Chickenomics: What a fast-food cold war is teaching us about the benefits of free-market capitalism

/

 

 

As I recently sat eating Zaxby’s new Signature Sandwich, I couldn’t help but think about the beauty of capitalism. The fried chicken sandwich war between restaurants across America that heated up in 2019 is the perfect case study in free-market capitalism’s superiority to command economic systems.

 

If the saying “Imitation is the sincerest form of flattery” is true, then Chick-fil-a should be blushing. The company’s unparalleled success in making fried chicken sandwiches led others to study and adopt many of the Atlanta-based restaurant’s practices. It’s not just two-lane drive-thrus or responding to a request with “My pleasure” and making you believe they mean it that Chick-fil-a’s competitors have adopted, it’s the paragon of poultry’s crown jewel that they also wanted to go after: the fried chicken sandwich.

 

In recent years, chicken competitors such as Zaxby’s and Popeye’s have launched an all-out assault on Chick-fil-a’s title as Chicken Champion with their own fried chicken sandwiches that have striking similarities to that of Chick-fil-a’s. It’s not just chicken restaurants, however. Fast food companies around the nation have joined an avian arms race to try to take a bite out of the “inventor” of the fried chicken sandwich’s profits.

 

For the consumer, this has led to an improved product at each restaurant, including at Chick-fil-a. The consumer now has more choices and has the culinary privilege of competition between restaurants. If another restaurant’s sandwich isn’t up to par, potential customers will return to the tried-and-true Chick-fil-a. But if the product is comparable or superior to the original, the competitor will experience a boon — as happened at Popeye’s,

 

No matter the result of this cockerel conflict, in a free-market economy, the consumer is the ultimate winner because competition requires each business to strive to produce the best product at the lowest price point delivered with the best service in order to stay alive.

 

But what if the chicken sandwich war took place in a socialistic economy, or even in a different sector of the U.S. economy, such as automobiles or energy? For the sake or this exercise I’ll say that the government favors other restaurants over Chick-fil-a (really not a stretch under this administration) and is seeking to “help” other restaurants compete. What would be the result? As economist Milton Friedman once said, “I think the government solution to a problem is usually as bad as the problem and very often makes the problem worse.”

 

Here’s how the government interferes in the marketplace and typically makes things worse for some companies and all consumers:

 

Subsidies

 

One of government’s favorite ways to interject itself into the economy is through subsidies. In this example, the government would see other restaurants falling behind and subsidize them in an attempt to jumpstart the flailing businesses. What this really means is the government would use the consumer’s money (in the form of tax dollars) to give to a business making an inferior product, denying the consumer the ability to exercise authority over the market. It is with good reason that some refer to subsidies as “corporate welfare.” In this instance restaurants would be rewarded for having a sub-par fried chicken sandwich. Meanwhile, the highly successful Chick-fil-a would be denied a subsidy because the government is choosing who receives the subsidies, essentially picking winners and losers.

Infamous subsidy flops like Solyndra show the danger of wasting taxpayer dollars on political pet projects that would have little to no chance of succeeding on their own. As one economist said, “I don’t know whether the government is better at picking winners rather than losers, but I do know that losers are good at picking governments.”

Good ideas are often already backed by private sector venture capitalists, banks, and other investors, so it’s usually the bad ideas and the less competent businesses that need — and receive — a handout from the government.

 

Incentive programs

 

Another weapon in the socialist’s Acme economy kit is the incentive program. In this instance, the government would provide incentives to consumers to choose another restaurant’s chicken sandwich over Chick-fil-a’s. Not only is this patently unfair to Chick-fil-a, it attempts to financially entice the consumer into choosing an inferior product but it provides no incentive to the business to improve its inferior product. Incentives could take the form of tax credits, which take from the tax base essentially to give to a failing business, or they could be more tangible programs such as Obama’s “Cash for Clunkers,” which incentivized consumers to sell their older cars to the government at an inflated price in hopes that they would use the money as a down-payment on a new car, many of which were made by companies that had been recently bailed out by the government.

 

In typical government fashion, the “clunkers” weren’t re-used for anything, but were destroyed. Moreover, by depleting the overall supply of older vehicles and raising the overall value of a “clunker,” the program significantly drove up the average cost of a used car, making it harder for poor or young people to be able to afford their own car.

 

Government regulations

 

Yet another way the government can artificially manipulate the economy is through regulations. In the power sector, crippling and excessive environmental regulations led to the closure of countless coal-fired power plants, despite the fact that they were more efficient and cost effective than “green energy.” As a result, consumers are forced to pay at a higher rate for a less stable power grid because the government regulated coal power into oblivion.

 

The government could do the same thing with chicken sandwiches. Perhaps the government could outlaw the use of peanut oil in cooking chicken. They would likely claim that due to some people suffering a peanut allergy, it is unsafe or discriminatory for Chick-fil-a to use peanut oil. Any restaurant that uses a different frying oil would be unaffected while Chick-fil-a would be forced to reinvent its entire recipe and process. This likely would lead to an inferior product at a higher cost, impacting the company’s ability to successfully compete. When these type of government regulations are targeted in such a way that they only affect one or a few companies in an industry, those companies could ultimately end up so crippled that they go out of business. In this way, although they would claim the regulations are for the greater public good, the government would be once again picking winners and losers.

 

Excise Taxes

 

Most taxes levied on businesses are automatically passed on to the consumer, either directly or indirectly, but imagine if a targeted excise (or “sin”) tax like that used to regulate sodas were to be similarly applied only to fried chicken sandwiches. Fast food restaurants that primarily serve burgers wouldn’t feel much harm from a fried chicken sandwich tax, and Zaxby’s, which primarily serves chicken tenders, or Popeye’s, which also serves traditional fried chicken, would suffer less harm than Chick-fil-a, which specializes in the fried chicken sandwich. Rather than force other businesses to compete for the consumer’s attention, the government might tax Chick-fil-a in such a way that hinders its productivity or forces it to raise prices and drive consumers to other restaurants.

 

The fact is that in the case of almost every single government-contrived “solution,” the customer loses. Competition among businesses is always in the customer’s favor. In general, if any branch of trade, or any division of labour, be advantageous to the public, the freer and more general the competition, it will always be the more so,” economist Adam Smith wrote in “The Wealth of Nations.

 

When government gets involved, however, it is in the role of a central planner, artificially manipulating the economy in an attempt to get a desired result, which is often not in the best interest of the consumer. Government intervention stymies innovation, drive, competition, and efficiency.

 

The fact is, capitalism has catapulted America into the golden age of fried chicken sandwiches, to the delight of Americans across the country, whereas government intervention strangles rather than supports even the most vibrant of industries. As Friedman said, “If you put the federal government in charge of the Sahara Desert, in five years there’d be a shortage of sand.”

 

And if you put the government in charge of chicken sandwiches — and I’m begging here, please don’t — in five years we might all be going vegan.