Transcript Tobacco Myths - history-b

Key to the myths
TI = tobacco industry myth
TC = tobacco control community myth
Myth #1 (TI)
(the industry’s favorite)
Tobacco is crucial to the economy.
Without tobacco growing, cigarette
manufacturing, and distribution and
sale of tobacco products, a state’s or
country’s economy will suffer job
losses, falling tax revenues, and
growing trade deficits.
When and how the myth is used
• Whenever governments consider policy
that would discourage tobacco
consumption…especially in non-tobacco
states and countries.
• Intent: to frighten officials into believing
that, regardless of their health benefits,
tobacco control measures would exact a
huge economic toll.
Message
• If government adopts policy x, cigarette
sales will drop.
• People will lose jobs as a consequence
(tobacco farmers, manufacturing plant
employees, wholesalers, retail clerks).
• The economy will suffer from lost tax
revenues, including (where appropriate)
income and sales taxes associated with
reduced spending by the newly unemployed.
Reality...
• A significant economic presence does not
imply significant economic dependence.
• Spending on tobacco is rarely important
to an economy.
– Money not spent on tobacco will be spent on
other goods and services instead, thereby
creating a comparable number of jobs.
• Real costs = costs of transition to
alternative products.
– Given the addictiveness of tobacco, the
transition necessarily occurs very slowly
(cigarette consumption declining 1-2%
per year in developed countries).
Principal transitional cost
in tobacco states and countries
• Tobacco farmers not be thrown out of
work.
• Rather, fewer children of tobacco
farmers would go into tobacco farming.
[Schelling, Preventive Medicine, 1986]
An additional economic benefit of
reduced spending on tobacco
• Savings will accrue in health care
spending, fire fighting, equipment
maintenance and cleaning, etc.
Myth #2 (TC)
(tobacco control community’s favorite)
Tobacco imposes an enormous health
care cost on society. Decreasing
smoking will save billions of dollars in
smoking-produced health care costs
each year.
When and how the myth is used
• Whenever governments consider policy
that would discourage tobacco use.
• Intent: to convince officials that the
policy would produce major economic
benefits at the same time that it benefits
the public’s health.
Reality...
• Smoking-produced illness does account for
a significant share of health care costs, e.g.,
approximately 12% in the U.S. [Miller et al.,
Public Health Rep, 1998]
• However, in the absence of smoking, the
elderly population would grow, as would
old-age chronic disease costs.
Net impact
• On balance, costs likely would fall, but
only modestly. Net savings would be
small. [Warner et al., Tobacco Control, 1999]
• TC community should stick to the real
reason to combat smoking: its
devastating health effects.
Myth #3 (TI)
A large tax increase is dangerous because
it will reduce government revenues by
decreasing legal cigarette sales. This will
result due to decreased smoking and
increased smuggling of lower-priced
cigarettes from neighboring states or
countries.
When and how the myth is used
• Whenever governments consider a
cigarette excise tax increase.
• Intent: to frighten officials into
believing that a policy intended to
increase revenue will do the opposite,
and that it will introduce organized
crime into the state or country.
Reality,
with regard to cigarette sales...
• Cigarette taxation will reduce cigarette sales.
– Increasing price is the most effective means of
decreasing cigarette smoking, especially among
children.
– 10% price increase will decrease cigarette
consumption 4% in developed countries, 8% in
developing countries.
– Smoking among children will fall by about twice as
much. [Chaloupka et al., Ch. 10 in Jha and Chaloupka, 2000]
Real cigarette prices & per capita
consumption US, 1970-2000
180
2900
160
2700
140
2500
2300
120
2100
100
1900
80
1700
1500
1970
60
1975
1980
1985 1990
1995
Year
consumption
price
2000
Price (1982/84 cents)
Cigarettes per capita
3100
Reality with regard to revenues...
• Increased taxes invariably increase
government revenues.
– The percentage decline in cigarette
consumption is smaller than the percentage
increase in price that induces it.
– Further, tax is only a fraction of price, so a
given tax increase will cause a far smaller
decrease in cigarette sales.
Cigarette tax rate
Cigarette tax renenue
2000
1998
1996
6.5
6
0.20
5.5
5
0.15
4.5
4
0.10
3.5
0.05
3
2.5
0.00
2
Real cigarette tax revenue (billions of 1982/84 $)
Year
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
1970
0.25
1968
1966
1964
1962
1960
Real cigarette tax rate per pack (1982/84 cents)
0.30
Federal cigarette tax rate &
cigarette tax revenue in the US
1960-2000
7
Reality with regard to smuggling...
• Function of many forces
– Price but one.
– Others likely far more important
• a state’s or country’s general tolerance for
corruption
• its specific efforts to combat smuggling (use of
unique tax stamps, enforcement, etc.).
– Informal cross-border purchases
(“buttlegging”) accounts for a small share of
in-state tax avoidance.
[Joossens and Raw, BMJ, 2000]
Myth #4 (TI)
Even if a tax increase would raise
government revenues and decrease
smoking, it is fundamentally unfair
because its burden would fall
disproportionately on the poor.
When and how the myth is used
• Whenever governments consider a
cigarette excise tax increase.
• Intent: to appeal to officials’ concern
for the welfare of the least privileged in
society, and to their basic sense of
“fairness.”
Reality...
• Cigarette taxes are regressive.
– A larger proportion of the poor smoke.
• However, a tax increase may produce a
progressive impact
– because the rich decrease their smoking
only slightly in response to a price
increase
– the poor decrease theirs substantially.
[Townsend et al., BMJ, 1994]
Furthermore...
• Health benefit of a tax increase is
distinctly progressive.
• States and countries can compensate
in part for any tax regressivity
– e.g., by funding cessation services and
pharmaceuticals for poor smokers.
(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:
1.setting annual quotas on tobacco
production and minimum prices
2.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)