Unqualified Offerings

An April article in Governing magazine exhumed by Brian Doherty offers fodder for liberals and libertarians both. Unfortunately not from the same trough. Alan Ehrenhalt analyzes the painfully slow return of genuine supermarkets to poor urban neighborhoods. The good news is that the economics of running the stores are good! (”The conventional wisdom is that the population density of an urban neighborhood can compensate for a lower median income, creating enough purchasing power to sustain the business.”) The bad news is that the economics and politics of getting the stores opened in the first place are very bad.
As obvious as the needs are, and as well-documented as the opportunities for profit may be, it takes forever to get an urban supermarket deal done — 10 years in the case of the first Pathmark in Newark; nearly as long before Publix opened its doors in the inner-city Atlanta neighborhood of East Lake.

Ehrenhalt identifies two major stumbling blocks:

One reason is simple bureaucratic clumsiness. “Urban environments have an arcane development process and a lot of companies don’t have the stomach for it,” says Buzz Roberts, who has run a supermarket assistance program for the nonprofit Local Initiatives Support Corp. “You can do two or three stores in the suburbs in the time it takes to do one in the inner city.”

Worse than bureaucratic slowness, however, is the underlying problem of land acquisition. A chain that wants to build a new store in an outer suburb rarely has to do more than deal with a single real estate developer and, at least until relatively recently, a local government that was eager to help. Merely acquiring the inner-city land for a 50,000-square-foot store can sometimes mean negotiation with 25 or 30 individual small property owners, some who are determined to hold out for a big windfall and some who may not want to see the store built in the first place.

All of this raises the question of what government can do about these problems.

At this point libertarians are pointing excitedly to the first paragraph and shouting “Reduce the regulatory burden!” Meanwhile, at least some managerialist readers are looking at the second one and saying “See! This is the perfect situation for Kelo-style eminent domain transfers to a private party for a public good!”

Clearly, you could do one, the other, both or neither of these things. The bulk of Ehrenhalt’s article talks about Pennsylvania’s Fresh Food Financing Initiative, but it’s frustratingly vague on just how much effort FFFI put into the two problems above, and how much of it amounted to paying grocers to grin and bear the process.

My bias is to clear the governmental roadblocks first. After we see how that goes, then we can talk about whether it’s worth forcing people to “sell” to another buyer at a price congenial only to the buyer. Before we go anywhere near there, I’d want to see evidence that cities and grocery chains were systematically exhausting acquisition strategies that don’t involve dispossessing smallholders. If most cities are like DC, they end up owning an awful lot of undeveloped or decaying property of their own – derelict housing, shuttered schools, abandoned office complexes, maintenance depots.

When it comes to the so-called holdout problem, cities and grocers could bid on multiple sites and structure offers so that an entire block has to sign off on the deal before anyone gets any money. Besides, why shouldn’t the conveniently located property owner get a windfall? These companies want to open stores because it’s profitable to do so. That means, perforce, that the land is worth more than it was before Safeway or whoever decided to go into business there.

There is also the ethical issue of paying large companies to put small companies out of business. Supermarkets deliver better and cheaper food to low-income neighborhoods than mom & pop convenience stores do, but that’s not because the mom & pop stores are evil. (Ehrenhalt: “small mom-and-pop markets and convenience stores [. . . ] really do have higher operating costs.”) If a large grocer can outcompete a small store on it’s own efforts, too bad for the small store. But paying the large grocer to bigfoot the small one, likely with taxes paid by the smaller business, raises some sticky questions. (Like, if I were the small store, I’d say, why shouldn’t you just pay me to provide cheaper food?)