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Home , Prohibition, Prohibition (miniseries)

IEM’s Economic Note • JANUARY 2012

What if tobacco were simply prohibited? by Valentin Petkantchin, associate researcher at the Institut économique Molinari

In their fight against smoking, many governments, including the French government, have continued to raise taxes and increase the volume of regulations. This has reached the point where the possibility of tobacco has been raised openly in some countries, with legislative proposals being put forward.

The economic and social effects of prohibition policies have been analysed extensively, with the cure found to be worse than the disease. Prohibition has led to consumption of lower‐quality products posing greater dangers to the health, along with illicit trafficking, contraband, high enforcement costs and a level of corruption that, together, create a burden on public finances and on society as a whole.

"DE‐NORMALISATION" OF THE LEGAL  A ban on displaying cigarettes at points of sale (under‐the‐ SUPPLY OF TOBACCO counter requirement). This ban already exists in , Ireland and , with set to follow in 2012. In this era of Internet purchases and globalised exchanges, the idea of prohibiting the sale of a product such as  A prohibition on producers' use of graphic tobacco – with a history going back thou‐ presentations (logos, designs, brand images, sands of years1 – may simply appear unreal. etc.) to differentiate their packaging from other brands. This involves imposing so‐ However, driven in particular by the WHO called "neutral" or "generic" packaging.5 Framework Agreement on Tobacco Control, is the first country to impose this which took effect in 2005,2 public authorities measure, starting this year (2012). Legislative in many countries have committed themselves proposals along these lines have been pre‐ to the notion of tougher restrictions on sented in France.6 tobacco consumption and also – something relatively new – on tobacco supply. The stated aim of this regulatory arsenal is the "de‐normalisation" of the tobacco indus‐ Beyond ever‐higher taxes – now more than try, says Yves Bur, a member of the French 80% of French retail cigarette prices3 – and a National Assembly and the originator of one growing number of smoking ,4 such proposal. this framework convention calls for a series of measures setting new limits on the With demand refusing to disappear,7 this marketing and sale of tobacco. logic, aimed increasingly at suppressing the legal supply of tobacco, could lead down the This incomplete list includes, for example: road to the tobacco industry being nationali‐ sed (a public monopoly that could easily  Compulsory health warnings on packages offer "generic" tobacco products) or to the with shocking images aimed at dissuading people from smoking. sale of tobacco being prohibited either de jure (with a prohibition Ten European countries, including France, require these images. by law) or de facto (by gradually making it unprofitable for legal

1. Tobacco was grown by indigenous peoples in America as far back as 6000 B.C. On this subject, see Omar Shafey et al., The Tobacco Atlas, American Cancer Society, 2009, p. 90, available at: http://www.tobaccoatlas.org/downloads/TobaccoAtlas_sm.pdf. 2. "WHO Framework Convention on Tobacco Control," WHO, 2003, available at: http://whqlibdoc.who.int/publications/2003/9242591017.pdf. At the end of 2011, it was adopted by 174 countries, including France. 3. See the French Customs information sheet "La charge fiscale des tabacs, pour l'année 2010," available at: http://www.douane.gouv.fr/page.asp?id=3902 (site visited in January 2012). 4. Whereas in January 2004 no European country prohibited smoking in bars and restaurants, by January 2011 this type of prohibition existed in 16 European countries, including France. See Luk Joossens and Martin Raw, "The Tobacco Control Scale 2010 in Europe", Association of European Cancer Leagues, March 2011, p. 15, available at: http://www.ensp.org/node/576. 5. See the Guidelines for implementation of Article 11 (Packaging and labelling of tobacco products) of the WHO Framework Convention on Tobacco Control, WHO, 2009, p. 31, available at: http://whqlibdoc.who.int/publications/2009/9789241598224_eng.pdf. 6. See the bill proposed by Yves Bur aimed at requiring neutral and standardised cigarette packaging, No. 3005, submitted 7 December 2010. A similar proposal on neutralisation and standardisation of tobacco products (No. 4048) was submitted on 7 December 2011. 7. In France, for example, the percentage of people who smoke went between 2005 and 2010 from 32% to 34% of the population aged 15‐75 — Rapport national ITC France (2011), p. 7.

1 What if tobacco were simply prohibited? suppliers to provide tobacco products). The neo‐prohibitionist option has been discussed by various specialists in the anti‐tobacco Figure 1 8 battle. French economist and public figure Jacques Attali says this consumption in the United States between topic should be at the centre of debate in the 2012 French 1910 and 1929 (in gallons of pure alcohol per capita) presidential campaign.9

1.81,8 Some countries have already proposed legislation to this effect. 1.64 1.61,6 1.46 One such bill in Finland calls for the country to become smoke‐free 1.31 by 2040.10 A bill in Iceland aims to prohibit cigarette sales except in 1.41,4 1.24 1.23 1.13 1.17 1.13 pharmacies, and – after 10 years – only with a doctor's prescription.11 1.21,2 1.08 1.08 s n 1 0.9 lo 0.8 Bhutan, a South Asian country, has already taken the plunge. In l ga0.80,8 2004, it enacted a total ban on tobacco sales. This failed to make 0.60,6 consumption disappear, however, and a has replaced 0.40,4 0.26 the official market to meet existing demand. As a study notes, 0.20,2 "illegal tobacco , including black market sales due to the sales ban in Bhutan, remains robust."12 0

Theory and experience confirm the consequences of these types of prohibitionist policy. Source : Clark Warburton, The Economic Results of Prohibition, Columbia University Press, 1932; in Mark Thornton, 1991, op. cit., p. 214. PROHIBITION DOES NOT MAKE CONSUMPTION DISAPPEAR deciding on the products they wish to consume and for which they are prepared to pay the price. By disregarding this, public authori‐ These policies are justified to the public by the notion that ties are putting the cart before the horse. decreeing the prohibition of a product is all it takes for the product to cease being consumed. This reasoning – however tempting its This is why we can observe that prohibition policies do not cause simplicity may be – is, in reality, an illusion. Why is this so? consumption to disappear. And declines in consumption, if they occur, tend not to be long‐lasting. First, it is misleading, because prohibition, though it may increase the financial cost of the forbidden product, does not lead This is what happened during what was undeniably one of the to the disappearance of the ultimate reasons that explain why the western world's harshest prohibition experiences, namely the "dry product is still desired, sought and demanded. law" in force in the United States from 1920 to 1933. According to estimates, while alcohol consumption trended downwards prior to Beyond the issues of addiction and known health risks, it is hard to prohibition, reaching a low point in 1920‐1921 at the start of it, deny that individuals who – however knowingly – decide to smoke, consumption went back up subsequently.13 For example, although get a subjective pleasure in some form or other (excitement, better consumption remained lower than before the First World War, by stress management, peer pressure, etc.). Accordingly, the only 1929 it was five times higher than in 1921 and 16% higher than in lasting way to make tobacco disappear would be for smokers to 1918, in other words before the "dry law" was imposed. decide of their own free will to change their lifestyles and stop smoking, which they can do at any time in the absence of and Similarly, cigarette prohibitions15 were implemented in the 1890s in regardless of any prohibition, as many ex‐smokers have done. the states of Washington, North Dakota, Iowa and Tennessee. Ho‐ wever, as noted in a study, "cigarette use declined between 1896 Prohibition inevitably runs up against consumers' "sovereignty" in and 1902 but then increased continuously until the prohibitions

8. See, for example, Wayne Hall and Robert West, "Thinking about the unthinkable: a de facto prohibition on smoked tobacco products," Addiction, 103, 2008, pp. 873‐874, and Richard Daynard, "Doing the unthinkable (and saving millions of lives)," Tobacco Control, 18, 2009, pp. 2‐3. 9. See Jacques Attali, "Il faut interdire le tabac," L'Express, 9 February 2011, available at: http://www.lexpress.fr/actualite/sciences/sante/il‐faut‐interdire‐le‐tabac_960741.html. In his view, "the time for dithering is over. Everything is clear now: the production, distribution and consumption of tobacco must be prohibited." 10. See "Finland embarks on plan that will ban all smoking," National Business Review, 15 January 2010, available at: http://www.nbr.co.nz/article/finland‐embarks‐plan‐will‐ban‐all‐smoking‐117181. 11. See "Iceland to ban tobacco?," IceNews, 30 May 2011, available at: http://www.icenews.is/index.php/2011/05/30/iceland‐to‐ban‐tobacco/. 12. M. Givel, "History of Bhutan's prohibition of cigarettes: implications for neo‐prohibitionists and their critics," International Journal of Drug Policy, July 2011, 22(4), pp. 306‐10. 13. On this subject, see Mark Thornton, "Alcohol Prohibition Was a Failure," Policy Analysis No. 157, July 1991, available at: http://www.cato.org/pubs/pas/pa157.pdf. 14. See also Jeffrey Miron and Jeffrey Zwiebel, "Alcohol consumption during prohibition," American Economic Review, Vol. 81, No. 2, May 1991, pp. 242‐247. The authors present estimates that corroborate those from Clark Wariburton. 15. On the history and ineffectiveness of cigarette prohibitions in the United States, see Gordon L. Dillow, "Thank You For Not Smoking: The Hundred‐Year War Against the Cigarette," American Heritage Magazine, Vol. 32, No. 2, February‐March 1981, available at: http://www.americanheritage.com/content/thank‐you‐not‐smoking.

2 What if tobacco were simply prohibited? were repealed, between 1911 and 1922."16 Figure 2 A "BREATH OF FRESH AIR" FOR THE BLACK MARKET Share of contraband and of purchases outside the official system in France As prohibition policies proves ineffective in making demand for a consumer good disappear, profit opportunities continue to exist. Illegal And with traditional networks for meeting demand being made purchases illegal, prohibition automatically provides opportunities to illicit (contraband, market players, who never fail to seize them. counterfeits, Internet) 5% As such, the neo‐prohibition of tobacco would be all the more counter‐productive, considering that there already exists a well Legal purchases organised black market in cigarettes. Whether in large quantities outside the system by the container load or in small quantities by Internet and mail, 15% contraband is found not only in France and across Europe but also Purchases in the system worldwide, fed by years of high taxes and regulations that penalise 80% purchases on the legal market. Illicit traffic is estimated to account for 11% of the world market.17 The shortfall for European govern‐ ments in uncollected tax receipts may amount to about 10 billion 18 euros. Source: Direction générale des douanes et droits indirects, 2011.

In France, according to estimates in 2011, 20% of purchases are contain substances that were dangerous to drinkers' health and, in conducted outside the official system, escaping French taxation some cases, was made with industrial alcohol. and regulation, with about 5% from the black market (contraband, counterfeits or Internet sales; see Figure 2).19 This situation now affects illegally produced contraband cigarettes. A study based on samples from the American illicit market showed It would be illusory to think that the presence of this well establis‐ that levels, for example, of cadmium and lead – metals potentially hed black market would not take over from the legal supply if ever harmful to smokers' health – can be 6.5 and 13.8 times higher, the latter disappeared for some reason or other as a result of respectively, in counterfeit cigarettes than in original brand‐name actions of an ever more prohibitionist nature by public authorities. cigarettes.21 Similar results have been found in the United King‐ The growth of this illicit market presents perverse effects that must dom22 and the Netherlands.23 not be underestimated. In contrast to their stated aim, policies to "de‐normalise" tobacco PERVERSE EFFECTS ON HEALTH thus condemn smokers to getting tobacco that is potentially more harmful to their health on the black market. Prohibition would only The reputation effect, the existence of brands and the chance to be worsen this type of situation. informed of a product's characteristics enable a free market to sa‐ tisfy consumers more effectively. Otherwise, consumers may have ECONOMIC AND FINANCIAL COSTS to choose lower‐quality products on the illicit market or substitutes THAT HURT PUBLIC FINANCES that are generally riskier for the health. On the one hand, prohibition would result in the disappearance of For example, under the "dry law" in the United States, alcohol the legal tobacco sector, amounting to more than 16.6 billion euros consumption turned almost exclusively to spirits and drinks with an in France in 2010.24 It would thus deprive all economic players – average alcohol level about 2.5 times the level (150% higher) that makers of tobacco products as well as distributors or retail sellers prevailed before and after prohibition.20 Black market could such as France's 28,000 tobacconists – of income from their activity

16. Dwight Filley, "Forbidden Fruit: When Prohibition Increases the Harm It Is Supposed to Reduce," Independent Review: Journal of Political Economy, Winter 1999, p. 442, available at: http://www.independent.org/publications/tir/article.asp?a=335. 17. See Elizabeth Allen, "The Illicit Trade in Tobacco Products and How to Tackle It," International Tax and Investment Center, April 2011, p. 3, available at : http://www.iticnet.org/Public/other_publications.aspx. 18 . See the Annual Operation Report 2011, European Anti‐ Office, 2011, p. 20, available at: http://ec.europa.eu/anti_fraud/reports/olaf/2010/OLAF‐REPORT.pdf. 19. See the report of the Direction générale des douanes et droits indirects, "Modalités d'approvisionnement du tabac en France Evaluation des achats hors du réseau des buralistes," August 2011, p. 24, available at: http://www.douane.gouv.fr/data/file/7114.pdf. 20. Mark Thornton, 1991, op. cit., p. 3. 21. R. Pappas et al., "Cadmium, lead, and thallium in smoke particulate from counterfeit cigarettes compared to authentic US brands," Food and Chemical Toxicology 45, 2007, p. 205. 22. W. Stephens and A. Calder, "Source and Health Implications of High Toxic Metal Concentrations in Illicit Tobacco Products," Environmental Science & Technology, Vol. 39, No. 2, 2005, pp. 479‐488. 23. See the Netherlands government news release "Cigarette seizures," available at: http://www.government.nl/issues/export‐import‐and‐costums/cigarette‐seizures. 24. See "La vente des produits du tabac en France," Observatoire français des drogues et des toxicomanies, available at: http://www.ofdt.fr/ofdtdev/live/produits/tabac/offre‐1.html#aff_rech.

3 What if tobacco were simply prohibited?

(approximately 3.4 billion euros).25 Prohibition would also lead to accompanying violence and corruption. Rather than putting an end the disappearance of about 13.2 billion euros in tax receipts.26 To to the consumption of products considered harmful to the health, this amount would have to be added the disappearance of receipts the fight against tobacco risks becoming a permanent and never‐ from the taxation of businesses (corporate income tax, etc.). ending struggle against tobacco trafficking.

In addition, prohibition would occur at CONCLUSION the expense of all taxpayers, smokers and non‐smokers alike. Prohibition is a Prohibition, whether Both theory and experience show that policy requiring the deployment of regulatory prohibition of a consumer additional means to apply and enforce written into the law or good does not make the reasons it is the ban on tobacco. The growth of the consumed disappear. Prohibition syste‐ illicit market would mean, if prohibition the result of regulatory matically fails to meet the goal it seeks is not abandoned, that it would when it goes up against the free choice "consume" services such as police and of consumers. courts at a growing pace. These are suppression of legal scarce resources that, as a result, The fact remains that prohibition, whe‐ would not be available to protect the tobacco supply, injects ther written into the law or the result of public against real attacks. regulatory suppression of legal tobacco new life into illegal supply, injects new life into illegal traf‐ In the United States, the budget of the ficking, which moves in to meet more than tripled trafficking, which demand, not in spite of but because of in the 1920s. The trial and imprison‐ the ban. Smokers will then have to ment of violators absorbed a growing moves in to meet content themselves with lower‐quality share of judicial and penitentiary products that are more dangerous to resources. As noted by economist Mark demand, not in spite of their health and about which they have Thornton, "the court and prison less information. systems were stretched to the breaking but because of the ban. point, and the corruption of public While deficits and public debt race out officials was rampant." of control in many countries such as France, this type of prohibition policy would also be an unwelcome Prohibition also leads to a rise in government spending and a de‐ source of higher government spending to "fight" the black market gradation of public finances. The entire population also faces the and the corruption caused by this very policy. risk of suffering from an increase in organised , with its

25. See "Les livraisons de tabac sur quinze ans," Revue des tabacs, n°583, February 2011, p. 11. 26. Idem.

Valentin Petkantchin The Institut économique Molinari (IEM) is an independent, non‐profit research and educational organization. Its mission is to promote an economic approach to the study of public Mr. Petkantchin holds a doctorate in economics and a policy issues by offering innovative solutions that foster master’s degree in communications media and economics prosperity for all. training from the University of Aix‐Marseille III in France.

Between 1996 and 2003, he was a research fellow at the Reproduction is authorized on condition that the source is Centre for Economic Analysis and a lecturer in economics at mentioned. the faculties of applied economics and law at the same

university. He is the author of several scientific publications Director General: Cécile Philippe and research papers on various topics. He was research Design: Gilles Guénette director at the Economic Institute from January

2004 to May 2006. He joined the Institut économique Molinari www.institutmolinari.org in June 2006.

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