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Jonesin' for a Soda

Mises Daily: Tuesday, May 22, 2012 by

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[This Mises Daily originally ran on Wednesday, September 05, 2007.]

The tongue is a discerning instrument; in the hands of a traveled soda aficionado, it is capable of leading to insightful truths about agricultural geopolitics. To those who have drunk foreign sodas, this truth stems from the peculiar yet incontrovertible fact that American soda is awful.

Though some blame this phenomenon on the use of aluminum cans over glass bottles, even the most elegant dress won't make a homely girl comely. Instead, to the trained tongue, the answer is clear: American soda is sweetened with artificial-tasting high-fructose corn syrup, while foreign sodas are made with natural cane sugar. Why would the American public accept such a mediocre substitute?

Whenever the public doesn't get what it wants and consumer demand is subservient to corporate interest, the first place we ought to look is government policy. On the free market, consumers drive production, whereas under a system of protectionist corporatism, politicians and bureaucrats guide the market. With free competition, companies best able to satisfy consumer demand are the ones that expand production and stay in business; the consumer is king.

When a government guarantees profits to those large corporations with powerful lobbies, the market loses its natural regulating mechanism. Instead of weeding out the most inefficient companies, the state subverts the consumer and keeps these companies propped up with corporate welfare. This is particularly true with respect to the agricultural industry.

In the absence of tariffs, importation quotas, and subsidies, the natural tendency of the market would be to produce cheap foreign sugar, which soda manufacturers would then import to sweeten their product. Domestic farmers are naturally opposed to this system because they cannot compete with more-efficient foreign firms. So, instead of competing for the dollar votes of the millions of individuals who form the free market, these large corporations have the power to lobby a select group of politicians to confer them special privilege. When a businessman tries to secure his profits not through free competition but through state privilege, he is not acting as a market entrepreneur but rather as a political, rent-seeking one.

In this case, the political entrepreneur was Archer Daniels Midland, a company that lobbied Congress to pass draconian quotas on sugar importation. But why would ADM, a corn producer, want to artificially raise the price of foreign sugar? A basic lesson of economics is this: when the price of a good is raised, all other things being equal, people cut back on their consumption, and (depending on the elasticity of demand) they look for substitutes.

High-fructose corn syrup, which is made from cornstarch, which ADM grows, is such a substitute.

Politicians gave ADM what it wanted when Congress passed the restrictions in 1982. So now, in addition to manipulating the country's tariffs, the Office of the United States Trade Representative sets limits by country on the tonnage of sugar that can be imported annually.

John Barnes of the New Republic writes,

In 1979 the entire corn sweetener industry produced just 1.7 million metric tons. Since the imposition of the sugar quota, industry production has soared to 5.5 million metric tons, more than 80 percent of it accounted for by ADM.

Furthermore, as James Bovard, policy analyst at the Cato Institute notes,

At least 43 percent of ADM's annual profits are from products heavily subsidized or protected by the American government. Moreover, every $1 of profits earned by ADM's corn sweetener operation costs consumers $10.

While the public has been forced to suffer inferior product, large corporations reap the benefits. The ubiquitous use of high-fructose corn syrup did not come about freely on the market, but was rather a product of the protectionist schemes of the federal government.

The story could end here, as it usually would, with the populace swindled because of the state, but thankfully it doesn't. In spite of the morass of antimarket policies, companies like Jones Soda have sought to satisfy a consumer demand for potable domestic soda.

In January of 2007, the company switched from high-fructose corn syrup to cane sugar. Though it cost the company over $1 million to alter its machinery, CEO Peter van Stolk defended the new sweetening agent, "because it tastes better and they [consumers] feel better about it because it's pure; it's sugar. They know what it is."

Though there has been a controversy over a link between high-fructose corn syrup and obesity, van Stolk is a CEO who has little interest in babysitting his clients. Instead, his rationale for the switch was simple: he saw that his customers had been demanding a change in the product, so to make more money he gave them what they wanted. The company's entire product is now made with natural cane sugar, and they have managed to limit the rise in price to a modest 5 percent.

Jones Soda is the kind of company that would arise if the state would divorce itself from the economy. Unlike the megacorporations behind Coke and Pepsi, Jones caters to the individualist spirit of America. Along with continually changing the photographs on its labels, Jones soda allows customers to individualize their own 12-packs with whatever picture or message they choose. Similarly, with over 64 flavors, including Caramel Cream and Lemon Drop Dead, Jones embodies the personal nature of free enterprise.

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In the absence of sugar quotas, Jones wouldn't have to suffer financially for their decision to give people what they want. They would be allowed to give us more flavors, like Bohemian Raspberry, flavored with cane sugar. But instead we are confined to brown, industrial-strength soda, capable of loosening rusted nails and removing corrosion from car-battery terminals.

Under a system of tariffs, subsidies, and restrictions, we get companies like Coca-Cola and PepsiCo producing collectivist drinks for the masses. There is nothing exciting about these products, because there is nothing exciting about the system that produces them. Interventionism is restrictive; it confines the innovative human mind, while the laissez-faire economy unleashes it. Ultimately, this is always the choice society must make.