Britain is already a case study on what happens when governments interfere with markets. Now, their Labor government is thinking about giving the world a refresher course.
The U.S. has economically outperformed the U.K. for over a century.
U.S. GDP per capita overtook the U.K.’s early in the 20th century and there have been few interruptions since. From 2007-2024, the U.S. has outgrown the U.K. across the board. Looking at arguably the most consequential indicators, GDP per capita and wealth per capita: From 2007-2024 in the U.S., GDP per capita increased 72% and wealth per capita increased 121%; over the same period in the U.K., GDP per capita decreased 2% and wealth per capita decreased 10%.
The simple reason for this performance disparity: The U.S. has less government interference in its economy. According to the Heritage Foundation’s Index of Economic Freedom, the U.S. (except for 2020’s pandemic and the Biden years) has consistently outpaced the U.K. in this century.
The verdict is clear: more markets and less government interference equal more growth and wealth.
So, what does the U.K. want to do now? According to reports, the U.K.’s Labor Government is attempting to bribe grocery stores into capping their prices on selected staple products—in other words, fix prices. What are they offering in return? Lifting the impact of other government regulations: Net zero packaging policies and delaying proposed regulations to sell healthier food.
First, price fixing doesn’t work. Suppressed market forces simply find a different way to reassert themselves. Goods disappear from shelves, because government-mandated artificially low prices make them cheaper than they should be (and really are), so demand spikes and supply drops. People buy more of the things which have artificially low prices, and suppliers provide less of the things for which they receive artificially low prices.
Suppliers (in this case, grocers) are the first people to see the fallacy in such an attempt because they face both sides of the market. To obtain their products they must buy from producers; to distribute their products, they must sell to consumers. They see both sides of the transaction.
If continued, government intervention in markets inevitably requires more government intervention to offset the initial intervention’s effects. On the supply side of the price-fixing intervention, it requires subsidies to producers to compensate for the fixed prices’ artificially low levels (otherwise producers cannot afford to produce). On the demand side of the price-fixing intervention, it requires limiting purchases (rationing) to keep demand from swelling as fixed prices fall increasingly below the level needed to limit demand.
Why would British grocers contemplate such a stupid idea as this price fixing proposal? They wouldn’t. So, the government is going to bribe them by allowing grocers to avoid sustainable mandates and healthy food requirements which also add to their costs.
It’s a straightforward exchange of government interference: The Labor Government is offering to allow grocers to avoid other costly regulations if they agree to another costly one.
The initial math appears easy enough for grocers: Just calculate how much you would lose under one (price fixing) versus how much you would lose under two (packaging and healthy food requirements). Of course, things are not that simple. The problem for grocers is that they do not know how high the cost of food on which prices are fixed will go, nor do they know how long they will stay there.
Less obviously, the “trade” raises a question about the government’s valuation of the regulations it is offering to forego. If you’re willing to sacrifice them, either they can’t be that important (regulating something that you don’t think really needs regulating) or they can’t be that effective (not that good at regulating what you think does need regulating).
If one of these two scenarios did not apply, why would you offer them up?
The entirety of the offer of price fixing in exchange for regulatory relief is backwards. It is proposing to offset inefficiencies rather than freeing individuals to create efficiencies through the market.
Markets work best when you get more of them: I.e., let them run themselves. Government works best when you get less of it: I.e., stop it from expanding beyond its basic functions.
The reason the British economy is in the mess it is in is because the British government has created the mess over a long period of time. Giving it more to do is not going to make things better—any more than it’s going to “fix” prices. It’s going to make the mess bigger.
