Naomi Klein’s husband doubles down on public grocery stores

The road to neoliberalism is paved with good intentions

For those of you who don’t follow Canadian politics all that closely, Naomi Klein’s husband, Avi Lewis, was recently elected leader of the federal New Democratic Party (Canada’s traditional left-wing party). Lewis sat down for a long interview with Paul Wells, in the process of which he managed to activate a few of my trap cards. Two things stood out. First, the interview gave me additional grounds to lament the cognitive capture of the Canadian left by American progressivism, which I really don’t understand, because American progressives are bunch of losers who can’t figure out how win an election against even manifestly insane opponents. Second, there is Lewis’s reactionary idealization of the 1970s welfare state, accompanied by a refusal to acknowledge the many ways in which late-20th century restructuring (often described as “neoliberalism”) strengthened the public sector. Both of these problems were on display in his perverse insistence that the Canadian federal government become deeply involved in the grocery business.

But before going off on this, I want to pause for a moment to acknowledge my privilege, as someone who lives in a country in which politics continues to attract intelligent, mature adults, who are willing to engage in rational debate over questions of government policy in a public forum. Regardless of how one feels about Lewis’s specific views, I don’t see how anyone could watch that interview and fail to be impressed by how thoughtful and articulate he was. For example, it was exciting to hear a politician draw a conceptual distinction and then adhere to it. The whole thing made me feel better about the state of Canadian democracy (especially after the self-discrediting convention that the NDP put on to elect him).

In substance, however, what Lewis was offering was a reasonable-sounding defence of a deeply misguided position. The whole “public grocery stores” idea comes from Zohran Mamdani’s campaign for mayor of New York City (as Lewis acknowledged, somewhat strangely). The underlying motivation, as Lewis also acknowledged, is the desire to create a left-wing populist movement, by channeling some of the anger over inflation into support for progressive causes. People are mad about grocery prices, so let’s blame it on greedy corporations – and not just any old corporations, but the ones that happen to be last in the supply chain and so interact with the consumer directly! We can then promise to make it better through some benevolent intervention by the state.

There are several problems with this, perhaps the most obvious being that Canada and the United States are different countries, with very different economies. And not only is the U.S. a different country, but New York City is a rather special place, with its own special problems. In order to illustrate the difference (and at the slight risk of doxing myself), I took some pictures of price tags in the grocery store in my neighbourhood in New York (on the left) compared to prices for the same item at my local grocery store last week in Ontario (on the right).* In case it’s not clear, the prices on the left are in U.S. dollars, the prices on the right are in Canadian dollars. (At current exchange rates, the U.S. dollar is worth just over 1.35 Canadian dollars.)

For those who can’t be bothered to download the pictures: food in New York City is eye-wateringly expensive. The Quaker oats cost twice as much as in Ontario, the Oreos are three times more expensive, and the Pillsbury pie crusts cost four times more. Of course, one might complain that this is an apples-to-oranges comparison, because I’m comparing prices at a Morton Williams (upmarket chain owned by ShopRite) in Manhattan to a No Frills (discount chain owned by Loblaws) in a small town in Ontario. Obviously Oreos cost more at Loblaws in downtown Toronto. But Lewis is not running to be mayor of Toronto, he is running to be prime minister of Canada, and is proposing a system of food distribution hubs and retail outlets across the entire country. That proposal would put the federal government into direct competition with the discount and bulk retailers in Canada: not just No Frills/Superstore/Maxi, but Walmart, FreshCo, Food Basics, and Costco as well.

In the case of Mamdani’s proposal, the economics of it can be undermined with just a single question. All that one has to do is ask whether the workers at the new publicly owned grocery stores will be unionized. As a progressive, Mamdani is obliged to say yes, at which point it becomes clear that operating costs in the public sector will be higher than in the private sector. And since private grocery stores in New York already operate with razor-thin margins (1-2%), public ownership is not going to generate any savings that can be passed on to consumers.

Lewis, to his credit I suppose, was happy to announce that under his plan the workers would all be unionized, and that a significant fraction of the cost savings to consumers would be achieved by having the federal government directly subsidize the operation to the tune of $290-$300 million per year. (He even named the union that is to be the beneficiary of this new federal largesse.) As a federal politician he is in a better position to commit to subsidies than Mamdani is. And yet Lewis went on to claim that the state could still achieve significant cost reductions – on the order of 30%-45% – by having a national procurement program, wholesale distribution hubs, along with retail chains focused on selling a smaller range of products: “In the salad dressing aisle,” he suggested, “I’m not feeling the need for 179 options, I think half a dozen, or 12, or 20 would be great.”

Unfortunately, what Lewis is describing is not a new paradigm of grocery retail, it’s just Costco’s business model. (I would encourage Lewis to stop by the salad dressing aisle at a Costco some day and count the number of products being sold.) The idea that the Canadian federal government can successfully outcompete Costco – a legendarily well-managed corporation – is otherworldly. Indeed, long-term Ontario residents may recall the apprehension that was generated 20 years ago when Walmart opened a bunch of Sam’s Club stores in Canada. These stores all closed down a few years later, mainly because they could not compete successfully against Costco. The suggestion that the Government of Canada is going to succeed at driving down prices in a market where Walmart failed is preposterous.

Lewis avoids confronting this objection by claiming that the Canadian grocery market is uncompetitive. Indeed, he refers to it several times as a “monopoly.” Anyone whose knowledge of the economy is anchored in reality will know that this is untrue.** And anyone who cares about the meaning of words should be offended the use of the term “monopoly” to describe a market in which five large corporations, with multiple franchised subsidiaries, are aggressively competing for market share. (Why do they bother to send out flyers if they are not competing? The suggestion that my local No Frills is selling pie crusts for $1 apiece just for fun, and not due to any sort of price competition with other retailers, is risible. Only slightly less risible than the suggestion that a public grocery store could succeed in selling them for less!)

Compared to Mamdani, Lewis is being slightly more realistic in acknowledging that there are few cost savings to be achieved at the retail level, so that in order to lower prices it will be necessary to go further up the supply chain. This is an idea worth exploring. It leads me to wonder whether, in a Canadian context, there are any agricultural sectors in which suppliers have entered into cozy cartel arrangements that are driving up food prices. I can’t remember the exact details, but I seem to recall having heard something once about dairy farmers. Apparently they have some sort of supply management, which involves curtailing production through a system of quotas. And even though the system was originally adopted to help small farmers, over time the quotas have been bought up by large factory farms, so that industry concentration has been steadily increasing. If Lewis actually wanted to promote greater competition in the private sector to drive down food prices, maybe he should have someone look into that. Naturally I say this in jest. I dare Lewis even to mention supply management. I double-dare him.

I should mention as well that Lewis’s estimate of $300 million in annual subsidies for the scheme is optimistic, given that the Government of Canada already spends $163 million annually subsidizing food in northern regions of the country. This is so that a bag of hamburger buns at the Northern Store in Behchokǫ̀ can cost $14, rather than the true cost, which is probably closer to $20. Lewis didn’t say whether he intended to fold Nutrition North Canada into his new plan, but it seems unlikely that he’s going to extend food subsidies to the entire nation at only twice the price we’re currently paying to subsidize just the far north. Also, it is worth noting that the federal government, despite its massive expenditures in this sector, does not operate its own food distribution centres or retailers in the North – it contracts with private companies (like guess who?), then monitors compliance to ensure that the full value of its subsidies are passed along to consumers.

This brings me to my second big issue, which is the somewhat Corbyn-like desire on Lewis’s part to turn back the clock to the 1970s (or what Lewis refers to as the “golden age of the welfare state”). Back in those days, it was common for crown corporations to operate in markets that were already reasonably well-structured, which resulted in public enterprises competing head-to-head against private corporations. For example, Canadian governments (federal and provincial) used to be massively involved in the transportation sector: owning an airline, a railroad, and several intercity bus companies, all of which had private competitors. What Lewis is envisaging with his grocery stores is a return to this model. One way to assess the proposal is therefore to consider why that model was abandoned in the late 20^th century (not just in Canada, but in France, the U.K., Germany, Sweden, etc.)

Consider, for example, the history of Air Canada (or TransCanada Airlines, as it was known back when C. D. Howe was running it), which was privatized in 1989. There were originally two arguments for having the Government of Canada own and operate an airline. The first was the familiar suggestion that a public carrier could offer lower prices, by operating on a non-profit basis. The second was the idea that a public carrier would promote national unity, by cross-subsidizing between flight routes, in order to provide lower fares to remote regions or thinly populated areas. (These were known as “social routes,” and Air Canada used to fly a lot of them.)

The first argument wound up being defeated by the realities of public management, which led to the airline failing to achieve lower costs than its private competitors, and indeed, managing to lose a great deal of money. As any student of socialist economics knows, this is typical of organizations facing a soft budget constraint. In addition, some of the excess cost was a predictable consequence of allowing business decisions to be influenced by the concerns of politicians. For example, the federal cabinet rejected plans from Air Canada management to consolidate maintenance facilities in a single city, because the government of the day wanted to avoid layoffs in the regions. So the airline wound up having higher costs, because it was forced to operate redundant maintenance facilities.

In an effort to improve managerial accountability, Air Canada was restructured in 1976 and again in 1978, making it an independent crown corporation. As part of this restructuring, the airline was encouraged to price explicitly the subsidies it was making to the social routes, in order to distinguish legitimate from illegitimate cost overruns. Yet this wound up defeating the second argument for public sector ownership, because it created a situation in which the Government of Canada was essentially paying its own crown corporation to fly those routes. This quickly led to the realization that, in order to achieve its policy objectives, the government did not need to own and operate the airline (or the railway, or the bus company, etc.). It could just as easily pay the subsidy to a private operator, who might even be able to offer lower fares than the public carrier.

So what happened, beginning in the 1980s, is that the state began to get out of sectors in which there were no real obstacles to the operation of a competitive market, in order to focus its efforts on areas in which there were genuine market failures. This had a number of beneficial effects, one of which was to stabilize state finances, which had been careening dangerously out of control. It also had the effect of eliminating most situations in which the public sector was competing head-to-head against private corporations. This tended to improve public perception of government services. As a general rule, when consumers compare the experience they have interacting with a public service to the experience they have in a modern retail environment (e.g. how long did you have to stand in line? was the employee courteous to you? was the organization respectful of your time?) the public sector tends to suffer from the comparison, which in turn fosters hostility toward government. (For example, I cannot begin to describe how much people used to hate Air Canada. Much more than they do now! Thankfully, they no longer curse the government every time their flight is delayed.)

By contrast, if government focuses on doing things that it’s genuinely better than the private sector at doing, like providing health insurance, infrastructure, pensions, and education, this tends to build support for the public sector, because the state is not just subsidizing production, but actually creating value, above and beyond what the private sector is able to provide. What Lewis is proposing, by contrast, sets up the government for failure, by assigning it a task that it is guaranteed to perform conspicuously worse than the private sector. No true friend of socialism should endorse such a scheme.

Looking to the future, suppose that through some miracle the NDP gets elected, people are still mad about inflation, objections from the civil service are overcome, and the federal government manages to create a national food procurement, distribution, and retail system. What would happen next? First, one can confidently predict that there would be no cost savings, because no one in the NDP would be willing to put the screws to favored constituencies, like farmers, or workers. So the efficacy of the scheme would rely entirely upon the government subsidy. This would create pressure to introduce means-testing to the system (otherwise it’s just using people’s own taxes to subsidize their groceries). But it would also not be long before someone pointed out that the government could get more bang for the buck by taking the public subsidy and giving it to a private grocery operator with lower overhead. After all, what is the purpose of the subsidy? Is it to lower food costs, or is it to subsidize the wages of grocery store workers? If it’s the former, then it makes more sense to run the program like Nutrition North Canada, by paying private retailers to lower their prices. But then what is the point of owning the public retailer?

In other words, what Lewis is proposing is to recreate the conditions that gave rise to the neoliberal reforms, including the privatizations, of the late 20th century. The better alternative, it seems to me, would be to learn from history, even if that means abandoning some of the more romantic ideas about public ownership that our parents held.***

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* What am I doing in New York City you ask? Let’s just say that, like Lewis, I am married to a woman who makes a great deal more money than I do. The title of this article should be considered gentle ribbing from a fellow beta spouse.

** I should note that the left in Canada has been more successful than progressives in the U.S. at persuading people that inflationary increases in grocery prices are due to corporate malfeasance (e.g. “greedflation”), in part because of the high-profile Canadian bread price-fixing scandal uncovered in 2018, which involved collusion between two major bakeries and coordination with five major retailers. However, the fact that these firms were caught and successfully prosecuted, suffering both monetary and reputational damage, should lead one to lower one’s estimate that there is ongoing collusion in other areas.

*** The late-20^th century restructuring of the welfare state is a topic that I have written about more extensively in my academic work. Readers seeking a deeper understanding of the issues might find the following articles of interest:
“Stakeholder Theory, Corporate Governance and Public Management”
“Public-Sector Management is Complicated”
“Anodyne Privatization”
“Reasonableness as a Quality of Good Government”