Economy of Scale
How fat people could save American business.
In last week's cover story on American economic weakness, Fortune portrayed Uncle Sam as a 97-pound weakling. The story was right on target, except for the 97-pound part. It should have been a 297-pound weakling. America's fat problem is a metaphor for our economic troubles: We are too flabby to compete in a cutthroat global economy.
But instead of seeing our obesity as a crisis, maybe it's time we recognized it as an opportunity—the rare chance for the United States to dominate a new industry. A whopping 30 percent of Americans over the age of 20 are classified as obese, up from about 14 percent in the early 1970s. Obesity-related medical costs were $75 billion in 2003, almost as much as those from tobacco. Half of these costs were picked up by the public in the form of Medicare and Medicaid. A recent study in the Journal of the American Medical Association projected that obesity causes about 112,000 premature deaths annually.
Viewed one way, however, this is great news: We are ahead of the curve. The world may be getting flatter—thank you, Thomas Friedman—but it is also getting fatter. Our head start in chubbiness gives us the chance to dominate the dynamic fat economy. Our competitive disadvantage in the gym could ultimately be a competitive advantage in the international marketplace.
The beauty of the American economy—and its enduring edge over the rest of the world—is the way companies large and small nimbly adjust to meet the demands of consumers. So it is no surprise that niche businesses have arisen to serve the our fattening population: surgery practices that focus on liposuction and gastric reduction, weight loss clinics and gyms, health food stores and diet pill purveyors, personal trainers and WeightWatchers. Even reality-TV shows. The first size-friendly resort opened in Mexico's lovely Riviera Maya in the summer of 2003. This size-friendly travel agency, according to Travel & Leisure, "advises overweight vacationers on how to avoid being charged for two airplane seats and how to find the most accommodating cruise lines." There are dating services, too. Business Week last week noted that "the number of accredited U.S. weight-loss camps has nearly doubled in the past five years." The women's gym Curves has an astonishing 9,000 franchises.
The Silicon Valley of the fat economy is Durham, N.C. As part of its "Obesity, Inc." series, the New York Times in May noted how weight-reduction had replaced tobacco as a key local industry. Reporter Stephanie Saul dubbed Durham a "Lourdes for the obese." A series of diet houses—Rice Diet Program, the Duke Diet and Fitness Center, and Structure House—along with associated retail, hotel, and medical businesses, pump more than $50 million into the local economy annually. Sure, Durham has plenty of other things going for it: Duke University and its location in the Research Triangle, to name two. But the rise of Durham as a weight-loss capital provides an excellent case study of how Old Economy manufacturing and agricultural regions can transform into New Economy service centers.
Next, consider some of the aspects of the fat economy that make it economically promising for the United States. This is a market that has been growing rapidly despite the billions spent on weight loss. Obesity is a condition that can last for a lifetime and hence requires a lot of spending on maintenance, year after year. And the fat industry revolves around the sorts of things that the U.S. still does better than anybody else: creating services, delivering health care, concocting diet plans and fitness regimens, and developing lifestyle brands. Even better, a lot of these services and products can be exported. Curves has already expanded to 28 countries. The South Beach Diet has been translated into at least two dozen foreign languages. (How do you say "carb" in Swedish?)
The United States clearly has a head start in fatonomics. Obesity is a byproduct of many complex factors, ranging from genetics to psychology. But fast-food restaurants, sugar-laden drinks, and the availability of massive quantities of cheap food have all played important roles in making Americans heavier. So with any luck, the rest of the world will be porking up soon. After all, which American companies have been forging ahead aggressively in foreign markets? McDonald's, Coca-Cola, and Wal-Mart. Their expansion should not only fatten the pockets of U.S. investors, they should also help fatten the local populations. It's only a matter of decades before China and India start to lose their battles with the bulge. And where will they look for quack potions and expensive surgeries?
For decades, physical fitness has been equated with national purpose. And our wannabe-buff president—and our far more buff governor of California—routinely exhort the nation to exercise, lose weight, and eat right. On the whole, they're right. Obesity is bad for the nation's health. And it's bad for the nation's economy. But in its own chunky way, this national epidemic is bringing out the best in American innovation and entrepreneurship.
Daniel Gross is the Moneybox columnist for Slate and the business columnist for Newsweek. You can e-mail him at email@example.com and follow him on Twitter. His latest book, Dumb Money: How Our Greatest Financial Minds Bankrupted the Nation, has just been published in paperback.
Illustration by Robert Neubecker.