Sacramento Bee, March 18, 2004

An anti-trust suit involving baby food could serve as a monument to how subtle corporate strategies can take government for a ride, and as a caution to free-market advocates like me.

The nation's No. 2 baby-food manufacturer, Beechnut, is suing the top company, Gerber, for predatory pricing in selling to the Women, Infants and Children's (WIC) program. WIC enables expectant mothers and mothers with children 5 years old and under to buy food cheaply. To do this, it uses a tool of market advocates - vouchers.

Vouchers are a fixture of school-choice campaigns championed by inner-city activists, but opposed by teachers unions and bureaucrats. More broadly, vouchers are an attempt to solve a major conundrum of big government. When government buys, it buys big and, inevitably, something is lost. It must purchase for average, not specific, needs.

However smart its agents are, they'll be at least a little wrong most of the time.

When government makes social purchases - education and food assistance, for example - the downside of buying for averages takes on a human dimension. People are denied the dignity of deciding which food to serve at home or where to send their children to school. In social purchases, the solution of market advocates has been vouchers.

Instead of buying from a central office, government gives each person in the target group a voucher to buy a specific service. All recipients retain the dignity of making their own decisions and the government is relieved of making massive purchases. But the Beechnut lawsuit highlights one way this good idea can go wrong, and how it can hurt all of us.

In WIC, mothers and expectant mothers receive a voucher for buying food, but not just any food. In the California program, white eggs are OK, brown eggs are not. Peanut butter in 16-or 18-ounce jars is a yes, in other jars it's a no. Kellogg's Frosted Mini-Wheats receive thumbs up; Honey-Frosted Mini-Wheats, thumbs down. And, of course, Gerber cereal gets WIC's green light while all others are a no-go.

According to Beechnut, Gerber won the WIC nod in California, Nevada and Texas by bidding below cost. Why would a company do that? Here's where taking the government for a ride comes in - and why applying antitrust laws, which were designed to protect competition, makes sense.

According to Beechnut, with a government-granted monopoly on WIC recipients, Gerber looked to generate so much demand for its products that grocers would drop other brands or give them inferior placement on inferior terms. Apparently, it worked. After the winner-takes-all contracts were let, Beechnut was all but forced out of Texas and saw sales plummet in Nevada and California.

Competition matters in this business, and not just for pricing. Gerber is the Baby Hughie of baby foods. Beechnut and other brands have been fighting this giant by offering better nutrition. Less competition means that the market's demand for improved products will be less clearly heard, leaving less choice for all mothers, not just those depending on WIC.

Promoting competition and improving childhood nutrition are key domestic policy goals. When the government awards a monopoly contract to an already dominant player in the market, be certain that one hand of bureaucracy doesn't know what the other hand is doing.

The courts will decide the antitrust issue, but for the rest of us it is clear that vouchers alone do not solve the big-government purchasing problem. When choice comes to California schools, as it must, the Beechnut/Gerber case should serve as a warning: Vouchers must offer true options if they are to produce true reform.

Sally C. Pipes is president and CEO of the California-based Pacific Research Institute. She can be reached at spipes@pacificresearch.org.