Last week, New York State Representative Zohran Mamdani won the Democratic primary for the New York City mayoral election. In addition to being a Democrat, Mamdani is part of the Democratic Socialists of America (DSA), which is the U.S.' largest socialist organization and represents the Far Left in the U.S. Forget Mamdani's anti-Semitism for a moment. If you read his platform, he is a major proponent of the idea that the government should give the people things for free or should heavily subsidize them. He has advocated for many ill-conceived policies that I have previously criticized, whether it is rent control, fare-free buses, or raising the minimum wage to $30. Today, I would like to criticize another one of his ridiculous ideas: city-owned grocery stores.
Mamdani sees food prices as being out of control due to profit. He would like to "create a network of city-owned groceries focused on keeping prices low, not making profit." He believes that he can create savings by having the government pay for capital costs while waiving property taxes for these grocery stores. In a TikTok campaign video, Mamdani said that grocery stores should not operate on profit motive, but their mission would be "lower prices, not price gouging."
Other proponents have argued that government-run grocery stores could increase access to healthy food, especially in areas with food deserts. Their idea is to provide grocery stores to neighborhoods that seem "economically unfeasible." This is where wishful thinking collides into reality in a rather unpleasant way. Similar to when I critiqued Kamala Harris' price controls on groceries last year, Mamdani has a profound misunderstanding of how markets work generally and specifically how the grocery store market works.
How big of a problem are food costs? Yes, food prices have increased. We have pandemic-era expansionary monetary policy and fiscal policy to thank for that price increase. More to the point, as U.S. Department of Agriculture (USDA) data shows, food at home as a percent of disposable income decreased from 12 percent in 1964 to 5 percent in 2024. In the 1940s, it was a quarter of disposable income. If food prices are not a primary strain on people's finances, this makes government-run grocery stores a less urgent policy issue.
The nature of the grocery market. The grocery store market is a highly fragmented market. Not only that, but Mamdani's premise about grocers' motives is wrong. If grocery stores were looking to gouge customers, they would make a lot more money. In spite of most people believing the contrary, the reality is that grocery stores operate with razor-thin profit margins, ranging from 1 to 3 percent.
The joy of profit motive. Private firms have something that a public-sector one lacks: profit motive. Maximizing profit means maximizing the difference between revenue and expenses. As this article from the Foundation for Economic Education (FEE) reminds us, profit motive incentivizes lowering the cost of inputs (e.g., shopping carts, cash registers), innovation, scaling supply chains, and effectively meeting customer demands. This more often than not leads to lower prices and higher quality.
Perverse incentives. In contrast to profit motive, city-operated grocery stores create perverse political incentives, including price manipulation, product selection, staffing decisions, and remuneration for political gain. The risk for cronyism minimizes any likelihood that Mamdani's dream would come true.
Lack of business viability. Private grocery stores have enough trouble with profit margins. Again, city-run grocery stores do not have profit motive to optimize efficiency. They would struggle without relying on subsidies or government funding. That is not mere economic theory. The "best" success story I could find is one small government-owned store in the rural area of Erie, Kansas. This store has created a modest profit of 1.1 percent, required volunteers, and relied on donations. The supposed success story of Erie operated more like a co-op than it did an actual grocery store. However, on the whole, government-run grocery stores have not been viable, as has been the case in Baldwin, Florida and Little River, Kansas.
That does not even count the catastrophic government ownership of food with Venezuela, the former Soviet Union, or Maoist China and the Great Leap Forward, the latter of which caused the deaths of upwards of 55 million people. I understand that the United States is not the same as communist China, government-run grocery stores come with the same centralized control and bureaucracy, price fixing, and lack of profit motive that the aforementioned Communist countries faced. All the same, it should make us pause and question how much we want the government in charge of food distribution and sales.
Case studies in proxy markets. As we question whether or not New York City (or any municipality) should operate grocery stores, it would be helpful to look at proxy markets. Some in favor of Mamdani's proposal, such as the opinion editor at Washington Post, point to liquor control states where government handles the distribution and sale of all alcohol. That is a bad argument because government ownership of liquor sales resulted in higher prices (Siegel et al., 2014), which undermines Mamdani's fantasy that he can lower grocery prices. In addition, take a look at the New York City's very own Housing Authority, which is straddled with $78 billion with unmet capital needs. I feel like I am beating a dead horse, but a lack of profit motive results in wasteful spending from the government.
Postscript. It is amazing how socialism's loudest proponents are well-off, educated theorists who understand nothing of how the real world works. Government-run grocery stores face challenges stemming from a lack of profit motive, including inefficiencies and political manipulation. The private-sector grocery market is highly competitive with tiny profit margins. Because of those slim profit margins, government-run grocery stores would have to rely on considerable government funding, which would further drain taxpayers. Private businesses are better equipped to meet customer demands, lower prices, and innovate. Private firms have the advantage of "massive economies of scale, decades of market experience, and complex supply chains." What government-run grocery stores will do is increase prices and lower quality for the citizens that Mamdani is purporting to help.
Providing tax incentives to grocers and removing zoning laws are two policy alternatives I can come up with off the top of my head. Or in the case of New York City specifically, you can lower the high sales tax and minimum wage, both of which are costs passed on to the everyday grocery shopper. We can sit around and spitball ideas to make groceries more affordable, but I will conclude by unequivocally stating that the government has no business selling groceries.