Politics & Policy

Public Goods Go Better With Coca-Cola

For a nonprofit health group, the soft-drinks giant’s logistics are invaluable — and free.

Coca-Cola may not be good for you, but it may still save many lives. At the point where the for-profit enterprise intersects the nonprofit impulse, there is an underappreciated opportunity for social change.

The traditional case for government action in the economic sphere is that free markets cannot (or will not) provide public goods. As I argued earlier this week, the definition of “public good” is not always a black-and-white question, which is compounded by the fact that not all public goods are appropriate — anti-mosquito spraying may make perfect sense in the malaria hotspots of northeastern India, but you probably don’t need it in Calexico, Calif., one of the driest places in the United States. Still, the conventional wisdom holds that a great many necessary goods and services cannot be delivered by the private sector, because there is no profit in doing so.

#ad#In fact, free-market agencies often produce true public goods, as well as a great number of goods and services that are usually thought of as the domain of the public rather than the private sector, or of the nonprofit rather than the for-profit sector. The question of profit does not seem to play as large a role in these decisions as one would expect. For instance, Tim Maly of Wired offers a very interesting report this week about the problem of distributing diarrhea-treatment kits in poor and remote parts of Africa.

Diarrhea may be the stuff of South Park humor in the rich world, but it is a deadly serious issue, one of the most significant causes of preventable early deaths worldwide. Mr. Maly reports about the activities of Simon Berry, an aid worker with an organization that came up with a good rehydration product. Developing the product was not a problem — rehydration solutions are pretty standard — but getting it to the people who need it at an economically feasible cost was very difficult. Mr. Berry’s solution was to piggyback on the network of another distributor of a hydration product, one of a less medicinal kind: Coca-Cola. Coke volunteered its logistical expertise and offered crucial access to its network of local distributors, who have the on-the-ground knowledge that is simply irreplaceable in addressing these kinds of problems.

Currently, the rehydration packs that Mr. Berry offers receive a small subsidy through his nonprofit. His goal is to get the price down to the point at which they will be within the means of their intended beneficiaries with no subsidy. (The Clinton Health Initiative is helping him with that.) But the more important subsidy is being offered by Coke: Building a distribution network and acquiring global and local expertise equivalent to that of the soft-drinks giant would be well beyond the means of most charities and many governments.

Looked at from the point of view of Homo economicus, Coke is taking a big loss here: While helping Mr. Berry’s organization may cost it little or nothing out of pocket, there is opportunity cost to consider, too, and Coke is giving away very valuable cooperation and knowledge, worth millions of dollars at least, at no cost. The conventional economic view is that Coca-Cola, a profit-maximizing enterprise if ever there were one, should auction these benefits off to the highest bidder rather than give them away. And there certainly are for-profit enterprises that would pay good money for access to Coca-Cola’s distribution complex.

Why does Coca-Cola give away for free what it could sell? Perhaps it does so because it hopes to claim some intangible benefit in the form of good publicity — say, a nice write-up in Wired. Only a very naïve person would doubt that this comes into play in the internal calculations of Coca-Cola, which is one of the world’s largest advertisers, spending some $3 billion a year building its brands. (Fun Coke fact: If Coca-Cola were a country, its economy would be larger than Guatemala’s.)

But I suspect something else is at least partially at work here. For all of the economic angst of the past decade, the world continues to get richer and richer. That is especially true for major multinationals such as Coca-Cola, but it is also true for the villagers in Zambia who, if Mr. Berry is successful in his efforts, will be transformed from passive recipients of charitable aid into consumers of health-care products. Those products will be sold to them on a nonprofit basis at first, but as they become wealthier and their demand for health-care services increases, they will attract more attention from for-profit providers. Our particular moment in history is remarkable in that our wealth is amplified by technology and connectivity, meaning that the transaction costs for Coca-Cola’s helping out Mr. Berry’s project are pretty low. In a rich and connected world, we can do a lot of good at relatively little cost to ourselves.

The case of the rehydration packs in Zambia is a very serious one, but we see this in much less serious spheres, too. Kickstarter, the online crowd-funding site, allows people to commit very small amounts of money to projects in which they are interested. What began with people offering a few bucks to support a band they like in exchange for a copy of its forthcoming album has become a large and sophisticated operation. When the makers of the television series Veronica Mars decided they wanted to make a movie, the studios were somewhat skeptical of investing in it. So the would-be filmmakers went to Kickstarter, with a goal of raising $2 million to get started — and within a matter of days, they had raised more than $4 million from some 62,000 fans of the show. With an average outlay of $64.52 (offered in exchange for everything from tickets to the movie to invitations to the premiere party, depending on the level of support), those 62,000 fans were putting very little on the line. Unlike a conventional investor laying out a few million dollars, they had no real economic need to see a return on their investments. Rather, they could simply spend a few dollars on something they care about in return for some small benefit as well as the intangible benefit of being a part of the movie. For the price of a dinner at the Olive Garden, they collectively have the power to green-light a movie. They are in a sense in the same position as Coca-Cola: able to have a very large impact at very little cost to themselves. They are something more than consumers or benefactors, and something different from (if not exactly less than) conventional investors.

As the unsustainability of our government finances becomes ever more apparent and our entitlement system comes unwound, there is a lesson for us here. We Americans are very wealthy, and, the best efforts of the Obama administration notwithstanding, we are likely to continue to be very wealthy. We have the ability to do a great deal of good for those most in need, but our legacy systems — Social Security, Medicare, Medicaid, and welfare writ large — are no longer adequate to the task. For those who favor the market and voluntary cooperation over the traditional seize-and-spend model of politics, figuring out how to use the new tools at our disposal to supplant the moribund welfare state is the great domestic challenge of our time.

— Kevin D. Williamson is National Review’s roving correspondent. His newest book, The End Is Near and It’s Going to Be Awesomewill be published in May.

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