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Viewpoint (May 2003)

Author: Kenneth E. Warner, Avedis Donabedian Distinguished University Professor of Public Health, University of Michigan

For decades the tobacco industry combated health-motivated assaults on its sales by arguing that the case against smoking was circumstantial and had yet to be confirmed. The industry continually called for "more research," while the largest body of research linking any human behavior to illness and death continued to expand, today consisting of more than 60,000 studies in the English language alone. With every reputable public health and medical body in the world condemning cigarette smoking as the leading cause of preventable premature death, the industry has finally largely given up the ghost of its health argument. In its place has come The Economic Argument. Put simply, the industry argues that, regardless of its physical health consequences, tobacco farming and cigarette manufacture, distribution, and sale are vital to the fiscal health of countries' treasuries, as well as the personal economic health of their citizens. According to the industry, successful assaults on the tobacco trade, typically through public policy designed to discourage smoking, will force thousands of workers into unemployment lines, wreak havoc with governments' revenue streams, and jeopardize trade balances. The industry wields its argument - with country-specific estimates of the toll - every time that legislatures contemplate adopting tobacco control policies, ranging from restrictions on cigarette advertising to increased cigarette taxes to bans on smoking in public places.

The industry's argument sounds compelling to the intended audience because the listeners fail to appreciate the distinction between tobacco's presence in a country and that country's dependence on tobacco. The presence of tobacco agriculture and cigarette manufacture and sale does mean that significant numbers of workers are employed in tobacco-related economic activity. The industry informs legislators and other policy influentials that a health policy-induced loss of, for example, 5% of cigarette sales will translate into a comparable loss in jobs. However, this perspective treats reduced spending on tobacco products as if it simply went up in smoke. In point of fact, if people spend less money on tobacco products, they will devote the "windfall" to other spending (and possibly some saving). That alternative pattern of spending will create jobs in other industries comparable in number to those lost in tobacco. As economists appreciate, economies are built to support a given level of employment regardless of marginal changes in spending patterns. Economists appreciate that; legislators do not. The simple fact is that, despite tobacco's widespread presence in numerous national economies, no more than a handful of countries are at all dependent on tobacco.

The true costs associated with a decline in spending on any product are the costs that occur during the period of transition to the alternative employment that will result from the alternative spending pattern. In the case of cigarette smoking - an addictive behavior - declines in consumption are slow. In the countries that have achieved the most success in decreasing smoking, cigarette consumption has declined at a rate of approximately 2% per year. This means that the transition away from spending on tobacco occurs so gradually that no one need be thrown out of work. Rather, normal attrition, through voluntary job changes, retirements, and deaths, will handle any loss of tobacco industry jobs. As economist Tom Schelling put it nearly 20 years ago, success in tobacco control means not that tobacco farmers will lose their jobs, but rather that their children will be less likely to go into tobacco farming.

Macroeconomic analyses in several countries have concluded that declining spending on cigarettes will not harm employment within the country under consideration; in several instances, the studies find short-run increases in employment resulting from the shift away from smoking.

Independent economic studies also dispel other tobacco industry myths. Important among these is a sizable body of literature demonstrating that cigarette tax increases virtually always increase government revenues (the industry warns to the contrary), at the same time that they serve public health by decreasing smoking. This results because the demand for cigarettes generally exhibits a price elasticity less than 1.0 (in absolute value), and taxes comprise a fraction of retail price. This means, for example, that a doubling of a tax rate, where the tax constitutes 50% of retail price, will increase retail price by only half. Consumption will decline by something less than half (elasticity typically runs about -0.4 in developed countries and -0.8 in developing nations). Thus, in this instance, a 100% increase in the tax rate will decrease the demand for cigarettes by 20% in a developed country and 40% in a developing country. That constitutes a sure-fire formula for revenue increases…and a public health achievement of the first order. Cigarette taxation permits governments to do well while doing good.

Other research has countered any number of other industry myths. To pick just one contemporary example, the fear that adoption of smoke-free restaurant laws in the U.S. would devastate the restaurant trade has been put to rest by well-designed empirical analyses that have found increases in restaurant sales following implementation of smoking bans.

Despite the number and quality of independent studies that put the lie to the industry's economic myths, the industry's bountiful resources give it unmatched ability to spread its myths. Neither independent investigators nor interested public health organizations have had the resources and know-how to effectively disseminate the findings of this important research. One recent effort to dispel industry myths has succeeded in reaching a large and important audience, however: the work of the World Bank on the economics of tobacco, embodied in its ground-breaking 1999 report, Curbing the Epidemic: Governments and the Economics of Tobacco Control. Supported by a book of detailed background papers, this report systematically worked through all of the crucial issues in the economics of tobacco, carefully reviewing the evidence and translating findings into terms that non-economists could understand. The visibility of the Bank and its effective dissemination of the report contributed to its informal adoption by scores of delegates to the recent Framework Convention on Tobacco Control (FCTC) negotiating sessions as their intellectual bible, offering guidance to the evidence-based do's and don'ts of tobacco control.

The FCTC is the World Health Organization's first-ever attempt to use its treaty authority to develop a binding international agreement on public health. After years of planning and negotiations, delegates from well over 100 countries agreed to the provisions of the FCTC in Geneva in March. This month the agreement comes before the World Health Assembly for formal adoption. As of this writing, the fate of the FCTC is unknown. Powerful countries with powerful and influential tobacco interests, most notably including the United States, Japan, and Germany, have labored mightily to emasculate an agreement that could transform public health policy, and consequently public health, throughout the world. The burden of such a failure will be felt especially acutely in the poorer nations, destined without a strong FCTC to become home to 70% of tobacco-produced deaths by the end of the first quarter of the 21st century.

Regardless of the fate of the FCTC, efforts will persist to inform individual countries as they struggle with what resources, if any, to devote to the cultivation of tobacco and the manufacture of cigarettes. The tobacco control successes of the world's most affluent nations demonstrate that knowledge is a vital weapon in the battle to dethrone King Tobacco. Toward that end, an especially important tool in the coming years will be country-specific studies of the health and economic implications of tobacco and of tobacco control. Epidemiological studies of the prevalence and health consequences of smoking must join hands with economic analyses of the effects of price on consumption and the future health care costs of smoking. The implications of smoking must be personalized for every country just now beginning to recognize the future toll of what is a dawning epidemic for many.

In collaboration with such organizations as the Centers for Disease Control and Prevention and the American Cancer Society, WHO and the World Bank have begun to address the need for epidemiological and health studies and for country studies on the economic issues. (WB Tobacco Site Click on  Discussion Papers) To date, studies have been published on China, Bulgaria, Egypt, Morocco, Turkey, Ukraine and Zimbabwe. China is the world's largest producer and consumer of tobacco, and home to an enormous share of the future disease burden of tobacco. Zimbabwe, along with Malawi, shares the distinction of having the greatest proportionate dependence on tobacco exports of any country in the world. There are several other country studies completed and soon to be published, or underway: Bangladesh, Estonia, Indonesia, Maldives, Myanmar, Nepal, Sri Lanka, and Thailand. These studies can help countries recognize the implications of smoking for future health care costs and lost productivity, and how policies can minimize those damages and the far more important health toll of tobacco, without damaging their economies.

Kenneth E. Warner

Further Reading

  • Framework Convention Alliance. Framework Convention on Tobacco Control. April 26, 2003.
  • Glantz S.A. and L.R. Smith. 1997. "The Effect of Ordinances Requiring Smoke-free Restaurants and Bars on Revenues: a Follow-up." American Journal of Public Health 87:1687-1693.
  • Jha P. and F.J. Chaloupka, eds. 2000. Tobacco Control in Developing Countries. New York: Oxford University Press.
  • Schelling T. 1986. "Economics and Cigarettes." Preventive Medicine 15:549-560.
  • Warner K.E. 2000. "The Economics of Tobacco: Myths and Realities," Tobacco Control 9:78-89.
  • World Bank. 1999. Curbing the Epidemic: Governments and the Economics of Tobacco Control. Washington DC: The International Bank for Reconstruction and Development/The World Bank. 


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