Semimyth

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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.

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Reality

• Subsidy systems vary dramatically from one
  country to another.
• Each countrys system needs to be evaluated
  individually.

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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.

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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.

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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.

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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.

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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 companys 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 gt 10 billion/year.

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Myth 6b (TC)

• Cigarette advertising and promotion constitute
  one of the principal direct determinants of
  smoking, especially initiation of smoking by
  children.

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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.

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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.

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• 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

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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.

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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.

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• Recent movement into developing countries would
  have occurred even if sales were not falling in
  developed countries.

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Impact of declining U.S. market on global sales
and profits

• U.S. is home to only 4 of the worlds 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.

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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.

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Conclusion

• The tobacco industrys 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.

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• Each sides economic arguments contain
  self-evident grains of truth, making them quite
  compelling.
• Each sides arguments distort (sometimes destroy)
  the far more complicated reality.

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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

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but if one wants to lend credence to the
industrys 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 smokers losing 15 years of life.
• The job is replaceable. The life is not.

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True bottom line

• is measured not in dollars and cents, but
  rather in the grief of injured smokers and their
  loved ones.

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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)