Until 2005, Feeding America distributed food and other goods in a straightforward way. New donations went to the food bank that had been waiting for new supplies the longest.
Advertisement
Continue reading the main story
This seemed fair, but food frequently ended up in the wrong places. Professor Prendergast said the director of a food bank in Idaho would “roll his eyes when they’d keep offering him potatoes, even though he had warehouses full of them.” And Susannah Morgan, director of the Oregon food bank, said that when she was working for a food bank in Alaska, she had frustrations like this one: “picking up the phone one day and being told I’d been given a truckload of peanut butter — in Louisiana.” Moving peanut butter across the country was suddenly her responsibility.
These problems provided textbook examples of gross inefficiency in allocating scarce resources, with an eerie resemblance to the pervasive shortages and misdirected resources of central planning in the old Soviet Union.
Free markets are, of course, another way of distributing resources, but they may seem ill suited for food banks, where the goal is to get food to the neediest cases, not the richest.
In a free housing market, for example, big houses generally do not go to those who need them most but to those willing and able to pay the most. Poor families with children often must squeeze into tiny apartments, while rich single people may enjoy spacious homes.
But it turns out that when you analyze objections to free markets on these grounds, they contain two basic issues: First, goods go to the highest bidder; second, bidders possess different amounts of wealth. Disentangling these two factors is important. When markets produce outcomes that seem unfair, it is usually the second factor — the wealth disparity — that is to blame.
Place bidders on an equal footing and the superior efficiency of the market becomes evident. When two similarly well-off families vie for a large house, for example, the family that places the greater value on the property will outbid the other one.
This insight has been put into practice in many settings. In some universities, for example, students bid on courses using “points,” not dollars. This bidding process can be fair and efficient when universities allocate the points equitably. It would be a very different matter if the richer students invariably received entry to the best classes.
A task force at Feeding America — which included Professor Prendergast, Ms. Morgan and others — adopted this approach. They embraced a bidding system using a virtual currency. Crucially, food banks with the greatest need received the most currency and so could place the highest bids, harnessing the benefits of a free market with fairness in the distribution of the underlying wealth.
The new system started in 2005 and quickly proved successful, sometimes in unexpected ways.
For example, donations seemed to fall into two categories. Food banks sought some items, like diapers, that “sold” at relatively high prices. Some food banks focused on bidding on these items, which had the effect of lowering the prices of staples, like produce. The neediest food banks were able to obtain these staples at bargain prices. This was the kind of positive-sum situation that ideal markets allow: Everyone was a winner.
Advertisement
Continue reading the main story
In another unexpected turn of events, some food banks began to sell their excess stores. The Idaho food bank, with warehouses full of potatoes, sold some of them and bought other commodities with the proceeds. Soon, these transactions accounted for more than 12 million pounds of food redistributed among the food banks each year.
Most noticeably, everything ran more smoothly. Donations in the old system were laboriously offered to individual food banks in succession until a taker could be found. Donations were sometimes not accepted. Imagine how this made donors feel. Why give when what you offer is not wanted?
In the seven months after the new, more efficient system went into action, food donations increased by 50 million pounds, Professor Prendergast’s data indicates. Cause and effect is difficult to demonstrate, but the greater efficiency in making use of donations may have led to more donations.
What’s more, the food bank market didn’t just allocate scarce resources; it also made it possible to use “knowledge not given to anyone in its totality,” as Friedrich A. Hayek, the Nobel laureate, once wrote. In this case, each food bank director knew a part of the puzzle — what the local neighborhood needed, where food donations were available and so on. The more efficient internal market put together all of these pieces.
Markets report such dispersed information in the form of prices. Feeding America, for example, was surprised to see pasta at one point trading for 116 times the price of fresh vegetables. That was revealing data. In hindsight, it made sense: Vegetables spoil rapidly, which is why food companies donated them freely; pasta, with its longer shelf life, was a rarer commodity, as far as donations go. But none of this was obvious until the bidding market sprang up. Feeding America began to use this new information to decide which donations to seek most aggressively.
Though the market eventually flourished, getting it started was not easy. John Arnold, a director of a food bank in western Michigan who died in 2012, at first rejected the new approach: “I am a socialist,” he said. “That’s why I run a food bank. I don’t believe in markets.” But he came around, because he believed that the market system was better for the people his food bank served.
Feeding America’s experience demonstrates the power of markets when they are used as a tool for fulfilling people’s needs fairly and equitably.
This is an important point: Many economics textbooks separate efficiency from equity, but perceptions of the two are intertwined. The efficiency of the Feeding America market was intimately tied to its equity.
Advertisement
Continue reading the main story
Political discourse these days often assumes that free market principles must be associated with inequality. Some free market advocates not only extol market virtues but also caution against interfering with the wealth distributions that untrammeled markets frequently create, elevating the market from a tool to an ideology.
This is a mistake. We could all learn from Mr. Arnold. Despite his initial objections, he became a champion of basic market reforms and continued to innovate, pioneering “free market” inventions like allowing food bank clients to choose their own food instead of making everyone accept the same basket.
He understood that you can use the market as a tool without embracing an entire ideology.
Continue reading the main story
Article source: http://www.nytimes.com/2016/10/09/upshot/sending-potatoes-to-idaho-how-the-free-market-helps-food-banks.html?partner=rss&emc=rss
Speak Your Mind
You must be logged in to post a comment.