The Externalities Of Economics: Corporate Power And The Cost of Coke

One of the most deeply embedded arguments against left wing politics is that it somehow doesn’t understand economics. Taxation is theft. The state is coercion. You’re robbing Peter to pay Paul. Won’t anyone think of the innovators? Socialism is great until you run out of other peoples’ money.

Conservatives will drag out obscure economic charts and graphs and point wildly at them gibbering about supply and demand and the market while feverishly wiping their brow with their crusted copy of Adam Smith’s The Wealth of Nations. Some of the points they make are correct – specialisation and trade allows for cheaper and mass production of goods, self-reliance, industriousness and thrift are valuable personal traits to have, people can’t buy things if it is priced above their range. The key area that is never raised in all these theoretical mathematical models and curves is externalities – or the unintended costs that the parties involved pay.

For example, why is a can of coke from a vending machine a buck fifty? After all if any of us were to individually try to create a singular can of coke it would cost a great deal more. You need factories, you need specialised machines, and you need workers to operate those specialised machines. You need the ingredients and chemists to synthesize them for you. You need raw materials like aluminium and power. Presumably you need shipping and dockworkers to move all this coke from wherever it is made to wherever you are. In short it costs an enormous amount of upfront money to be able to be able to drink the can of coke, so why is it so incredibly cheap? Because we are already paying for all the hidden costs that go into making the singular can we drink, without even realising it.

Let’s start with the basics – the water that is so crucial for our survival as a species, needed for everything from growing food, to cleaning ourselves, to generating power, is pumped out of local communities for a miniscule fraction of its value by the Coca-Cola Company who can then sell it at a profit[1]. Beyond the environmental ramifications of this, you have a non-living corporate entity that has concentrated enormous amounts of wealth that it can then spend on, lobbying (either through campaign contributions, ‘donations’ or outright bribes) political leaders to look the other way, backed by vast teams of corporate lawyers, often extensively trained at Ivy Leagues and prestigious institutions, to crush any local legal resistance by dragging out the court proceedings to run them out of money. Or on the off chance you do get caught with your hand in the cookie jar you pay a few million in settlements and go somewhere else to do it again[2].

Why do they do this? Because it is much, much, cheaper for the corporation to pay money on lobbyists and lawyers to legalise their theft than it is to pay a fair price for the water they extract en masse. This goes doubly so when it is a poor community of colour in the developing world because no one notices or cares. Indigenous communities in Latin America don’t wind up on Ellen to explain in a mixture of broken English and Spanish how Coca-Cola extracted all the water from their community because there is no heroic uplifting story in this. There isn’t anything inspiring about listening to an Indian woman explain how she watched her infant die in front of her over a period of weeks from malnourishment and dehydration because Coca-Cola extracted and poisoned their water supply.

People don’t want to hear that their lifestyle is directly responsible for extreme suffering all over the world because it makes them feel bad, and that is a cardinal sin in consumer culture – only advertisers are allowed to make you feel bad about yourself.

Middle class liberals will defend this by saying nonsense like “well at least it’s bringing some money in to the poor community” (imagine telling somehow who has come home to see their possessions burgled, well at least you get some insurance money) or will talk about how it was a decision made “of their free will” because they sent lawyers instead of paramilitary death squads and if you don’t like it you can just not buy their products (still ignoring the theft of resources or that Coca-Cola produces the vast majority of beverages through subsidiaries). In the language of politics this is referred to as ‘soft power’ – the use of economic, cultural, political and diplomatic means to coerce or manipulate people into accepting your demands – which is contrasted with ‘hard power’ or military force.

Now what does coke need to have its magical flavour and addictive taste? Sugar 35 grams (or 7 teaspoons) of the stuff in every can[3]. American companies will often use high fructose corn syrup in lieu of sugar whenever possible because A) sugar is heavily tariffed and expensive in the land of the ‘free’ market[4] (make of that what you will) and, B) corn is heavily subsidized by the American government[5] because of major lobbying efforts by agribusinesses[6].

Corn is also extremely destructive to the environment because it requires massive amounts of water, strips valuable nitrogen from the soil (which has to then be replaced by heavy use of nitrogen enriched fertilisers that can spill over into rivers, lakes, etc) and because subsidies encourage huge monocultures to grow as much as possible as quickly as possible without any regard for the consequences[7].

Now consider the ‘externalities’ of this – just from two ingredients water and sugar (or high fructose corn syrup) we, the 7 odd billion people, who live on this planet are paying the enormous long term costs (health wise with obesity/diabetes, and environmentally with soil degradation and water extraction) and in exchange we are given the great privilege of buying a can of coke for a buck fifty to make a small group of shareholders[8] (who pass these shares onto their children, 35-45% of all wealth is inherited[9]) enormously wealthy. Truly capitalism is the greatest meritocratic system that has ever existed.

At this point the personal responsibility crowd will start screaming about how no one ever takes responsibility for themselves, wave an anecdotal piece of evidence about a welfare cheat[10] (bonus points if they’re a minority or an ‘illegal’), and start aggressively pulling at their boot straps.

I don’t mean to absolve people of their individual choices – if you choose to drink soda like water you will wind up fat – but it is important to look at these decisions in context. Who controls the advertising for food products that we are all constantly exposed to[11]? Who aggressively lobbies to shut down educating children on healthy nutrition at schools[12]? Who controls what food products are available to what groups of people in their local supermarkets (and in the case of children in their cafeterias)[13]? Can you argue that someone is making a decision ‘of their free will’ if they are ignorant to the true cost of their decisions.

Remember there is a multi-billion dollar industry built on getting people to buy things they don’t need by manipulating them psychologically – advertising agencies utilise a combination of classical art theory[14], behavioural economics[15], and psychology[16] honed and perfected by focus testing, data mining, and now micro-targeting[17] (specialised ads aimed at the individual a la Facebook/Google). Is the individual who cannot opt out of this system fully responsible for decisions made in bad faith? Might there be some degree of responsibility on corporations that control what we see and what products we can buy (it is cheaper to buy a two litre bottle of coke than it is to buy a litre of milk)?

Under the relentless ethos of the market, the better companies get more money and more market share. But under the logic of game theory once you get more money you can aggressively use that money to destroy your competitors – buy out more advertising space[18], secure exclusive contracts with distributors[19], undersell small businesses until they collapse – as well as bribe political figures to cement your advantage (lobbyists and ‘campaign contributions’)[20].

These advantages then continue to snowball because with the continuing increases in money you can buy out and absorb your competitors, expand overseas to countries that have more lax laws (or poorer countries where it is easier and cheaper to bribe politicians) and establish a virtual monopoly (the Coca Cola Company owns 500 brands in 200 countries[21]) – or failing that, establish a cartel with other concentrated corporate blocs.

Adam Smith warned the dangers of monopolies that result from capitalism,

“This monopoly has so much increased the number of some particular tribes of [manufacturers],that, like an overgrown standing army, they have become formidable to the government, and upon many occasions intimidate the legislature. The member of parliament who supports every proposal for strengthening this monopoly, is sure to acquire not only the reputation of understanding trade, but great popularity and influence with an order of men whose numbers and wealth render them of great importance. If he opposes them, on the contrary, and still more if he has authority enough to be able to thwart them, neither the most acknowledged probity, nor the highest rank, nor the greatest public services, can protect him from the most infamous abuse and destruction, from personal insults, nor sometimes from real danger, arising from the insolent outrage of furious and disappointed monopolists.”[22]

So we have to look back at how this monopoly established itself. The biggest reason why Coca-Cola is so big is they won the government contract during the Second World War to supply the armed forces, who had a choice between powdered orange juice, (with autumnal hints of ARMY C RATION) and the crisp and refreshing taste of coke™[23]. American taxpayers were directly subsidizing the expansion and growth of Coca-Cola, allowing them to build more factories than their competitors from the enormous profits they made from this contract and from being exempt from sugar rationing[24]. This hasn’t changed, Coca-Cola still holds government contracts to supply American military bases all over the world[25].

After the war, in the ruins of Europe and Asia, American bases (800 in almost every part of the world[26]) were all supplied with coke, which they then distribute to the hungry masses. The Marshall Plan comes along, once again using American taxpayer money, to build up European manufacturing[27] (to justify capitalism against the growing popularity of socialism/communism) and with improved living conditions and jobs comes the desire and ability to purchase coke.

Sprinkle in NAFTA and trade agreements decades down the track, which makes it much more profitable for Coca-Cola to move its manufacturing centres out of America to Mexico[28] (where the cost of labour is exponentially cheaper) and later to other developing countries and you have a multi-national corporation that has concentrated wealth and power to a point where it outstrips governmental authority.

You can evade taxes by moving profits overseas[29]. You can have cities trip over themselves in offering you benefits so you build your headquarters there. You can even control who gets elected and who doesn’t by providing financing for campaigns, and silence dissenters by buying ads in media outlets[30]. Large newspapers aren’t going to bite the hand that feeds them.

Coca-Cola routinely hires right-wing paramilitaries in Colombia to brutally and horrifically murder and torture union organisers to keep the price of labour down[31]. It is much cheaper for me to pay a hundred grand for a paramilitary death squad to flay a union organiser alive and dump his bleeding body in the slums as a warning, than it is for me to pay the hundred grand a year in cost of living adjustments for the workers. Hell, for an extra twenty grand I can have the family of the union organiser dismembered in front of him with a chainsaw while he is forced to watch before his eyes are gouged out. That will save me from having to deal with unions for at least another five years.

Even these right wing paramilitaries are already subsidized by the American taxpayer – they are using American weapons and equipment[32] (either given to them by the Colombian government, or purchased through narcotics money that comes from slinging coke to the gringos), high ranking officers are trained in the School of the Americas in Fort Benning[33], and they are supplied with information and logistical support by the Colombian military[34] (who receive military aid money as part of the ‘war on drugs’). On a related note these right wing paramilitaries are responsible for 80% of the murders in Colombia[35]. These ‘externalities’ aren’t mentioned to the average joe standing in front of a vending machine fumbling for change because it is inconvenient to the notion that capitalism is this wonderful force that uplifts people from poverty and gives us cool stuff. You know, so long as you don’t look too closely at the externalities.

Conservatives, already well-trained to look the other way when it comes to the ugly exploitation of capitalism (slavery, child labour, resource theft), will yip that that isn’t capitalism that’s crony capitalism (“That’s not Socialism that’s Stalinism/Maoism/State Capitalism”) but there is no difference. ‘Crony Capitalism’ where political insiders and business elites are able to manipulate the market through the government is the logical conclusion of an economic system that incentivises the concentration of wealth (and therefore power) in the hands of the few.

It is simply a matter of time before the concentration of wealth hits critical mass and begins to distort the government. As inequality grows this eventually culminates in Fascism (where corporations and the state, through the military and police, ally against the people to maintain the status quo). We have seen this movie play out in Latin America with Chile’s Pinochet, and the military juntas of Argentina and Brazil. When you can no longer use soft power to maintain control and the façade of democracy you resort to hard power.

If you have a big government, after the initial stage of innovation, you cement your advantage by using some of that money to bribe people to rewrite the rules to gut your competitors, or your children and their children wind up in government (Kennedy/Bush). It is much cheaper and easier to do this than to continually innovate (or to do it alongside continual innovation).

If you have a small government (or none at all) you just hire paramilitaries and ‘private military contractors’ (mercenaries) to brutally murder your competitors, blow up their facilities, take their family members hostage, use slave labour, implement addictive feedback loops into your products, etc. You can buy out media coverage to ensure that all this is kept hidden from the public and privatise key industries like education and healthcare, to keep people so distracted and dependent that they can never speak out for fear of being denied access to crucial services.

On the off chance you encounter an equally big competitor it is far more mutually beneficial to form a cartel with them and divvy up territory than to risk hits to your profits by going to war. “There is no state that has ever benefited from a protracted war.”[36] –something Americans clearly fail to comprehend. All the free market will do is ensure that those who are already ahead stay further ahead because they can use their greater share of resources to either co-opt or kill their competitors – unrestricted by government you have a return to feudalism only without the pretext of the noblesse oblige (the noble obligation).

You would have to be hopelessly naïve or utopian to believe that people will play fair and risk losing when they can play unfair and ensure they win – especially when the stakes are this high. Coca-Cola doesn’t make billions a year by being ethical and playing nice despite all their marketing efforts to convince you otherwise.

The externalities of all this is paid for by the public, both in the developed and developing world, while the profit is received by private shareholders who then go on to use their profits to further strengthen their monopolies. Adam Smith warned of this in The Wealth of Nations,

“The interest of the dealers [referring to stock owners, manufacturers, and merchants], however, in any particular branch of trade or manufacture, is always in some respects different from, and even opposite to, that of the public. To widen the market and to narrow the competition, is always the interest of the dealers. To widen the market may frequently be agreeable enough to the interest of the public; but to narrow the competition must always be against it, and can serve only to enable the dealers, by raising their profits above what they naturally would be, to levy, for their own benefit, and absurd tax upon the rest of their fellow-citizens.”[37]

The interests of corporations are diametrically opposed to the interests of the people and these are the institutions that are given the loudest voices in determining policies. A 2014 Princeton study conclusively showed how little influence ordinary people have in government decision making compared to corporate entities and wealthy individuals[38]. The 1971 Powell Memorandum[39] explicitly outlined how corporations would expand lobbying efforts, finance right wing think tanks and institutions (The Heritage Foundation responsible for Obamacare[40], The Cato Institute, Prager University), buy out academics and intellectuals to preach their neoliberal nonsense, and dominate media outlets.

Today these corporations seduce the best and brightest with enormous salaries and benefits to co-opt any leaders who might emerge. The gilded graduates of Ivy Leagues are continually offered summer internships and junior positions at corporations where they are wined and dined to becoming part of the system.

We have to start seeing these corporations for what they are – the common enemies of humanity, and the politicians who serve them as traitors to their citizenry. Corporate power is a cancer upon the planet that is destroying the ecosystem we need to survive in its relentless pursuit of expansion and profit. You cannot regulate corporate power because it will go somewhere without regulations, you cannot legislate away corporate power because it is so deeply entrenched into the political system. The economic, cultural and political systems it uses to sustain itself – capitalism, neoliberalism, militarism must be dismantled and this can only be achieved at the mass level.

This isn’t because the left doesn’t understand economics; to the contrary we understand it very well. We understand that ultimately we all pay the price for their greed; we will all pay our pound of flesh for the externalities of non-living corporations. We understand that beyond the sterile numbers and cold charts there is a cost that is not being counted. We understand that there is more to life than to watch numbers go up on a screen. Because a society that is more obsessed with short term growth over long term sustainability – of profits over people – is one that is heading off a cliff. And that affects all of us.


[1] https://waronwant.org/media/coca-cola-drinking-world-dry

[2] https://www.business-humanrights.org/en/coca-cola-lawsuit-re-india

[3] http://www.coca-cola.co.uk/faq/how-much-sugar-is-in-coca-cola

[4] https://www.forbes.com/sites/timworstall/2017/01/18/if-us-sugar-tariffs-make-americans-poorer-then-donald-trumps-tariffs-will-make-americans-what/#3f6de8062ec4

[5] https://farm.ewg.org/progdetail.php?fips=00000&progcode=corn

[6] https://www.economist.com/news/united-states/21643191-crop-prices-fall-farmers-grow-subsidies-instead-milking-taxpayers

[7] https://www.scientificamerican.com/article/time-to-rethink-corn/

[8] http://www.4-traders.com/COCA-COLA-COMPANY-THE-4819/company/

[9] http://www.nber.org/papers/w11767.pdf
http://piketty.pse.ens.fr/files/AlvaredoGarbintiPiketty2015.pdf

[10] https://www.theatlantic.com/business/archive/2016/09/welfare-queen-myth/501470/

[11] https://www.statista.com/statistics/286526/coca-cola-advertising-spending-worldwide/

[12] https://www.nytimes.com/2016/10/10/well/eat/coke-and-pepsi-give-millions-to-public-health-then-lobby-against-it.html

[13] https://www.opensecrets.org/lobby/clientsum.php?id=D000000212
https://www.bloomberg.com/news/articles/2016-10-10/soda-giants-are-likened-to-big-tobacco-in-report-about-lobbying

[14] http://lup.lub.lu.se/luur/download?func=downloadFile&recordOId=4450299&fileOId=4450327

[15] https://www.forbes.com/sites/johnowrid/2014/02/05/behavioural-economics-gives-the-advertising-industry-a-nudge-in-the-right-direction/#71a1c7156ab8

[16] https://www.research-live.com/article/features/using-behavioural-economics-to-understand-advertising-impact-/id/4013586

[17] http://knowledge.wharton.upenn.edu/article/how-data-mining-can-help-advertisers/

[18] https://www.forbes.com/sites/greatspeculations/2016/09/26/coca-colas-advertising-and-marketing-efforts-are-helping-it-to-stay-on-top/#2c466dcd28d7

[19] https://www.procurement.vt.edu/content/dam/procurement_vt_edu/news/News_061902.pdf
https://thetyee.ca/News/2007/02/06/CokeOnCampus/

[20] https://www.opensecrets.org/lobby/clientsum.php?id=D000000212

[21] http://www.coca-colacompany.com/brands/billion-dollar-brands

[22] Adam Smith The Wealth of Nations page 368.

[23] https://drum.lib.umd.edu/handle/1903/235

[24] http://www.bbc.com/news/magazine-19550067

[25] https://www.defense.gov/News/Contracts/Contract-View/Article/606879/

[26] https://www.politico.com/magazine/story/2015/06/us-military-bases-around-the-world-119321

[27] https://www.history.com/topics/world-war-ii/marshall-plan

[28] http://sites.stedwards.edu/apsmg434701-group5/nafta-in-mexico/

[29] http://www.businessinsider.com/irs-coca-cola-tax-bill-2015-9

[30] https://marketrealist.com/2014/12/advertising-key-strategy-coca-colas-growth

[31] https://www.telesurtv.net/english/news/Colombia-Coca-Cola-Accused-of-Funding-Terrorist-Paramilitaries-20160901-0005.html
https://www.nytimes.com/2001/07/26/world/union-says-coca-cola-in-colombia-uses-thugs.html
http://news.bbc.co.uk/2/hi/business/1448962.stm

[32] https://colombiareports.com/the-farcs-biggest-fear-colombias-paramilitary-groups/

[33] http://soaw.org/index.php?option=com_content&view=article&id=235

[34] https://www.hrw.org/reports/2000/colombia/

[35] https://www.jacobinmag.com/2016/05/colombia-peace-farc-urabenos-santos-uribe-up/

[36] Sun Tzu, The Art of War

[37] Adam Smith, Wealth of Nations pages 219-220

[38] https://scholar.princeton.edu/sites/default/files/mgilens/files/gilens_and_page_2014_-testing_theories_of_american_politics.doc.pdf

[39] http://law2.wlu.edu/deptimages/Powell%20Archives/PowellMemorandumTypescript.pdf

[40] https://www.wsj.com/articles/heritage-rewrites-history-1383157826