Coca-Cola's anti-American outsourcing scheme: How Big Soda gets the public to shoulder its costs

Historian Bartow Elmore talks to Salon about "Coca-Cola capitalism"

Published January 2, 2015 1:30PM (EST)

  (AP/Seth Perlman)
(AP/Seth Perlman)

Here's something many people may not realize about Keep America Beautiful, the organization that — armed with a "Crying Indian" and anti-litter slogans — taught Americans to take personal responsibility for pollution: It was created by soda and beer companies.

The organization launched in 1953, as Coca-Cola, along with PepsiCo, Anheuser-Busch and others, were making the switch from returnable glass bottles, which they cleaned and refilled themselves, to the "one-way" metal and plastic bottles we're used to today, a cost-cutting move that shifted the burden of responsibility for dealing with the bottles onto consumers. Keep America Beautiful's public service campaigns, as Bartow J. Elmore, a professor of environmental history at the University of Alabama, describes it, basically served to reinforce this new message: That America's trash problem was the fault of individuals littering -- not of the manufacturers that produced that litter in the first place. Taxpayers are the ones who end up funding expensive recycling programs, Elmore argues, for precisely the same reason.

"Citizen Coke: The Making of Coca-Cola capitalism," traces the history of Coke's empire through the company's reliance on offloading its costs and risks in precisely this way, tapping into public goods like curbside recycling and municipal water systems while eschewing ownership of the resources and infrastructure needed to produce its iconic beverage. It's a model, Bartow told Salon, that continues to this day, allowing the soda giant to turn an enormous profit while simultaneously distancing itself from the harm, to the environment and to public health, that it causes.

This interview has been lightly edited for clarity.

How do you define Coca-Cola capitalism? And how did Coke come to embody this concept?

Basically, Coca-Cola capitalism is a system or strategy for making money that involves getting others to do work for you. It’s a system of making money by acting as an intermediary between independent producers and independent distributors and making money off the transaction, off the flow of goods that are produced by those producers and then distributed to these independent distributors.

Coke didn’t own sugar-manufacturing plants in the Caribbean; it didn’t own caffeine processing plants in the American Southeast; it didn’t own high-fructose corn syrup mills in the Midwest. It relied on a host of independent producers to service its needs in terms of natural resources, and the same thing on the back end. It didn’t own its bottlers for most of its history or the soda fountains that distributed its products, but relied on independent businessmen in towns across the country to buy the machinery, the packaging, and the water, which is 80 percent of what the company sells to the public at the point of sale. It’s really a sleek business model. We think of Coke as this big business, but in many ways it’s kind of a lean operation, figuring out ways to embed itself in infrastructure that was built by others. I think that, at its heart, is really what Coca-Cola capitalism is.

Often people will say, well, Coke’s not the only business that does this. And I say, precisely. I call it "Coca-Cola" capitalism because Coke followed it so well, but you can think of software companies or fast food chains that follow very similar strategies of embedding themselves in technological systems built by others. In truth, it’s one of the models that has won out in the 21st century and made a lot of companies a lot of money, not just Coke.

Looking at the way Coke carries that out, it puts strains on resources, you describe a lot of environmental costs. Do you see this way of doing business as intrinsically exploitative?

I often joke with my advisors that you can read this book two ways: You can read it and say, wow, this is a very smart moneymaking strategy. In other words, it can teach people strategies that allow you to make a lot of cash. On the other hand, you’re right. As an environmental historian I’m interested in the costs that we often don’t see, behind this system of making money. I think in the case of Coca-Cola they’re serious.

A good example of this would be water. Because Coca-Cola’s distribution system is so decentralized, because there’s this outsourcing and franchising strategy, Coke has had to expand into some of the most arid regions of the world. Extracting water from Atlanta, Georgia, which receives a lot of water, year in and year out, may not be as big a problem as it is in India, where aquifers are being depleted at a rapid rate and people are really suffering for lack of adequate water supplies. What we’ve seen is that this ability to outsource those costs has taken Coke into areas that really aren’t suitable, in some ways, for the types of extractive industries that they engage in. I say that about Atlanta, but of course Atlanta’s also suffering from its own water shortages, so even at home we’re seeing that this model may not be very sustainable in the long run. Or California, which is really suffering from water shortages. Is it good for Coke to be bottling Coca-Cola there using water, which is a very precious resource in a place that doesn't have a lot of water?

I imagine that having that distance must also make it harder to hold the company accountable for those sorts of things.

Absolutely. One of the other benefits, other than just accruing financial capital from this system, is you also are accruing social capital: the ability to deflect accusations that your business is involved in, say, shady labor practices in Guatemala or bad water practices in India. You can say, “that’s not something we technically own, so that's not something we have a responsibility for.” In Coke’s defense, I think they’ve done a better job recently of trying to recognize that they can put pressure on their suppliers and their distributors to behave better, but we’ve seen in the past the company using that kind of separation to deflect blame from things that were going on clearly within the Coca-Cola system but maybe not being directly funded or run by Coca-Cola corporate. I agree with you that it certainly is beneficial in that regard.

Take, for example, the story of coca leaves. When you’re dealing with something as controversial as a leaf that contains a known narcotic -- which, as the book shows, the company has been involved in importing coca leaves throughout the 20th century. Long after they removed cocaine from their formula, they still used de-cocainized coca leaf -- that is, coca leaves without cocaine -- in their secret formula, so they had this really bizarre secret trade with these Peruvian coca farmers throughout the 20th century. Using an intermediary -- in this case Stepan Chemical Company operating out of New Jersey -- to import those leaves really allowed them to remain hidden, and to keep this trade hidden as well. Especially in the 80s, when you think about the war on drugs and the fear about cocaine in the United States, that was really helpful to have a bit of distance, operating through a third party to get what it needed.

That was something I had never heard about before. The link between Coke and Monsanto was a new one for me also.

Yeah, and I should say that the next project I’m working on is a global environmental history of Monsanto. I was struck by it too. I saw this and thought, “Wow, Monsanto is so connected to Coca-Cola,” and it allowed me to get to know Monsanto a little bit better, not as a GMO company but as a chemical company.

Without Coca Cola, Monsanto would not exist because Coke bought their entire stock of saccharine back in the early 1900s. Before Diet Coke they used this artificial sweetener to cut down on costs in their full-calorie sugary beverages, and it’s kind of a shady situation where they were essentially trying to cut costs by using this artificial sweetener. Anyway, Monsanto provided all this saccharine for them and then ultimately caffeine, and they were very closely tied. Monsanto would constantly talk about how important Coca Cola was to their business, in keeping them alive during those early years.

Coke eventually ditched Monsanto once they got a better artificial sweetener, right?

Right, and there’s CCC in action. That story of Coca-Cola dropping the Monsanto contract is a great example of how Coca-Cola’s strategy for making money kept them nimble, kept them flexible enough so that when new sources of supply cropped up they could just switch to a new supplier. In this case, decaf coffee really took off and the company was able to switch their contracts to General Foods, which was producing decaf coffee under their Maxwell House label. Even though Monsanto had this long history of being Coke’s supplier, the company realized they had a better deal from General Foods and said, sorry! Thanks for investing for so long in infrastructure for us, we’re going to switch to the next best thing.

You see that with caffeine, and you see that with sugar. Why is it that Coke switches to high-fructose corn syrup on the fly in the 1980s? Because they can. They don’t own sugar plantations, they don’t own sugar refining plants. They remain nimble and are able to tap into new sources of supply whenever they appear.

Obviously Monsanto was able to bounce back from losing Coke, but have there been other cases where companies have not been as lucky?

I don't really have a story in the book that deals with a company that’s completely crushed by Coca-Cola switching its contract, but I will say that throughout history Coke recognized its purchasing power. By 1910 it was the single largest purchaser of sugar on the planet; it knew that where it sent its money could really have an effect on prices and it could shape competition. One of the things you see is them trying to diversify their buying contracts in ways that prevent them from being vulnerable to changes in markets in a particular locale; diversifying their bets, so to speak, so that they’re never stuck with just one supplier.

The way Coca-Cola’s system works overseas is so particularly interesting because they actually don’t sell Coca-Cola syrup with sugar. They came out with a sugarless concentrate in the 1920s. So the most expensive ingredient, sugar, was outsourced to the bottlers themselves, so you see bottlers having to source sugar locally.

Is that how we end up with Mexican Coke [which is sweetened with cane sugar]?

Sure, absolutely, and the way Coke would pitch that is as encouraging local business and industry and generating jobs and supporting the local sugar producers wherever they operate. The untold story is that this is a huge benefit for them. They don’t have to pay for this expensive and sometimes volatile ingredient when it comes to overseas markets, and it’s nice to have that risk off your books.

You describe Coke as a product of abundance that came out of the large-scale industrial and agricultural output in the late 19th century. When did that stop being sustainable? Is there a way to reform a model that banked on there being so much to work with?

I think you’re getting to the heart of the book, which is to say that when we think about sustainability and when we talk about business sustainability today within firms, often these conversations are kind of ahistorical. They don’t think about the first principles of business governance that were created in a certain ecological moment. As you put it, when Coke emerged it was emerging at a time when vertically-integrated enterprises were producing tons of sugar and we had all this stuff that was available at low cost. Part of CCC made sense at the time, but in an era where we’re looking at water scarcity in parts of the world, where we’re thinking about producing crops efficiently and thinking about what types of crops we should be producing and whether sugarcane -- a very destructive crop in some ways in terms of its spread and where it grows and the types of ecosystems it affects… we have to confront these first principles of business governance that were created in the Gilded Age and ask whether they apply to the ecological realities of today.

That’s a real conversation about sustainability that goes beyond efficiency, which is the great sustainability pitch today: that we can become more efficient, that we can improve our water use efficiency and things like that. I think that misses the deeper, underlying tendency of producing excess from excess as a business model that many of these businesses are founded on, that they’ve been built on, and that is so rooted in their rubric for making profits.

It’s more than efficiency, definitely more than a soda tax could do, you'd say?

I think efforts like a soda tax and mandatory deposits, that try in some way to put pressure on the business to recognize that the way it’s doing business is not good for the health of our bodies or the health of our environment, can help push corporations to move in the right direction. But even there we’re not really seeing how all these things are connected, the underlying dependencies in terms of the way companies make money by exploiting excess and surplus that we really have to move away from in an era where producing that surplus is having really big environmental costs.

By Lindsay Abrams

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Capitalism Coca-cola Outsourcing Resource Extraction Soda Tax