Tuesday 7 July 2015

Book Review: Citizen Coke

I wrote a book review for the latest issue of Economics Affairs which is paywalled and was heavily edited for space, so here is the full version. The book is Citizen Coke: The Making of Coca-Cola Capitalism by Bartow Elmore...

Bartow Elmore sees two themes running through the history of the Coca-Cola company. Firstly, the company does not really produce anything; it is a brand, a recipe and a trademark, not a manufacturer. Secondly, it has always depended on government action and political favours to prosper. Elmore argues that these are the traits of ‘Coca-Cola capitalism’, a distinct form of doing business which has since been emulated by other multi-nationals.

On the first point, the author does a convincing job of showing that Coca-Cola has traditionally focused on supplying syrup while leaving bottling, retailing, farming and processing to others. He echoes Naomi Klein’s recurrent complaint about global corporations such as Apple and Gap being mere ‘brands’ which outsource production to other countries. Although Elmore accepts that this has been a demonstrably successful business strategy - limiting risk and leaving the company less vulnerable to changes in government policy - he appears to disapprove, and yet he never fully explains why. The implication is that Coca-Cola somehow lacks authenticity (Elmore calls it ‘hollow’) because it ducks out of the noble task of production. Its preference for outsourcing tough jobs to third parties is portrayed as being almost cowardly, and there is a sense of moral outrage about early Coke retailers who, like McDonalds today, had to mix the syrup with their own water.

It is true that Coca-Cola’s suppliers, including the environmentalists’ bête noire Monsanto, have had their fingers burnt when Coke changed its buying arrangements. Coke’s switch from sugar to high fructose corn syrup (HFCS), for example, was bad news for the sugar industry. But frankly, who cares? Why should the reader empathise with one giant corporation and not another? Even if creative destruction was morally questionable - and it is not - there is no reason why Coca-Cola should pick its own coca or refine its own sugar (as Elmore implies it should). The real question is whether customers get a good deal from the company’s pursuit of efficiency and it seems they do. One of the more extraordinary facts in this book is that the price of a bottle of Coke in the USA remained at five cents from 1886 to 1950.

Elmore’s other main argument—that Coca-Cola’s success owes much to government policy—also contains more than a grain of truth, especially if one uses the author’s broad definition of ‘state aid’ to include access to municipal water supplies and waste disposal. Once again, the company’s success is portrayed as inauthentic and ill-gotten. Throughout the book, Elmore echoes Barack Obama’s notorious refrain ‘You didn’t build that.’ Who built the roads and railways that transport Coke around the US? The government. Who recycles the empty Coke cans? The government. Who provides the water for Coca-Cola’s plants? The government (mostly).

It could be argued that these are indirect benefits of infrastructure projects which would exist with or without a soft drink industry. So long as Coca-Cola pays its taxes and settles its water bills, it has every right to use them. But sometimes the state has acted in ways that directly benefit the company. Elmore makes much of the US army’s extensive distribution of Coke to soldiers in the Second World War and rightly notes that the price of HFCS is artificially low thanks to government subsidies. When expanding its empire abroad, Coca-Cola has often received preferential tax arrangements from governments which welcome new investment. All told, Elmore concludes, the ‘best thing for sleek Citizen Coke was big government’.

It is notable that Elmore rarely blames the government for creating these opportunities, let alone suggests that there is anything inherent about big government that makes such corporatism virtually inevitable. It would be surprising if Coca-Cola, in its long history, had not benefited from rent-seeking, subsidies and good fortune. On the other hand, there have also been instances when Coca-Cola has suffered at the hands of lawmakers—soda taxes and sugar tariffs, for example. Has Coca-Cola benefited from government action more than the average US corporation? Perhaps it has, but Citizen Coke offers little by way of comparison with other businesses.

Throughout the book, the reader is given the impression that the economy is a zero-sum game in which every shrewd business decision is a swindle, every middleman is an exploiter and every win for Coca-Cola is a defeat for everybody else. But whilst Coca-Cola has clearly profited from some government policies, Elmore does not distinguish between those which burden the public and those which benefit the public. It is doubtless true, for example, that the company benefited from the government’s decision to ship countless crates of Coke to American troops during the war, but it did so at the insistence of US army generals who felt that a steady supply of this most American of drinks would act as a boost to both morale and energy. Can we say with confidence that they were wrong? If Lieutenant Colonel John P. Neu, who is quoted in this book, believed that Coca-Cola was ‘vital to the maintenance of contentment and well being of the military personnel’ we should, perhaps, take his word for it.

Similarly, it is not unusual for local and national governments to offer tax breaks as an incentive for businesses to invest and create jobs. Free marketeers would prefer low taxes for all and an end to rent-seeking, but it is not kindheartedness that compels politicians to provide such inducements, rather it is the anticipation of future employment and taxation. What Elmore describes as state aid often amounts to no more than politicians deciding not to needlessly obstruct commerce. For example, Elmore discusses the negotiations around the Harrison Narcotics Tax Act in 1914. This portentous legislation effectively kickstarted the war on drugs by removing cocaine and opium from general sale. Famously, Coca-Cola had used traces of cocaine in its original recipe and, although these were removed in 1903, the drink still contained de-cocainised coca leaf extract. An early draft of the Harrison Act would have severely restricted imports of coca leaves, whether they contained cocaine or not. Successful lobbying by Coca-Cola led to the legislation being amended to allow trade in de-cocainised leaves to continue. As Elmore puts it, ‘the state had once again sweetened Coke’s supply situation.’

There is little doubt that this exemption owed much to private discussions in smoke-filled rooms. It is unlikely that a smaller company would have been able to bend the ear of lawmakers in this way. Nevertheless, Coca-Cola’s victory came at the expense of no one. The intention of the Harrison Act was to prevent the use of narcotics, not to reduce the appeal of one of the country’s most popular soft drinks. A ban on de-cocainised coca leaves would not have advanced the cause of drug prohibition by one inch. In this instance, at least, Coke’s lobbyists led to better lawmaking.

Unfortunately for readers hoping for an exposé, Coca-Cola’s closet contains very few skeletons and so, in the absence of shocking revelations, Elmore throws everything he can at the company. He repeats long-debunked health claims about caffeine and artificial sweeteners, even implying that Coca-Cola was unnecessarily threatening the health of its customers by using saccharine after it been approved by the Food and Drug Administration. He also gives a sympathetic and credulous hearing to the more extreme views about fructose, sugar ‘addiction’ and obesity, with fanatics such as Michael Jacobson and Kelly Brownell taking centre stage while mainstream scientists are ignored.

Ultimately, Elmore’s critique of ‘Coca-Cola capitalism’ boils down to environmental objections. He spends a great deal of time criticising Coke for using vast quantities of water, sometimes in places where water is relatively scarce. But water is a renewable resource and using it to make thirst-quenching drinks seems perfectly justifiable, particularly since much of the water is undrinkable until Coca-Cola treats it. (Elmore accepts that the company has often come to the aid of governments that are unable to maintain decent water quality, but he portrays these acts of charity as a ‘marketing technique’. At his most generous, he concedes that ‘not all of Coke’s [water-purification] projects were solely self-serving’.)

Readers who are shocked to hear that soft drink companies use a lot of water will find much to be outraged about in Citizen Coke. To these eyes, however, the workings of the Coca-Cola company are neither surprising, nor appalling, nor unique. Elmore’s attacks on ‘agri-business’ are generic criticisms of modern farming that could be levelled at any food or drink company and his complaints about the caffeine industry’s deforestation of South America might be valid, but they would be better directed at coffee drinkers.

Elmore is on stronger ground in his discussion of government recycling programmes which have been introduced, in part, as a consequence of soft drink companies switching from reusable glass bottles to disposable aluminium and plastics. From an environmental perspective, the abandonment of reusable glass bottles is difficult to defend. With a deposit of one or two cents, 96 per cent of bottles were being returned in 1948. The company then shifted to aluminium cans, of which only half are recycled. More recently, it has shifted to plastic bottles of which fewer than a third are recycled. The environmental impact is mitigated somewhat by the halving of fuel use that comes with one-way delivery, but the switch to disposables has imposed greater costs on the taxpayer in terms of litter-picking and recycling. Nevertheless, Coca-Cola is hardly unique in having moved away from reusable glass containers since the nineteenth century and it would take a thin skin to be scandalised by it.

The author’s tone is calm and his history is solid, albeit telling a story that has been covered many times before. It is disappointing to find that Elmore, with a PhD in history, thinks that ‘the 1800s’ ended in 1899 rather than 1809, but this is a common error and a minor complaint. Elmore deserves credit for not allowing Citizen Coke to turn into a rant, even if a rant might have been more entertaining. Instead of an out-and-out polemic, Elmore has written a straight history which nevertheless bubbles with enough pejoratives to leave the reader in little doubt about his muted contempt, not just for ‘Coca-Cola capitalism’, but for capitalism in general. This is a book in which Coke is not merely sold, it is “peddled”—and peddled by “Big Soda” at that. Successful executives are more often than not “cutthroat businessmen”. Business deals are “all about money”. People are “bombarded” by advertising, and this advertising is invariably “aggressive”. Et cetera.

But perhaps its biggest failing as an academic work (it began as a PhD thesis) is that it does not deliver on its promise to show how Coca-Cola paved the way for a new form of capitalism. His theory might be correct, but direct comparisons with other companies are needed if the reader is to be convinced. On more than one occasion, Elmore criticises Coca-Cola for cautiously watching its rivals before emulating them; hardly the behaviour of a pioneer. Moreover, Elmore never explains what the implications of ‘Coca-Cola capitalism’ are, beyond a few broad concerns about ‘sustainability’. The author could have gone in one of several directions with the material in this book to produce a more satisfying read. Had he pursued one its themes, an interesting book about crony capitalism could have emerged. Had he pursued another, he could have written a wider critique of capitalism in which Coca-Cola played a dominant, but not overwhelming, role. Instead, he has written a softly spoken hatchet job which ultimately lacks fizz.

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