Food Industry Lessons for the Health Care Sector
The COVID-19 pandemic impacts everyone and puts enormous stress on all businesses. As we shelter in place, wondering if every cough or sniffle is “it,” two markets essential for our health and well-being come into focus: food and health care.
Both are under enormous stress from the surge in demand. One is rising to the challenge with increased production and distribution to rapidly meet our needs. The other is increasingly overwhelmed, bogged down with supply and capacity restraints. Why?
Feeding America is a $2 trillion business, more than half of which arises from retail sales. According to a 2017 MarketWatch article, 38,000 grocery stores in the U.S. generated $650 billion in sales by offering between 15,000 and 60,000 separate items for sale, up from 7,000 just 20 years ago!
Food entrepreneurs develop new distribution channels as well. Grocery stores compete with convenience stores, wholesale clubs, supercenters, discounters, drug stores and, increasingly, with direct-to-consumer e-commerce channels. According to Supermarket News, traditional grocery stores’ share of retail food sales fell from 90% in 1988 to 40% in 2018. And, with our current quarantine, the direct-to-consumer Internet retail food channel is experiencing explosive growth.
Toilet paper, hand sanitizers and other products are selling out fast, due to the surge of panic purchases, but industry is responding. Georgia Pacific reported last week that its factories are operating 24/7 and the Los Angeles Times reports that there is no toilet paper shortage, as private producers, shippers, warehouses and stores constantly restock to meet the surge in demand. And companies are entering the hand sanitizer market, such as beauty-product companies and distilleries, to augment supply to meet this new demand.
We have a remarkable, diverse, innovative, low cost and resilient retail grocery industry that’s responding well to our current challenges.
We know our food system works safely and efficiently, and we know -- although rarely consider -- that government’s involvement in the food industry is limited. There’s no government planning and, with some limited exceptions, the government is not purchasing food on behalf of consumers, approving new products, setting prices, dictating distribution modalities or business structures. Government does not try to run the food business, yet our food industry is a wonder.
Contrast this with another essential industry: health care. According to CMS, U.S. health care spending in 2018 was $3.6 trillion -- and to say that government is involved in health care is an understatement. Government is involved at every level, from research and innovation to finance and, of particular note, supply and delivery.
Government manages the supply of hospitals with certificate-of-need regulations; government permission is required to build or expand hospitals, long-term care facilities, dialysis centers, ambulatory surgical centers, alternative health care delivery models and so forth. Government approval is required before innovative drugs or medical devices can be brought to market, and government regulates physicians, from their standards of care and recordkeeping to their business organization. Government is the biggest purchaser and supplier of health care, and in some markets government is the largest customer: For example, the federal government purchases more than half of many vaccines.
Food markets have more surge capacity than health care markets, where there’s already a shortage of tests, swabs, protective masks and gowns, not to mention medicines, acute care beds and respirators. While the government has a national stockpile of food and health care supplies to help respond to crises such as this, we are discovering that it’s not sufficient or sufficiently targeted at this problem.
The Trump administration is addressing these shortages. The testing surge last week arising from the new public-private partnership is instructive. The Administration turned private industry loose to make products bogged down in government, while the government delivered income support and military logistics to get the product to those who need it most.
This experience highlights something important: Government is neither omnipotent nor omniscient. Our government is an organization comprised of regular human beings who work in the context of a rules-based, process-obsessed, turf-conscious bureaucracy. Yes, our government demonstrates skill at national defense, will improve at public health, is well-suited to setting and enforcing rules, helps people who need income or other support and includes many admirable and even visionary leaders, but it’s not good at everything.
A free market comprised of private organizations is simply better at managing supply, setting prices and anticipating or responding to changing demands. The government should set and enforce the rules with an eye on safety, and provide modest income (and, in a crisis, liquidity) support when circumstances warrant, but our experience responding to COVID-19 demonstrates robust markets replete with private and social entrepreneurs are inherently better at providing goods and services to identify and heal the sick and keep the rest of us alive.