links to commercial products.
Energy balanceBehavioursRelated commercial products
Positive energy balance from decreased energy expenditure○ Car use○ Cars, road systems, car-dependent suburban housing
 ○ Occupational physical inactivity○ Energy-saving machines for doing work (e.g. factory & farm machines, computers)
 ○ Incidental physical inactivity○ Energy-saving devices for daily life (e.g. home appliances, lifts)
 ○ Passive recreation○ Programs and technology for TV, DVDs, movies, e-games
Positive energy balance from increased energy intake○ Consumption of energy-dense foods 6, 7○ Fast food, confectionery, high-fat or high-sugar foods, low water content foods (e.g. cookies, savoury crackers)
 ○ Consumption of high-sugar beverages 8○ Soft drinks, sports drinks, fruit and cordial drinks
 ○ Consumption of low fibre foods 6○ Highly processed foods
 ○ Consumption of large servings 9, 10○ Upsized products (larger volume for small extra price), low ‘guilt’ foods
 ○ Eating outside the home○ Fast food outlets, restaurants
 ○ Frequent snacking○ Snack foods, vending machines
 ○ Binge eating after diet failure○ Commercial diet programs
Negative energy balance from increased energy expenditure○ Recreational physical activity○ Exercise equipment, sporting club and gym memberships
 ○ Active transport○ Private mass transit services, bicycles, skateboards
Negative energy balance from decreased energy intake○ Consumption of naturally energy-dilute, fibre-rich foods○ Fruits and vegetables
 ○ Consumption of reduced-energy foods, beverages, and meals○ Manufactured low-energy foods, beverages and meals
 ○ Other dieting behaviours○ Commercial diets, books, meal replacements

The combination of high levels of promotion, widespread availability and low prices of these products would be expected to increase the related behaviours. It is clear that the balance of the current commercial forces would overwhelmingly drive the behaviours in the direction of positive energy balance.

Technological developments often result from innate human desires to minimise costs in terms of money, time and physical effort. Minimising these costs has had a great impact on our physical activity involved in transport, work, domestic living 11 and leisure activities, with the latter particularly applying to children and adolescents through television and electronic games.

Not only has technological change led to less energy expenditure, it has also led to mass-produced, energy dense foods, which are cheaper to produce and buy, are quicker to prepare and eat, and are highly palatable 12, 13.

Obesity as a commercial success

Commercial drivers of physical inactivity and over-consumption of energy

Fifteen years ago, video games “were barely more than a cottage industry” 14. Now computer and video games are big business with US sales alone doubling from $$3.7 billion in 1996 to $$7.3 billion in 2004 14. The food and advertising industries are also major beneficiaries of the commercial success of obesogenic products. In the US, food, beverages and candy manufacturers together with restaurants spent US$$11.2 billion on advertising in 2004, placing them third, behind the automotive and retail industries 15.

The automobile industry probably does more than any other to reduce the need for physical activity. In 2004, $$US20.5 billion was spent in the US to influence people's car preferences 15. This high level of promotion not only influences brand selection but also contributes to the increase in the global car market-predicted to rise from 48.8 million in 2004 to 60 million in 2009 16. Even greater increases have occurred in the global sales of personal computers (148 million in 1993 to 822 million in 2004), which are predicted to surpass 1 billion in 2007 17.

Commercial drivers of physical activity and healthy eating

Annual global bicycle production increased from 11 million in 1950 to a peak of 106 million bicycles in 1995, subsequently falling to 104 million units in 2002 18. If we assume that the average cost of a bicycle is US$$100 (given that half of the global production is in China) then the global bicycle market is in the vicinity of US$$10 billion, compared with US$$800 billion for only the top five car companies.

The marketing of active transport, such as cycling, and nutritious foods, such as fruit and vegetables, is diminutive. For example, even the relatively large US government spending on nutrition education ($$330 million in 1997) was less than one twentieth the amount spent on advertising by the food industry 19. Although commercial spending on dieting is increasing, this does not target pediatric obesity, nor is there much evidence in adults that these programs decrease weight in the long-term at the population level 20.

Obesity as a market failure

Almost all adults and adolescents, and even most school-age children would know the fundamental causes of weight gain (eating too much and exercising too little) 21 and would not want to become obese 22. However, “fewer people are willing to pay the price – in effort, expense, or foregone pleasure and leisure – of limiting their weight” 4.

In orthodox economic theory, the (perfectly) competitive market results in ‘efficiency’ and there is no need for government intervention. Well-informed individuals make rational choices based upon their personal preferences. These choices maximise their utility; that is, individuals satisfy their preferences in the best possible way for themselves. For parents who are making choices for their children, their preferences extend to what is the best for them and their children. Markets, in turn, respond to the public's revealed preferences by allocating more resources to the preferred activities. This process continues until ‘marginal benefits’ (to consumers) are equal to the ‘marginal costs’ (of using scarce resources); that is, until there is ‘allocative efficiency’.

Market failure occurs if resources are not allocated to where they best satisfy consumer preferences and this provides a prima facie case for government intervention. We argue below that the simple textbook model of perfect competition described above does not describe the most pertinent characteristics of the market, which promotes obesity. We argue that with a more realistic representation of market and consumer preferences, ‘market failure’ does occur and provides a compelling case for government intervention in the industry.

Two important assumptions of the simple theory are:

  • 1that social welfare depends only upon individual utilities and that individuals (as rational agents) consistently behave in a way that maximises their own utility.
  • 2that the individual has preferences that are independent of the various social pressures, which seek to manipulate them.

The first assumption is contentious: that social welfare is maximised when individuals maximise their own (or their family's) utility. In orthodox welfare economic theory, social welfare is a function only of individual utilities – the view embodied in the free market ‘welfarist’ approach. In contrast, and drawing very heavily on the work of Sen 23, other economists have recognised that, in health, the community does not seek to only satisfy people's preferences but also seeks to improve population health. The evidence supporting this view is conclusive: every country with a functioning government has intervened to achieve health-related objectives. National health schemes do not simply help people maximise their utility. If this were not true, there should be widespread support for people cashing in their benefits from a national health scheme and using them for overseas holidays or other purposes whenever it maximised their personal utility. Survey evidence indicates that the population supports national insurance in order to improve population health 24–26. In the health economics literature this view is described as ‘extra welfarist’.

It might be argued that the achievement of extra welfarist objectives is a separate goal from the achievement of ‘market efficiency’ and that markets cannot be expected to allocate resources according to some other criterion than revealed preferences. However, this defence of markets violates the purpose of welfare theoretic analysis of markets in which ideal markets maximise social welfare. Markets also fail when there is an impediment to the achievement of social goals. Externalities of ‘consumption and production’ insert a wedge between price signals and consumer welfare. Price and market rigidities, monopoly or cartel behaviours all have the same effect. In each of these cases, market failure occurs because too many or too few resources are allocated to an activity because the rewards to the suppliers of goods and services are not aligned with the social objectives, albeit an objective partially delegated to the government to achieve.

In the market for obesogenic products there is similarly a wedge between the price signals and social goals. Below it is argued that the wedge also prevents the achievement of individual goals.

The problem with the second assumption – that people will consistently maximise their own utility – is neatly described by Rice, as follows 26.

The primary tenet of modern economics is the sanctity of consumer choice … to maximise overall social welfare, we should set up an economic system that is best at allowing consumer choices to be satisfied. Where these choices come from … is beside the point.

But Rice continues,

But if what you want depends on what you had in the past, or on the influence of peers or advertisers then it is not clear that a competitive market place is the best way to make people better off.’ (p. 47)

Rice is referring here to one of the many reasons for preference (or market) failure. People may not have the correct information, nor the analytical ability, strength of character, or will to convert what they know to be best for themselves or their children into effective action. Children, of course, are highly susceptible to manipulation, such as from food advertisers 27, as they do not understand the links between behaviours and long-term health outcomes 28, yet they have a significant influence over food purchase choices 29.

A further problem arises from what Goodin 30 describes as preference failure because of a short-term weakness of will. As argued by O'Donoghue and Rabin and others, people with rational long-term objectives might weaken in the short term and seek immediate gratification 31. This precisely describes the problem of ready availability of cheap, energy-dense foods and drinks and the resulting problem of obesity that the rational consumer would normally seek to avoid.

The desire for instant gratification – or the failure of will – is not the principle reason for concern with the unregulated market. Rather it is the combination of the desire for ‘instant gratification’ with a second element, which is the real cause of concern. This second element is the constant exposure of individuals to preference manipulation by those marketing unhealthy products. This problem is ignored in orthodox welfare economics, which assumes preferences to be fixed and unchanging. Rice labels this assumption the ‘immaculate conception of preferences’ 26. The assumption is clearly wrong. Marketing is one of the world's largest industries. It is highly sophisticated with its own research capacity, which draws upon the cumulative learning of psychology to influence human behaviours in order to achieve outcomes profitable to the company or the industry that has paid for the marketeer's services. The concepts of market efficiency and market failure, which ignore these fundamental characteristics of the marketplace, would be defective. In economics, ‘welfare theory’ assumes equal information, will and power between service buyer and seller. If individuals were really empowered in this way, there would be no marketing industry and only objective information would be provided to consumers who would ignore attempts to thwart the achievement of their long-term objectives.

The concept of ‘market failure’ in economics is not, however, always defined in terms of the (failure to satisfy) preferences. In one of the classic texts on this issue, Bator 32 defines market failure as:

… failure of a more or less idealised system of price-market institutions to sustain “desirable” activities or to stop “undesirable activities” ’. (p. 351)

The widespread dissatisfaction among adults and adolescents with their body weight 22 means that the existing market conditions are promoting behaviours with personally undesirable outcomes in this respect and are ‘failing to sustain desirable activities’ as defined by people's own long-term objectives. That is, using this orthodox definition obesity is a clear case of market failure.

Self-correction of market forces versus government intervention

Given the magnitude of the commercial drivers of obesity, what can be done?

The first option is to rely on self-correction of market forces. In other words, in the face of increasing weight gain at individual and population levels, adults, adolescents and children, as consumers, may demand healthy choices, which will force the commercial world to provide and promote them. This is already happening to some degree incrementally, but given the powerful commercial drivers promoting obesity and the vested interests in maintaining the status quo it is unlikely that there will be profound and favourable self-corrections in market forces in the near to medium future.

The other option is for governments (on behalf of their constituencies) to intervene in the market place. Economic theory explicitly justifies intervention in the market if there is market failure due to imperfect information, significant externalities or imperfect rational behaviour 33.

This particularly applies to childhood obesity where one of the important drivers of energy over-consumption is the heavy marketing of energy dense foods directed at young children 34, 35. Current arguments for government intervention in this area include the health consequences of childhood obesity, and its current and predicted health care costs 1. This latter factor – the future health care costs – suggests that the ‘cost’ of government intervention is likely to be very low. For example, the enforcement of Quebec's ban on advertising directed at children under the age of 13 is achieved with less than 15% of a single enforcement officer's time (A. Allard, personal communication; 2006). This low cost of regulatory interventions makes them potentially very cost effective or even cost-saving once cost offsets are taken into account.

In addition, children have a right to protection from commercial exploitation 36 and there is a moral need to apply precautionary principles to protect children's welfare 37, 38. The Quebec regulations seem to be providing some of this protection, especially for the French-speaking children who are not as exposed to the advertising from American television that spills across the border 39.

In the USA, Brownell cites opinion polling data from 2001 to 2004 showing that “there is growing support for public health approaches, such as taxing foods, restricting food advertising aimed at children, banning soft drink and snack foods from schools and requiring calorie information on restaurant menus. In some cases, those in favour comprise a considerable majority” 40.

Government intervention to restrict some of the commercial drivers of childhood obesity is, of course, only part of the action needed to turn around the epidemic. Other programs, policies and social marketing activities that promote healthy eating and physical activity are needed. Conversely, these other health promotion approaches are unlikely to be successful if nothing is done to curb obesogenic commercial forces.

Examples of potential government interventions

A broad mix of obesity prevention strategies might include food marketing directed at children. This is an area presently receiving a lot of attention, especially in countries like Australia where the existing regulations are ineffective and fail to protect Australian children from one of the highest volumes of television advertisements for obesogenic foods in the world 41. Even in Sweden, Norway and Quebec, where the regulations on television advertising to children are much tighter, advertisers can still effectively target children through cable television, broadcasting across jurisdictions, sponsoring children's events and sports, product placement, the internet and other marketing techniques 42.

Other government interventions to redress the imbalances in the market place could include subsidies for healthy foods such as fruits and vegetables or ‘activity’ products, such as exercise equipment. Another option is a tax on unhealthy foods (e.g. fat, soft drinks) 43 or ‘inactivity’ products (e.g. petrol, car park spaces, inner city car use). Some agricultural policies in the EU create an obesogenic food supply whereby oil-producing plants are subsidised but fruit and vegetable productions are regulated to maintain high prices 44.

We have ample precedents for government intervention in the market, in order to promote and protect the public's health. These include tobacco control (pricing, advertising and promotion restrictions, and smoke free restrictions), road trauma minimisation (mandatory seat belts, speeding and alcohol restrictions), and injury prevention (restrictions on arms, fireworks and workplace safety regulations).

Conclusion

The laissez-faire approach of leaving solutions for obesity solely to individuals within an unfettered marketplace, is patently failing. While the public will make some sacrifices they are clearly failing to achieve their own long-term objectives. They succumb to the influence of a powerful marketing industry. In the face of such an assault on population wellbeing we conclude that the market does not, in Bator's words, “sustain desirable activities or stop undesirable activities”. Therefore, we conclude that ‘market failure’ should warrant government intervention. We believe that unless the power of the commercial drivers of obesity is well understood and modified through government interventions then we will fail in promoting and protecting the health of the public in general and children in particular.

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