The Fat Tax Cometh
July 30, 2002
by Irwin Stelzer
So all’s well in the fast-food and restaurant industry. Diageo received $2.3 billion for its Burger King subsidiary from an American venture-capital consortium led by Texas Pacific. Since Texas Pacific’s founder is David Bonderman, described in the press as “one of the buyout world’s most savvy turnround artists,” analysts are assuming that the prospects for the hamburger chain of 11,500 stores are bright indeed.
Meanwhile, McDonald’s, benefiting from the opening of new stores and the popularity of new products that include a grilled chicken flat-bread sandwich and a broader menu, reported its first increase in quarterly earnings for seven quarters. Sales of the 30,000-restaurant chain grew only slightly in America but jumped 7 percent in Europe as fears of mad-cow disease abated.
Pizza chains joined the party. California Pizza Kitchen, a chain of 137 casual restaurants famous for its “designer pizzas” but also proud of its chicken tequila fettucine, weighed in last week with a rise in sales of 5.1 percent in the second quarter.
It thus participated in the growth of the restaurant business as a whole: diners’ bills in out-of-home eateries are scheduled to pass $400 billion this year. The 27 stocks in the Standard & Poor’s restaurant index have risen 17 percent this year and at an average of close to 9 percent per year since 1987.
Andrew Barish, a restaurant analyst at Banc of America Securities and a man who has never had the benefit of my good wife’s culinary skills, told a Business Week reporter: “The truth is, we’re a generation that doesn’t know how to cook or doesn’t have the time to cook.”
So all’s well in the fast-food and casual-dining industry, then. Well, not quite. It is easy to laugh at the 20-stone man and his seven cohorts who last week sued McDonald’s, KFC, Burger King, and Wendy’s for making them fat. The lead complainant eats fast food five times a week, has had two heart attacks, and suffers from high blood pressure and diabetes. “The fast-food industry has wrecked my life. I always thought it was good for you,” he says.
Before wiping away tears of laughter, consider this pattern. First, find a disease: say, cancer. Second, find a plausible cause: say, cigarettes. Third, glide over the question of individual responsibility and argue that the “victims” are helpless to resist a huge advertising campaign. Result: a ban on cigarette advertising, lawsuits galore, and large cash awards to plaintiffs and to the government bodies claiming to represent them.
Now consider fast food. The disease has already been identified: obesity. It allegedly produces diabetes, particularly among the young, and cancer. The World Health Organization claims that one-quarter to one-third of cancer cases are related to being overweight and physically inactive, and George Bray, professor of medicine at Louisiana State University Medical Center, says fat cells are “hormone pumps” that accelerate cell division and replication.
The culprits in this tale of expanding waistlines are the fast-food outlets, say their accusers. The British think-tank Demos (New Labour’s favorite home of deep thinkers but, apparently, not deep fryers) names and shames “fatty, highly processed, and fast foods,” to which America’s health authorities add sweet and fatty snacks and sugary soft drinks.
Nor can individuals be held responsible for what they eat. The fast-food industry spends $10 billion a year on advertising, much of it aimed at youngsters, and when this is combined with the enticing odors of grilling hamburgers the temptation is irresistible. What is a person to do in the face of such forces, except to seek legal redress for the evils inflicted on him by panderers to human frailty? Unfortunately for the food chains, the number of potential plaintiffs is virtually unlimited. The American government estimates that one in six kids is overweight, a 50 percent increase since 1980. America’s authoritative Centers for Disease Control (CDC) allege that 27 percent of Americans are obese, and an additional 34 percent could benefit greatly from shedding weight. The percentage of obese Americans has doubled in the past 30 years, prompting the U.S. Surgeon General to label obesity an “epidemic.” Never mind that these figures are tainted by the failure of the CDC to distinguish fat from muscle when measuring body weight, a fact that the Wall Street Journal reporter Betsy McKay estimates puts Sylvester Stallone and Arnold Schwarzenegger in the obese class and places Harrison Ford, George Clooney, Bruce Willis, and Michael Jordan among the merely overweight.
It is unlikely that the muscular Rambo, the lethal Terminator, or the athletically graceful basketball star will emerge as plaintiffs in the spate of lawsuits that will be filed if the action brought last week makes any progress. But it is certain that the fast-food chains will be under pressure to limit their advertising to children and, perhaps, to put health warnings on menus and packages.
Likely, too, is a move to tax fast foods, which their critics place in the same killer category as tobacco and alcohol. Demos and Michael Jacobson, who runs the American-based Center for Science in the Public Interest, are among those calling for such taxes. But they are moderates when compared with Los Angeles councilors who are about to pass a law limiting the number of fast-food outlets in certain parts of town, and Arkansas legislators, who plan to introduce a bill banning “vending-machine poison” (aka soda pop) from schools. The outlook for the fast-food industry may be brightened by this generation’s unwillingness to slave away over a hot stove, but it is in for a fight of the sort not seen since the cigarette wars.
This article appeared in London’s Sunday Times on July 28, 2002, and is reprinted with permission.
Irwin Stelzer is a Senior Fellow and Director of Economic Policy Studies for the Hudson Institute. He is also the U.S. economist and political columnist for The Sunday Times (London) and The Courier Mail (Australia), a columnist for The New York Post, and an honorary fellow of the Centre for Socio-Legal Studies for Wolfson College at Oxford University. He is the founder and former president of National Economic Research Associates and a consultant to several U.S. and United Kingdom industries on a variety of commercial and policy issues. He has a doctorate in economics from Cornell University and has taught at institutions such as Cornell, the University of Connecticut, New York University, and Nuffield College, Oxford.