Remember the great infant formula shortage of 2022? It was caused by a bacterial infection at a plant run by Abbott Laboratories, makers of the popular Similac brand.
Or was it? About half the formula in the US is provided free to low-income families via the WIC program, which runs competitive bidding in each state every few years to choose a supplier. Over at National Review, Dominic Pino says this is the real problem:
When government steps between customers and producers, price signals stop working as they should. The mutually beneficial dynamic by which competition between producers lowers prices and increases choices for customers does not have the chance to play out. Success in the market becomes dependent on closeness to government, rather than satisfying customers. The baby-formula market is a perfect illustration of this age-old story — but it’s hardly the only example.
Maybe! Ironically, though, the state-level competitive bidding idea was originally a conservative laboratories of democracy thing. After a decade of spiraling formula prices, states turned to competitive bidding to rein in costs:
The most decisive showdown occurred in Texas in 1988, where a conservative Republican administration moved to institute competitive bidding and some of the large manufacturers mounted a major opposition lobbying effort, but the state moved forward with competitive bidding nonetheless.
In 1989, statewide competitive bidding was mandated by Congress. President George H.W Bush sang its praises:
By utilizing the competitive forces of the market, these State laboratories of innovation were able to use savings of $300 million to increase WIC participation by 500,000 this year.... By moving all States to competitive bidding systems, this bill will save an additional $40 million and allow 68,000 more needy pregnant women, infants, and children to participate in WIC.
....This is the kind of action we must pursue — obtaining better value for each dollar of Federal spending — if we are to make progress on pressing national concerns.
Pino's peg for his piece is a recently released FTC report about the 2022 shortage. But that report, far from suggesting that government regulations had reduced the number of suppliers and made the supply chain more fragile, shows just the opposite:
As you can see, the formula market has always been highly concentrated. However, since the start of competitive bidding it's gotten less concentrated, going from three major suppliers to four.
The only real problem is that while the market as a whole may have gotten more competitive, each state relies heavily on a single supplier. In 2022, for example, states that had contracts with Abbott were obviously hit especially hard. Still, what's the alternative? Not to conduct competitive bidding? That hardly makes sense.
So there's not really much to the market interference criticism. Statewide competitive bidding was a conservative idea in the first place, and it has indeed lowered taxpayer costs by billions of dollars with no ill effects on market concentration. The only remaining objection is a generic complaint about all social welfare programs distorting the free market, with WIC merely a handy example.
Actually, though, there is one remaining objection. Pino only barely mentions this, but he's right that competition suffers from pointless US tariffs on foreign sources of formula. That's something we probably really should do away with. Unfortunately, conservatives are pretty stoked about tariffs these days thanks to Donald Trump, so there's not much chance of that.
When government steps between customers and producers, price signals stop working as they should
when government steps between women and their doctors, medical care stops working as it should
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Calling tariffs "pointless" is just stupid. The two main reasons for tariffs are to protect American jobs from competition from foreign workers who accept much lower wages, and to make sure of supplies in case of emergencies like wars - or pandemics. Absence of tariffs keeps prices down but it also keeps wages down. A result of this (among some other things) is that real wages in the US have been stagnant for about 50 years. "Free trade" is good for international corporations and those upper-income people in the US who do not have to compete on wages with people in other countries. You may not like higher prices which result from higher wages (as many self-described liberals do), but that does not mean that tariffs are pointless.
Of course Trump's tariffs were largely pointless, such as those on Canadian goods.
The problem was that there was/is little excess capacity. One plant goes down and there's little room in other plants in the US (all companies) to ramp up quickly and make more.
This is optimized capitalism. Carrying excess capacity is an expense to be squeezed out. And if a shortage happens, that's windfall profits.
Formula vouchers are the obvious solution!
Infant formula shortage appears: Biden is the worst president ever!
Biden fixes the infant formula shortage: Biden is too old!
Before getting excited about importing formula from, say, China, I suggest reading this:
https://en.wikipedia.org/wiki/2008_Chinese_milk_scandal
“The 2008 Chinese milk scandal was a significant food safety incident in China. The scandal involved Sanlu Group's milk and infant formula along with other food materials and components being adulterated with the chemical melamine, which resulted in kidney stones and other kidney damage in infants. The chemical was used to increase the nitrogen content of diluted milk, giving it the appearance of higher protein content in order to pass quality control testing. 300,000 affected children were identified, among which 54,000 were hospitalized”
Putting melamine into wheat gluten that was used for dog food products had previously led to a recall of pet food and illness and death of thousands of pets in the U.S. and Canada, including my dog who had kidney damage because of the stuff. On the plus side, based on the deaths and illnesses of the 2008 baby formula incident the people who were involved in perpetrating the adding of melamine to products were executed or received long prison sentences. (If I sound bitter about this it’s because I am and to the extent I can identify such I will not purchase any food product originating in China)
That was the same chemical they used to fool protein tests for dog food products shipped to the US.
There are lots of countries with good regulatory standards that we could safely import formula from, like New Zealand and the European Union.
“this bill will save an additional $40 million and allow 68,000 more needy pregnant women, infants, and children to participate in WIC.“
What this says to me is that the government chose to not spend the additional money necessary needed to feed 68,000 babies. For what isn’t even a rounding error in the federal budget. “Look, if you all can pinch enough pennies you can feed those babies from what you save. But don’t expect us to feed them. That’s socialism.”
FFS America, you’re the richest country in the history of the world. Feed the goddamn babies. All of them.
Republicans: "Giving you bread would be socialism, so all you get are circuses."
The majority of white Americans fully support Republicans' cruelest policies.
Spot on! I'll use this witty little epigram as soon as I can come up with an equally pithy obverse for Democrats.
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First off, Republicans are just allergic to anything that helps the vulnerable and poor, so there's that, because fuck those losers, amirite? And fuck 'em twice if they're kids. Second, Republicans are also in favor of any state intervention that enriches the private sector and (especially) their donor class. What this NRO guy is really angling for is a system whereby there is no lock-in contracts or competitive bidding for infant formula, but the market should take its course and states should pay whatever a profit-making enterprise demands, even if the price spikes. The question is not: how can we get nutrition to children most affordably or effectively, but rather how can we maximise windfall profits for drug companies at taxpayer expense?
It's rather simple.
"...how can we maximise windfall profits for drug companies at taxpayer expense? "
I don't think they care about "taxpayer expanse". It is "... at whatever costs" would be better description of their views.
Capitalists like to say that they love competition. But not so deep down, the every goal of theirs is eliminating competition or “cornering” the market or monopoly. It’s the capitalist’’s ultimate goal.
And guess what keeps that from happening? Rules and regulations.
Conservatives love, cherish and protect all zygotes, embryos, and fetuses, while any live born baby who's parents can't afford formula can go eat shit and die.
I can guarantee that the number 1 legislative objectives of these 4 US baby formula manufacturers lobbying efforts are the continuation of applicable tariffs.
Put the name of every living Harvard MBA in one hat, the name of every living UAW worker in another hat, pull one name from each hat, and put all your money on a bet that the UAW worker has a better understanding of capitalism. It's not a sure bet, but it's close because the vast majority of UAW workers think that capitalism is for increasing the wealth of nations, and the vast majority of Harvard MBAs think capitalism is for increasing the wealth of the already wealthy. Meanwhile, Adam Smith is rolling in his grave.
If he wanted to make a legitimate conservative argument, it would be about over regulation https://fortune.com/2022/05/18/the-fda-could-easily-solve-the-baby-formula-shortage-by-allowing-more-imports-from-europe-march-furton/
Brilliant exposure of right-wing hypocrisy, as usual. Hail Kevin!
I fail to see how a competitive bidding contract by the government "breaks" the "free market." A good competitive bid would include criteria such as minimum nutritional standards, packaging requirements, purity and contaminant levels, limitations on unhealthful additives like sweetners, and a whole lot more.
The harried "mom" pushing his or her cart through the store with a screaming baby on his or her hip is going to go largely, if not exclusively, by either price or familiar brand. They are less likely to scrutinize the near-invisible font of the detailed ingredients lists -- which leave out the "optional" stuff like lead and melamine.
Leaving it to individual, untrained buyers isn't "making the free market work." The "free market" presumes an omniscient buyer.
I'm retired from sales in the low acid beverage industry. Any low acid shelf stable products (>4.6 pH) are regulated by the FDA. We have rules in the USA for the sterilization process and packing that are different than outside the country. We cannot import low acid, shelf stable foods into the US, not even from Canada. It's not a matter of tariffs. Powdered formula may be OK. I'm not sure.
What happened to Wyeth in the late 1990's?
It is true that WIC has distorted the infant formula market. Price competition is largely driven by the most price-sensitive subset of consumers, so subsidizing them with free product will inevitably remove a lot of market discipline and send prices up.
On the other hand, expensive formula encourages mothers who are not eligible for WIC to breastfeed, which is good for babies at the margin. Still, it's not very nice that WIC-ineligible moms who cannot breastfeed have to pay through the nose because of something that's not their fault.
Overall, I'd say that keeping babies nourished is more important than keeping formula cheap, but it would also be a good idea for the government to apply price controls to correct for the market distortion that WIC creates.