The Future of McDonalds in a “Limits to Growth” World

How will McDonalds adjust and evolve in a “Peak Burger” world?    Will its profit shrink to zero?  Will this corporate giant collapse as every cow is plucked and it can no longer make their tasty healthy fries?  While  a Sober Mel Gibson fought hard for gasoline in “Mad Max”, will future Gibsons really be fighting over the last few Chicken McNuggets?  

This salient case study (perhaps Harvard Business school will publish this blog post and send me royalties?) is triggered by this thoughtful comment I received;   “So specifically Matthew in your vision of smooth adjustment and win-win and rationality: How will McDonald’s consumers and McDonald’s itself evolve as we hot-step towards 9 billion on the planet all waiting to be served greasy cow meat from motorized palanquins? How will this win-win play out?”

I do not eat at McDonalds anymore.   Its cusine isn’t yuppie enough for my Berkeley tastes.  But, McDonalds knows this.   McDonalds has tried to attract customers such as me with fancier coffees such as the McCafe.  In India, there is no BIG MAC on the McDonalds’ menu!     This salient data point highlights that for profit firms cater to the demands of their consumers.  These firms have an incentive to get to know their customers through basic market data.   Now, such firms will respond to changing customer tastes and demographics but they will also respond to changing input prices. If the marginal cost of producing a Big Mac goes up (because of scarce land for cows), then Big Mac prices will rise.  McDonalds may choose to offer products whose inputs are less land intensive.    How much land does it take to make a spicy-bean burger?  Well, I don’t know but I do know that our smart firms will figure out how to economize on scarce inputs (such as land) to make them.

Economists believe that through human capital and capital investment we can raise yields to get more output from our finite earth.

If there are 9 billion people on the planet by the year 2060 and they each eat 2,000 calories a day, then we will need 18 trillion calories a day of intake.  Somebody will become quite rich as they figure out how to produce such food while economizing on costly inputs.  Yes, our diet patterns may change (similar to McDonalds shifting their product mix).  If you know, we face a future food crisis then you can make a fortune buying canned goods now and storing them as the days of pain near.   I do not plan to store up on such canned goods.  In a market economy, free market prices signal scarcity.  Prices rise and fall. If they significantly rise, then our entrepreneurs will get to work and seek out new ways and new places to grow the food.  We will face choices over GMO foods and other issues.

As the world develops, world population growth will slow.    Income growth does predict rising meat consumption.  Increasing meat prices (due to “Peak Cow”) would slow this trend in aggregate meat consumption growth.  My concern is the exacerbation of the tragedy of the commons. I do not want to see the Amazon be chopped down in the world’s pursuit of a burger.  To resolve this issue, we need enforced property rights.   The raw hunger in capitalism for final goods does damage the commons and makes the Tragedy of the Commons problem even more severe. The answer here is to privatize the commons.

Author: Matthew E. Kahn

Professor of Economics at UCLA.

37 thoughts on “The Future of McDonalds in a “Limits to Growth” World”

  1. Quorn, http://www.quorn.us/Home, is tailor-made for the future McDonalds – a meaty texture, somewhat like chicken, without much flavor of its own but able to absorb marinades and spices, resulting in a perfectly edible simulacrum of meat.

    Quorn itself is not particularly good but it’s a first step toward true artificial meat – not like beans or tofu that can be poorly disguised as meat, but something that is artificially manufactured to be a meat substitute.

  2. “If there are nine billion people on the planet by the year 2060 and they each eat 2,000 calories a day . . .”

    A bit of Pangloss here, eh?

    “Economists believe that through human capital and capital investment we can raise yields to get more output from our finite earth.”

    Faith-based economics? Or are we relying on the weasel-word “more” rather than the meaningful word “enough”? The basic structure of Malthus’ argument has never been refuted, although he underestimated the role of technology, and the fortuitous fact that educated women don’t reproduce to the max. But technology is limited by basic physics and biology, and what social evolution gives, social evolution may take away. To make matters worse, ecosystems are dynamic, so productive technologies may be long-term self-defeating. (E.g., antibiotic resistance and salinization in the Imperial Valley.) In other words, the assumption of cumulative technological improvement, which works fine for say, microelectronics, is not inherent in agricultural science.

  3. Wow. That was an amazing leap from “how can a company whose business model is ostensibly based on continual market growth adapt to static or declining markets?” to “we must privatize the commons”.

    (Which, by the way, has been a really really terrible failure from a distibutional and health viewpoint almost every time it’s been done, from enclosures to the Dawes Act to the hiving off of the british rail system. The problem, in short, is that either you get the commons into the hands of a bunch of poor tinyholders who don’t have the resources to maintain, improve or police it, or any reason to hold onto it when offered immediate returns by large exploiters, or you sell directly to large exploiters who have the political power to force the local government to buy the commons back at full price once they’ve finished trashing it. Occasionally you have non-trashing exploiters, who simply make a pile of money by virtue of having been granted what formerly belonged to a bunch of other people. Of course, all of these bad outcomes can be prevented by appropriate oversight and regulation, whether market-based or otherwise, but it’s a given that any government capable of doing that oversight would be capable of regulating the maintenance and improvement of the commons without privatizing it.)

  4. “Economists believe that through human capital and capital investment we can raise yields to get more output from our finite earth.”

    And in the face of all evidence, “many” believe that Barack Obama was born in Kenya. Even today, after the long-form birth certificate has been released. But, that’s still only a copy, you know.

    Professor Kahn, try to get out more, at least in the figurative sense. The economics-as-an-academic-discipline ghetto is no place to learn a whole lot about the biophysical earth. As for McDonald’s “cuisine,” it’s not food, so your Berkley tastes are correct. It’s a food-like substance, and along with all the other food-like substances purveyed by the Great American Food System it’s the proximate cause of our obesity/metabolic syndrome/Type II diabetes epidemic.

  5. “The answer here is to privatize the commons.”

    In a word, bullsh*t. Those capitalists looking for ways to serve all 9 billion people burgers are the people with the most money and therefore, the people who will buy the commons and then chop down the rain forests. What we need is the death penalty for hunting on the King’s land, except without the King or the death penalty. This post shows a serious lack of thought.

  6. In defense of the McDonald’s burger, there is nothing wrong with it, apart from too much sodium and too little fiber. (The Big Mac has too much fat and too may calories: I’m just talking about the generic burger.) It is perfectly suited to the taste of four-year olds, and is fine in moderation. The McDonald’s french fry is a thing of joy and beauty, at any age. Again, in moderation. Other items don’t fare so well, especially their sugar bombs: drinks, desserts, and the like.

    I suppose this means that, unlike the other commenters to this post, I disagree with Kahn in every respect. His economics is shamanism, his sociology reductionistic, and his biology and technology are non-existent.

  7. McDonalds is already economizing on beef. For example, like most fast food chains, they now use 10% ammoniated beef, that is, parts of the cow that are too contaminated with bacteria to eat (think anuses and so on) that is made safe by soaking it in ammonia. I’m sure if beef prices were to really increase they could follow the practices of the canned and frozen food producers and add such things as soy protein or Quorn (which is, as heavily processed mats of mildly toxic soil bacteria, somewhat more disgusting than ammonia soaked cow anus).

  8. “In defense of the McDonald’s burger, there is nothing wrong with it, apart from too much sodium and too little fiber. “

    It actually tasted quite a bit better, and had a bit more fiber, back when they still used soy filler. Another triumph of marketing over product quality…

  9. Economists believe that through human capital and capital investment we can raise yields to get more output from our finite earth.

    Economist, meet Agronomist, Hydrologist and Soil Scientist. They have some completely basic things to share with you that you are apparently unaware of.

  10. “Economists believe that through human capital and capital investment we can raise yields to get more output from our finite earth.”

    This is a huge jump from the classic and quite solid argument for the short-run productive efficiency of capitalism, to the extent it approximates a transparent Walrasiam market, to a speculation about the long run: unless it’s a trivially true sociological observation about the credulity of economists as a group.

    The determinants of welfare growth are investment, technology, “human capital” (knowledge, education, social networks, norms), demography, and environmental constraints and feedbacks. Oh, and the presence or absence of armed conflict. Economics has SFIK remarkably little to say about five of these, and not much about investment. There’s no theorem that the volume of investment will be anywhere close to optimal; businessmen, like the rest to us, are driving in the mirror and don’t receive any price signals from the future.

    At most, the capitalist system is long-run efficient in a Darwinian sense that lots of different things will be tried, many will fail, and the survivors thrive and get the label “adaptive”. But as Gould pointed out, survivorship of species and genera – even of basic features like body plans – depends a lot on luck. Whether your genus came through Snowball Earth had no relation to your fitness in the previous environment. Similarly the dominance of Microsoft in the market for desktop computing software was not the inevitable result of an optimising invisible hand.

    So what weight should the rest of us give to the optimistic assertions of (Chicago) economists about the fairly distant future of an interlinked productive system they only very partially understand?

  11. npm,
    I’ve heard that the rabbis believe that in-vitro meat would be kosher (and maybe even pareve), as long as nobody threw some trefe in the vat. Mmmm, a kosher bacon cheeseburger!

  12. When economists are not leading with expressions of faith, they actually can say some useful, analytical things about how the determinants of welfare growth interact to produce and enhance the “wealth of nations”. Apparently, though, there’s no market for it.

    The failure to come up with a theory of production was the signal failure of the marginal revolution of the 19th century, which produced the neoclassical economics we know so well. The vast majority of economists are working with foundational tools, which leave them treating “technology” as a magic blackbox, and in complete ignorance of such prominent features of the economy as vast business bureaucracies. The history of the industrial revolution can be analyzed for the changing relative importance of agricultural productivity, fossil fuel engines, discovery and conquest of virgin resources, growing population, improved transportation and increasing scale, etc. Really looking in the rear-view mirror might actually be informative if it were sufficiently analytical, that we could use the relationships in constructing projections. We know from Adam Smith, no less, that specialization is critical to productivity, and specialization is limited by the extent of the market; transportation costs and population size mattered in the past and will matter in the future. Certainly, one can find economists vitally concerned with increasing returns and trade, but not many of them seem to be assembling their insights into the big picture, going forward.

    Dr. Pangloss preaching rational expectations is not useful analysis. That doesn’t mean that we do not need the dismal science of economics. We do need it, more desperately than ever. I don’t think I would concede that even the imaginary economy is “long-run efficient” in either a Walrasian or Darwinian sense, whatever those might be. If anything, well-founded economic doctrines suggest a “natural” tendency toward long-run immiseration. That McDonalds might survive in the immiserated world is a curious cause for optimism.

  13. Someday, when the world comes to its senses and every Ph.D. granted by the University of Chicago economics department is rescinded so that the products of that program no longer distract us from good public policy, governing the commons wisely will be a viable alternative: http://en.wikipedia.org/wiki/Elinor_Ostrom

  14. Chazbet: guaranteed that if I see a call for presentation/paper and Elinor’s on the bill, I’m submitting. New rule after seeing her a few weeks ago. >

    We know from Adam Smith, no less, that specialization is critical to productivity, and specialization is limited by the extent of the market; transportation costs and population size mattered in the past and will matter in the future. Certainly, one can find economists vitally concerned with increasing returns and trade, but not many of them seem to be assembling their insights into the big picture, going forward.

    I return to the title of one of Wendell Berry’s books: What are People For? That is: it is one thing to specialize in order to earn a wage. It is entirely another at the speed of change in our Western societies to have that specialization be obsolete such that you have to retrain at 40. The hit your family takes is huge. For many in many areas, migrating to work is out of the question. My educator sister – who lives in the Midwest – and I speak of this occasionally, where she sees more men unable to find work.

    That is: in the abstract all this is hunky-dory at the macro level. But at the micro level where actual people…erm…agents live, it is a poor way to conduct ones life.

  15. The privatization of the commons works well with fishing. It’s done allright.
    http://en.wikipedia.org/wiki/Individual_fishing_quota
    But it has to be paired with quotas and controls. If you just privatize the entire amazon, for example, it will just lead the owners to try to maximize their profits through slash/burn agriculture and farming.
    It’s still going to require some judicious regulation (i.e. collective action of the people through government to protect a collective good).

  16. Well, Elinor Ostrom demonstrated that “commons” can work fine, and historically have, IFF the users have the right to limit access; I believe it to be trivially obvious that in a liberal-democratic society, there are serious legal and social barriers to excluding some from the commons. (For example, the massive argument about how to manage the local park; there are major political and legal issues if it’s evident that the point is to have it stop being a major center for the homeless, which would be the preference of most of the neighbors.)

    And I don’t think it takes any kind of Panglossianism to say that if food costs rose, higher-cost/higher-yield food production methods (which already exist) would be more widely adopted.

  17. And let’s not forget, it’s not necessary to eat meat every day, for crying out loud. I eat about one burger a month. I get it made at the deli section in Whole Foods, and it is *delicious.* Seriously. Try one. It is so good you don’t need to eat one every day. For the full experience, I would buy fries at McD’s and take them with.

  18. The owner of Whole Foods has claimed that minimum wage workers do not deserve health care, so I won’t be buying anything there, ever.

  19. “The privatization of the commons works well with fishing. It’s done allright.”

    Except, of course, when it hasn’t. The collapse of the Grand Banks cod fisheries (and that was one hell of a collapse) happened under exactly such a regime.
    The point (relevant) to Matthew’s Panglossism, is that all the privatization and economic theory in the world doesn’t change reality.

    It is also worth looking at the larger story of what happened here. The first collapse was in the early 70s. OK, you say, learning and all that. So what happens in the late 80s? We get a repeat, with another round of scientists being ignored and quotas being set too high.

    But, yes, yes, I know, the answer is obviously that there was not ENOUGH privatization. We can’t just be giving out quotas — we need to allow corporations to actually OWN that part of the sea — complete with the right to own their own navy to patrol any foreign vessels.

  20. “And let’s not forget, it’s not necessary to eat meat every day, for crying out loud.”

    Are you making this claim as a matter of science or as a matter of opinion?
    Because such science as exists in this area largely points to precisely the opposite conclusion: that the human body is optimized for eating substantially animal products, with a small amount of veggies and fruit, and very little grain. The fact that we’ve been eating grain for 10,000 years or so doesn’t change the fact that it may not be the optimal fuel for our bodies. The faddish way to say this is “sugar is poison”; but the more scientific viewpoint is that, to first order, the problem is insulin levels, and carbohydrates dick around with those, whether they are sugar or grain.

  21. Except, of course, when it hasn’t. The collapse of the Grand Banks cod fisheries (and that was one hell of a collapse) happened under exactly such a regime.

    Just so.

    They can work in restricted, freshwater lakes. In the open ocean, they are problematic at best. This is basic for ecology students. Basic work. All ecology students go through the standard software games to learn how commons fisheries work. The first few exercises almost always collapse the fishery for most teams. Basic stuff. Everyone must learn by doing.

    that the human body is optimized for eating substantially animal products, with a small amount of veggies and fruit,

    Not so.

    Hunter-gatherers have balanced diets and eat meat when they get it, and plants most of the time. Hence Pollan’s phrase: “Eat food. Not too much. Mainly plants. That is how we evolved: eating mostly plants and gorging on the infrequent meat. The Agricultural Revolution changed many things, but it did not change our DNA.

  22. I would add (gleefully putting in the boots here) that Matthew’s analogy also compares a market dominated by war and applies it to markets where war is secondary. The USA hasn’t put troops into many countries for burgers, but will gleefully kill for oil. And that continues literally to the present day – if you’re a civilian being shot at by your government, it matters to the US government whether that’s the Libyan government or the Bahrain/Saudi governments.

  23. if you’re a civilian being shot at by your government, it matters to the US government whether that’s the Libyan government or the Bahrain/Saudi governments.

    …and it matters not one whit if you are being shot at while in the Ivory Coast or other African nations without petroleum or valuable minerals.

  24. “heavily processed mats of mildly toxic soil bacteria”

    Well, no, actually. Quorn is manufactured from a fungus. Do you eat bread? drink beer? do you like blue cheese? Then you eat fungus.

    The Quorn fungus grows in the wild in soil. So do potatoes, at least in my garden. Perhaps you eat only food grown in sterile hydroponic clean rooms.

    And yes, it’s heavily processed. That’s the point. This is artificial meat. I don’t think chemically altering food is a big deal. Cooking, for example. Fine with me.

  25. @ Dan Staley and Maynard Handley:
    I don’t know what hunter-gatherers ate, and don’t really care. You can’t infer that the human body is “optimized” for the hunter-gatherer diet, because evolution is not an optimizing phenomenon. It is, at best, satisficing. You get all kinds of strange things out of evolution that don’t make much sense. Is there some “optimization” in humans’ inability to synthesize their own Vitamin C? Is there some “optimization” in the vermiform appendix? Or the panda’s short digestive tract, which is ill-suited to their bamboo diet?

    Furthermore, the satisficing conditions of our hunter-gatherer ancestors are not those of today. Some hunter-gatherers lived past 55 or so: not many. Heart disease would not been much of a killer then. Until recently, getting enough calories was almost invariably a much more severe restraint than getting too many calories, or the wrong kinds of calories.

  26. I don’t know what hunter-gatherers ate, and don’t really care.

    Thank you for sharing your opinion on how you aren’t sure, but think Homo sapiens’ metabolism evolved and adapted according to its environment and hunting skill (from, say, driving 100 mastodons off a cliff to eat one, to refining branches of the Taxus species to reliably launch a thin projectile at game), which resulted in a much different diet than we have today, yet our metabolism and physiology have barely changed.

  27. Finn: I didn’t know Whole Foods was privately owned. Do you know if the workers there are union or not? If they are, I guess one d—–bag owner wouldn’t make me stop shopping there. I still wear American Apparel tees sometimes, after all. *Everyone* has flaws. Have to wear *something,* right?

  28. Dan,
    You are rebutting a point I never made. You argue that human physiology has not changed with regard to nutrition in the last 10,000 years. I never disputed this, and am willing to believe that this is true, arguendo. But it does not mean any more than it means: we have the same nutritional physiology as hunter-gatherers. Okay. But it takes more than this to show that a hunter-gatherer diet is nutritionally optimal for humans. Evolution does not necessarily optimize.

    Let me try making this point with a pair of examples. Clothing is one. Our bare-skin physiology is well-suited to what we were about 100 thousand years ago: park savannah stalking hunters. But if we believe Jared Diamond, our species flourishes much better around latitude 45, where our bare skin doesn’t work so well. Some nudists to the contrary, most of us wear clothing, and even did so in the good old mastodon days. We are not optimized for nudity, even though it’s what we evolved for.

    Or consider pet food. It is probably healthier for pets than whatever it was that their wild-type ancestors ate. Evolution satisficed them for their diet: nutritional research optimizes their diet for them.

    Of course, I am not arguing against a hunter-gatherer diet. It may be a great diet for people. I’m just arguing against the Rosseauvian fallacy of physiology. Even if it was good enough for the days of nasty, brutish, and short, we might be able to do better today. Or not.

  29. Ebenezer, I agree with you completely.
    I’m likewise dubious about arguments for our ideal diet based on the past — if you look at how I phrased my post, you will see that I am NOT making the claim you are pillorying. The arguments I am willing to consider as reasonable (in this context) are arguments from physiology, not arguments.

    (Along the same lines, I think we have to be more than a little skeptical of claims about what “ancient” hunter-gatherers ate based on 20th century anthropology, since most 20th century hunter gatherers have been forced to live on marginal lands. They eat what they can find in their crappy lands, which tells us nothing about what they might eat if they had access to the whole of “the African plains”).

  30. Ebenezer:

    my point is that our DNA was set long ago, when we had different diets, which BTW were not optimized for eating substantially animal products, with a small amount of veggies and fruit as you claimed ( I made no ‘optimization’ assertions ). That was what I responded to. Your assertion [e]ven if it was good enough for the days of nasty, brutish, and short, we might be able to do better today. Or not. is not borne out by the available evidence. Our lifespans are longer in most part longer due to medicine and sanitation, not diet. With all the foodies and chef competitions all over the place, I have no doubt many get more pleasure today than in the past, but that has nothing to do with the erroneous claim I responded to: the human body is optimized for eating substantially animal products, with a small amount of veggies and fruit. Your palate may be, your physiology is not.

  31. Dan and Maynard:
    It looks like we’re pretty close to convergence here. I agree with everything Maynard says. Since I’m an agnostic on diet (although with a bias toward variety), I don’t disagree with anything Dan says, and indeed agree with much of it, most especially the distinction between physiology and palate.

    That’s the problem with thread-chats (or back-and-forth e-mails)–people easily misunderstand each others’ positions and start responding to their misunderstandings, rather than what the other person intended to say. Oral communications are better this way. Fortunately, we are all good citizens of the Samefacts community, and tried to convince each other rather than demonize each other. I’m happy with this exchange.

  32. Dan,

    A few points about that article.
    (a) It agrees with my central point — that carbohydrates, in the form of grains, and even more so sugar — are “unnatural”. Let’s leave aside for now the issue of whether they are “bad”.
    (b) Beyond that, large amounts of the paleo diet they impose strike me as substantial bullshit, perhaps necessary to get volunteers to go along, but completely without basis in reality. These elements include the vast amount of sugar provided (honey, pineapple, carrot juice, melons); the vast amount of fruit provided (most of the year round, especially in the EEA, fruit was rare — and of course modern fruit is every bit as bred to our tastes as wheat or maize); and the emphasis on lean meat — the evidence all points to the most desirable forms of meat until very recently being those highest in fat, eg brain, kidney, tongue, liver.
    (c) The effects on body chemistry over a few days might be interesting, but really have nothing to do with the central point of contention, EXCEPT if you have a specific model in mind of the physiological damage caused by diet, and thus the importance of certain specific markers. Since the point at contest is precisely the VALIDITY of those models (eg is the important point long term levels of certain types of cholesterol, or is the important point long term levels of insulin), this is completely unconvincing.

    If you want to read further on this subject and where I am coming from, the most approachable starting point is Gary Taubes. Do a web search and you’ll find his blog.
    Depending on how interested you are, you can read his short articles on fat and sugar, you can listen to various talks by him on this subject, or you can read his two full length books. You might want to dismiss him as a crank, but reading his books (where he has time to marshall a lot more evidence) you might change your mind. Essentially he has an answer, unlike the standard story, for such questions as
    – why are poorer communities within the US more afflicted with “diseases of affluence” than richer communities?
    – why has obesity taken off around the world in the 20th century?
    – what are the commonalities in those societies that are generally supposed to be eating a healthy diet (eg Japan)?

  33. “Our lifespans are longer in most part longer due to medicine and sanitation, not diet. “

    I don’t know, cooking has probably contributed a lot to that, just by drastically reducing the frequency of food poisoning and intestinal parasites. Just as storage of food has reduced deaths due to famine.

  34. The human life span has not changed very much. Cemeteries are full of dead people who lived into their 80’s and 90’s. Life expectancy is another matter, and it is longer primarily because infectious diseases don’t wreak havoc as they did before public sanitation and antibiotics and vaccines.

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