Friday, May 01, 2009

A Musing on Business and Government

Ok, so this is really just a late at night, random musing. Here goes. I'm thinking about some of the inherent clashes between business and government, and how they rear their head in every day life. Specifically, I went to a movie tonight and saw a pretty good Coke commercial - a thirsty boy wandering through dry streets where everything looks like a coke until, finally, he finds a store and buys one.

Coke. Warm and fuzzy polar bear, bringing warm and fuzzy thoughts. Sponsors of all things athletic. All in all, a very positive brand.

And they're killing people. Definitely giving them diabetes, probably, in part, causing the rampant heart disease and cancer in our country. Makes sense, as our bodies weren't really designed for intense sugar shocks and so don't handle a lifetime of them terribly well. This line of thinking applies to McDonald's and countless other products of brands we "cherish" in our society, not even necessarily food/drink-related (haha, this is not a nutrition/organic rant, though I certainly feel the pull to go that way. :) 

I'm also not trying to argue that they should mend their ways. That would be anti-capitalistic, socialist, and a whole lot more labels that we Americans seem to find unsavory (although, is it so bad to strive for a society where corporations think about the bigger picture?). 

No, my sights are merely set on justice. If someone wants to kill themselves with soda or cigarettes, they should be able to. The difference between those two things is that cigarettes have a warning label, and soda doesn't. There is a cost to Coke's product that isn't covered in the price tag, a risk that a Coke consumer takes, willingly or unwillingly. If people knew, really knew, how bad soda is for you, they wouldn't drink it nearly as often as they do. As it stands today, it usually takes a loved one getting diabetes to remind us of this fact.

So how to right this wrong? Throw a warning label on, right?

And that's how I got to musing on business and government. As I'm sure you've realized, the government isn't throwing a label on soda anytime soon. The killer profits these companies make go not only towards making warm and fuzzy commercials (so we think they're warm and fuzzy companies), but also to lobbying the hell out of the government and making sure, among other things, labels don't get put on soda.

But the problem runs deeper. If there is a cost that's not on the price tag, who's paying it? Well, the consumer for one - they have to live with these diseases. But who pays for their treatment? Sure, insurance companies and the private sector, to some degree, but with corn subsidies making soda is cheaper than water, the diseases from drinking (way) too much soda are disproportionately skewed to those with lower incomes, who probably don't have insurance and might end up hitting the emergency room or other public health facilities. Yes, there is some assuming and hand waving going on, but it's not a stretch to say that, in the long run, we, the people, end up paying the health costs for some consumers of these companies' products.

So what can we do? Ideally, we'd say we need better leaders, people who ensure the lobbyists don't get in the way of the government serving the people. But let's be honest - that's not reality, and companies with power are always going to lobby and do shady things.

So, after kicking around a couple approaches in my head (morality, government theory, haha neither of which I know much of), I think I want to approach this from a standpoint of economics - essentially, how would we change the current incentive structure to straighten out this situation. Today, the sole interest of the company is to make money and continue making money, driving it to lobby to keep their cash flows unaffected (at the expense of the health and pockets of the nation). We can change this one of two ways - we can either add a monetary incentive for the soda company to consider these societal costs (i.e. give them a subsidy for putting the warning label on their product and perhaps for diversifying to more healthy options) or change the structure of business such that there is a way to incorporate the considering of societal costs into the overall running of the business (an extreme example - the government will shut you down if your product screws people).

To compound issues, down each path lies an unspeakable evil (as we see it) - socialism in the former sense (govt controlling the business landscape) and nationalization in the latter (direct govt control of business). Despite my sarcasm, those who blanket condemn socialism and nationalization of business do have one point (albeit overused) - the consolidation of power that results leaves the system open for corruption - absolute power corrupts, and absolute power corrupts absolutely. In this case, the corruption could just move to those people who decide what harms society (for example, what is "healthy").

And yet the status quo is clearly flawed. What to do? Is today's situation merely the least of all evils? What type of system can we design to rid us of the Coke and McDonald's problem?

I haven't the foggiest, but the one thing that stands out to me is the importance of transparency and information. Perhaps all we can do is strive for a system where things are in the open as much as possible, and where the availability (and, for lack of a better word, in-your-face-ness) of information takes precedence over corporate concerns.

A system that encourages warning labels on Coke cans (and Big Macs:)


  1. it's certainly a dilemma. on one i would argue you want to give power to the individual to make his/her own decisions, but on the other, at what cost to society? w/o a mandatory seat belt law, driving accidents would prove to be more fatal and more costly, thereby raising everyone's auto insurance, even those who always wear their seatbelts.

    ultimately, i think i agree with you that trying to provide transparency and the information to make a decision is the best course. however, unfortunately, it seems like plenty of people don't utilize the information. take a look at cigarettes for example. an even more extreme example is heroin where the govt. is telling you this substance is so dangerous to your health that we're outlawing it. but still, plenty of people still do it, only to end up costing themselves and society at large.

    with regard to coke and mcdonalds more specifically, i think a good approach would be to make the nutritional information mandatory (like they've done in NYC for chain restaurants) and then on top of that, promote balanced lifestyles. because at the end of the day, a coke and a big mac aren't inherently bad for society, they're just bad when we overindulge in them.

  2. The thing is, like your friend Vishrut said, is that warnings really only do so much. And by so much, with the amount of general information out there these days, is pretty minimal. Even underprivileged minorities know that fast food is horrible for you; case in point, if no one told them they could look around at the rampant obesity rates among them and most of their friends. Its not just among the underprivileged that this stupid decision-making occurs though; two of my friends picked up smoking in the past few months simply because it looks cool, and theyre both probably graduating from here with a 3.95 and a masters along with their BA. It just shows you, information can only do so much against such emotional, impulsive urges we humans have.

    So if you want this problem to be dealt with, forceful measures must be put in place. Cigarette consumption is relatively inelastic, so taxes serve mainly as punishment against the users, and only slightly decrease the number who actually smoke them. But fast food is different (though somewhat addictive chemicals are put in it), and your point about it is extremely important especially in light of our imminent foray into socialized medicine. If the taxpayer is paying the burden of other peoples' care now, think of what it will be like once everyone is covered?

    Ive thought about this in the past, and ive considered a 2-fold way of dealing with it. One of the reasons why fast food is consumed excessively (besides from the fact that its so fucking tasty) is that its cheap, while healthy food is more expensive (its like an elite delicacy... a big mind shift from the 50s). So the initial move you make is to do a transfer tax; you tax the big mac and you subsidize the whole grain bread. This could (and probably would) be extended to all sorts of food products such as ice cream, oreos, all those things that could be potentially bad for you. How much could be determined by a system based on their PDV or quantities/types of sugars and fats. Then the second tax would be put additionally on such unhealthy items, and the money from this would go directly into the health care fund, to pay for those people when they inevitably have to lose their legs due to diabetes.

    If only it were all that simple though. Messing with the market with all these taxes is bound to just confuse everything, and may go so far as to cause inflation and a shortage of at least certain types of food. Even if the system could be enacted effectively, however, the arbitrariness of taxation on these products (we need a little bit of everything, including fats and sugars... if im just having a bit why should they be taxed?) and furthermore the idea of the government deciding what i can eat would likely unpalatable for the average American.

    So what do we do? Im not sure. Its one of the reasons why im not so sure about socialized medicine. You cant have an effective system when such a large part of the population is living in an unsustainable way while the other lives healthily (most americans are either slobs or exercise freaks, compared to more moderate tendencies among european populations). But at any rate, lets at least follow NYC (on this at least) and ban transfats. I mean, hell, they dont even add to the flavor!

    fyi, good Times article on Dutch socialized medicine:

  3. Hey bud- not a bad rant, and I agree with you. Basic argument - Coke and McD's create negative externalities that aren't covered in its cost. Medicare costs at current trajectory will bankrupt our government, and a third of America is considered obese. I'd call those negative externalities.

    I would guess, though, that it's not just the food lobby that keeps warning signs off Coke - it's everyone who loves Coke. They have some real devoted fans. I'm not even sure if you took away the lobby that people would vote for warning labels/taxes on their sodas. That's what almost a century of marketing buys ya!

    I am a fan of taxing and letting economic incentives drive change in behavior. Warning labels are a waste of time.

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