“Wanted: Ambitious, motivated executives for new tobacco-firm startup. Extensive experience in cigarette production, marketing needed. Send resume, salary requirements to Box SD (SureDeath) c/o this newspaper.”
Given the multi-billion verdict rendered by a Florida jury this past week, it may be a matter of time before ads such as this start appearing in the executive search pages of the Wall Street Journal and other business periodicals. When they do, anti-tobacco activists must find a new strategy for combating smoking.
Don’t get me wrong, I’m no apologist for the tobacco industry. I have never smoked. My father was a two pack a day smoker. He died of a heart attack at age 52. I hated it when my sister smoked, and I hate it when my son lights up.
But it is clear that hundreds of millions of rational adults around the globe continue to use tobacco even though its dangers are fairly well-known. As an economist, I’ll bet that as long as such demand for tobacco exists, someone will try to supply the product.
The fact that tobacco can harm health has been recognized popularly for at least a couple of centuries and with scientific precision for at least four decades. Despite this, tobacco is legal in nearly every country.
In the United States, successive presidents and congresses have not acted to ban tobacco sales, prohibit all advertising or even raise tobacco taxes in line with inflation. Nor have state governments acted to take the same measures within their borders.
Nearly four decades have passed since the federal government required cigarette manufacturers to put the “Surgeon General’s warning” on all packaging. In more recent years it has imposed some advertising limits, but it has avoided tougher restrictions.
When anti-smoking groups failed to win legislative support for tighter restrictions, they followed the American way and initiated litigation instead. When suing tobacco manufacturers for damages, it is not difficult to demonstrate that smoking hurts people. The challenge is to place legal responsibility on the industry.
The anti-tobacco lawsuits that have succeeded have done so by convincing juries manufacturers did many bad things. They used deceptive advertising, lied to the public and to the government, covered up research and manipulated nicotine content to ensure physiological addiction to their products.
Some juries have agreed that these actions merited not only the imposition of legal liability for compensatory damages, but also the imposition of punitive damages to deter similar sins in the future. Faces with such penalties, most U.S. tobacco companies have chosen to settle with some litigants, most notably a coalition of state attorneys general and with the state of Minnesota.
These settlements commit the tobacco companies to make hefty payments to states over periods of many years, ostensibly to compensate the states for the medical costs they incurred in treating people with smoking-related illnesses.
The tobacco companies raised cigarette prices to fund such payments. In this regard, the tobacco settlements acted in the same way as if Congress had increased cigarette taxes, with the important difference that the settlements included up-front multimillion-dollar payments to attorneys.
Economists, who generally scorn lawyers’ skills in economic reasoning, are impressed with the fact that the attorneys were smart enough to get most of their share in cash right away.
Getting the money up front is important because it recognizes the fatal flaw in the litigation strategy. Litigation will probably not be successful against a tobacco firm that does not lie, misrepresent or falsely advertise. Perhaps all existing tobacco firms are guilty of these sins, but there are few things to stop new firms from producing this product.
So far, the established brand identities of existing firms have kept out new entrants. But if successive cases impose steadily increasing costs on existing companies that can only be funded through higher prices, the incentive for new firms to emerge, clean of any historical baggage or legal liability, increases geometrically.
To anyone with imagination, the potential ironies are unlimited. Imagine the following ads:
- “Sure Death 100s, They’re bad for you, but they are made with the finest blend of imported and domestic tobaccos.”
- “Show your scorn for statisticians and death itself: Smoke Thanatopsis Lights.”
- “Maybe you won’t live to 80, but smoking StrickNine Menthols will give increased pleasure and satisfaction to the few years you have left.”
Litigation may increase the price of cigarettes made by existing manufacturers. It may drive these firms into bankruptcy and reduce the worth of their stock to zero. But if there are no barriers to entry of new firms, cigarettes will continue to be produced in the United States. The human skills and physical machines to produce cigarettes already exist in abundance. Who employs these people and owns these factories can be changed in a matter of days.
Any more substantial actions against smoking depend on Americans acting through their elected officials. We could simply outlaw the production, possession or use of cigarettes in the United States. That would face political opposition by smokers, libertarians and other concerned about individual rights.
Inevitably there would be smuggling and black markets. Or we could tax tobacco more heavily and further limit its advertising, but accept it as a product that is deeply embedded in our culture.
Wait a minute! Don’t we already face those same choices with marijuana?
© 2000 Edward Lotterman
Chanarambie Consulting, Inc.