Monday, June 15, 2009

Fast Food Thoughts

McDonald's (MCD) has a current market value of $64 billion and generated a $4.2 billion profit in 2008.

The combined market value of Wendy's/Arby's Group (WEN), Burger King Holdings (BKC), and Chipotle Mexican Grill (CMG) is approximately $7.5 billion (around $2.5 billion each), with less than $400 million in combined 2008 profits.

While I knew a disparity existed, the degree is shocking. Clearly, leadership has its rewards, but it does not come easily. In a competitive market, success is hard fought. And it takes enormous effort to sustain that leadership. Just ask AIG how fleeting success can be. In short, there is a reason the market assigns such a huge value to McDonald's. The company is a serial achiever.

I feel silly pointing out that great companies should live and lousy ones should die. And great companies that become lousy companies should die too. Government should not decide this. Customers should. And they do. Every day we vote with our dollars. Nothing is more democratic than capitalism. It is a system of creative destruction that allocates capital far better than any government, commission, czar, or think-tank.

Our leaders should remember this before trying to replace or improve the free market. The lowest prices and best service/selection are found where there is the most competition and the least amount of regulation. We need more freedom in the health care market, not less. Health savings accounts are a step, but a small one. Yet it seems this country is getting ready to take a giant leap backwards... a government "option" for health care with universal coverage as its goal.

Food is as important as health care, but we don't see anyone clamoring for a government "alternative" to Whole Foods. Yes, the company is more expensive, but it gives customers what they want and it is profitable. Starbucks coffee is expensive too. Anyone clamoring for a government coffee option? If you want cheaper coffee, go to McDonald's. This is the beauty of the free market.

How about FedEx and UPS? The government "option" is the US Postal Service, an unwavering success story to be sure. The Veteran's Administration is a joke, but hey, lets expand that wonder of efficiency and effectiveness to all. Even NASA is being embarrassed by the private sector space race. And give me Honda or Toyota, not Government Motors.

The consumer is already too far removed from the cost of health care in the current insurance system. Reform is needed. A government option is a step in the exact opposite direction that will only make it worse. One more layer of insulation between us and reality.

The government option will always "win" over the private sector. Millions will chase the lower explicit cost and that will touted as success. But the implicit costs are huge. Let's assume that there aren't reduced services and rationing. No matter what the costs will appear in the form of yet more government debt. The government never has to face reality or live on a budget. Private health care providers do or they go bankrupt. So of course anything operated by the government can sell a product cheaply. Losses are simply socialized via debt, debt, and more debt.

Every dollar of increased government debt is a tribute to the failure of government to pay for its current obligations. So will government health be cheaper OR will it LOOK cheaper.

Give me United Health over United States Health any day. Indeed, give me any private company with a profit motive over the government "option" every time. In the meantime, Supersize Me and spare me those government fries.

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