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Unveiling the truth behind tobacco industry myths: examining subsidies, advertising impact, and expansion into developing countries. An insightful analysis of economic arguments and their implications. Debunking misconceptions and revealing the complex reality of the tobacco industry.
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(Semi-)myth #5(TC) While the health arm of the government tries to discourage smoking, the agricultural arm subsidizes it. This is hypocritical and damaging to the health of the nation. By subsidizing tobacco growing, the government is encouraging smoking.
Reality… • Subsidy systems vary dramatically from one country to another. • Each country’s system needs to be evaluated individually.
Example of the U.S. system A complicated web of regulations, with two essential components: setting annual quotas on tobacco production and minimum prices limiting growing to holders or renters of allotments (licenses to grow). The actual subsidy per se is modest.
Impact of the system is... Direct effect: raise the price of cigarettes by about one cent per pack, by raising the price of tobaccos. Will decrease smoking (very slightly). [Zhang et al., 1997] Indirect effect: create and reinforce political constituency for tobacco in Congress Blocks federal tobacco control policies. Thereby increases smoking.
Myth #6a(TI) Cigarette advertising and promotion have no effect on the amount of smoking. Their only function, and impact, is to permit the companies to vie for shares of a market of fixed size.
When and how the myth is used • Whenever the freedom of the tobacco industry to advertise is debated. • Intent: to convince officials that an ad ban would violate the right to free speech, as well as adult smokers’ right to information.
Reality... Brand-share argument runs contrary to much empirical evidence and makes no sense. Especially in a highly concentrated market, as in the U.S., much brand-share marketing merely cannibalizes a company’s own brands (e.g., Philip Morris controls half the market). If the industry truly believed its own argument, it would have leapt at opportunities to ban ads. In the U.S., it would save > $10 billion/year.
Myth #6b(TC) Cigarette advertising and promotion constitute one of the principal direct determinants of smoking, especially initiation of smoking by children.
When and how the myth is used • Whenever the freedom of the tobacco industry to advertise is debated. • Intent: to convince officials that the crucial issue is the seduction of children, who are not legal consumers of tobacco products. TC also challenges the idea of a right to commercial free speech.
Reality... Advertising and promotion (A/P) likely do increase smoking, including encouraging experimentation by kids. No evidence points to A/P as a principal direct determinant of smoking, however. Peer and parental behavior and role modeling by music and movie stars likely more important.
A/P may increase smoking through indirect mechanisms, as well as direct. E.g., media dependence on tobacco company ad revenues discourages coverage of the importance of smoking in disease. [Warner et al., New Engl. J. Med., 1992] A complete ban on A/P would be expected to decrease smoking by about 7%.[Saffer and Chaloupka, Journal of Health Economics, 2000]
Myth #7(TC) The tobacco companies have moved into developing countries in recent years to compensate for declining markets in affluent nations. Tobacco control progress in rich countries will come at the price of increasingly aggressive invasion of poor countries by the multinational tobacco companies.
Reality... Multinationals have moved into developing countries, but not because other markets are declining. They see a market expansion opportunity in developing countries, due to growing affluence in those countries; reductions in trade restrictions; and bulging treasuries the companies want to invest profitably.
Recent movement into developing countries would have occurred even if sales were not falling in developed countries.
Impact of declining U.S. market on global sales and profits • U.S. is home to only 4% of the world’s smokers • Sales here declining only 2%/year. • Therefore, U.S. sales’ decline represents about 1/10th of 1% in global sales each year. • Further, profits in the U.S. are rising.
Implication • Tobacco control advocates in developed countries need not feel guilty that successes at home will impose a burden on people in poor countries. • To the contrary, tobacco control success in the developed nations is likely to serve as a model for future tobacco control in developing countries.
Conclusion • The tobacco industry’s economic arguments are a bait-and-switch tactic. • Deflect attention from the health consequences of smoking. • Find a receptive ear in this domain. • TC community feels compelled to fight back on the economic battlefield.
Each side’s economic arguments contain self-evident grains of truth, making them quite compelling. • Each side’s arguments distort (sometimes destroy) the far more complicated reality.
Irony • To economists, the economic issues in tobacco are interesting but not fundamentally important. • Arguments are most important to people who do not understand them: • politicians • government officials • journalists
…but if one wants to lend credence to the industry’s numbers… • Compare 400,000+ tobacco jobs per year in the U.S. to 400,000+ deaths caused by tobacco: • Each tobacco job, for one year, comes at the cost of one smoker’s losing 15 years of life. • The job is replaceable. The life is not.
True “bottom line” …is measured not in dollars and cents, but rather in the grief of injured smokers and their loved ones.
Recommended general readings on the economics of tobacco • Warner, Tobacco Control, 2000. • Curbing the Epidemic: Governments and the Economics of Tobacco Control (World Bank, 1999) • Jha and Chaloupka, eds., Tobacco Control in Developing Countries (Oxford, 2000) • Chaloupka and Warner, Ch. 29 in Culyer and Newhouse, eds., Handbook of Health Economics, vol. 1B (Elsevier, 2000)
