The Economics of Tobacco: Myths and Realities Tob Control: First Published As 10.1136/Tc.9.1.78 on 1 March 2000

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The Economics of Tobacco: Myths and Realities Tob Control: First Published As 10.1136/Tc.9.1.78 on 1 March 2000 78 Tobacco Control 2000;9:78–89 The economics of tobacco: myths and realities Tob Control: first published as 10.1136/tc.9.1.78 on 1 March 2000. Downloaded from Kenneth E Warner Introduction papers, insurance coverage, and transportation Each side in the debate about tobacco and shipping). Excise (and other) tobacco control—the tobacco industry and the public taxation generates many tens of billions of dol- health community—wields a seemingly power- lars annually.2 ful set of economic arguments, the industry Individual countries’ tobacco economies claiming that economic considerations urge a vary greatly. Nearly half of the world’s tobacco “go slow” approach to tobacco control, the farmers (an estimated 15 million) live in public health community insisting they recom- China, the world’s largest producer and mend an aggressive stance. Each of the most consumer of tobacco; 3.5 million reside in prominent arguments presented by both sides India. Other countries exhibit substantial has a kernel of truth to it; yet each, in its own tobacco sectors as well, including Zimbabwe, way, represents only a half truth. The industry Indonesia, Turkey, Bangladesh, Egypt, the uses its economic appeal with full knowledge of Philippines, and Thailand. These countries are and intent to exploit its ability to deceive and the exceptions to the rule, however. Tobacco mislead policy makers and the public. In farming constitutes a modest source of contrast, tobacco control advocates frequently employment in most countries and tobacco employ their economic rationale without full manufacturing employment constitutes well appreciation of its limitations. To inform both under 1% of total manufacturing employment tobacco control advocates and policy makers in most countries.1 Several countries derive more fully, this paper identifies the principal 10% or more of total government revenues economic myths concerning tobacco and from tobacco taxation. However, in most discusses their realities. The myths are countries, tobacco taxes generate only a few associated with their purveyors by initials: TI percent of total revenues.3 for Tobacco Industry myths, and TC for myths The public’s perception of the industry’s perpetuated by the Tobacco Control contribution to economic activity often community. http://tobaccocontrol.bmj.com/ exceeds the reality. For example, the economies of the six state “tobacco bloc” in the Myth 1 (TI) southeastern United States are perceived by Regardless of its health consequences, tobacco is many Americans to be heavily economically crucial to a nation’s (or region’s) economy. reliant on tobacco growing and manufacturing. Without the cultivation of tobacco, manufacture of tobacco products, and distribution and sale of prod- In fact, only 1.6% of jobs in these six states are associated with the core tobacco sectors of the ucts, a country’s economy will suVer devastating 4 economic consequences. Jobs will be lost, incomes economy. Almost half of the tobacco counties will fall, tax revenues will plummet, and trade in the US derive less than 1% of their income surpluses will veer dangerously in the direction of from tobacco farming, and the vast majority of deficits. tobacco farmers work oV their farms, most holding full time jobs elsewhere. Indeed, there REALITY on September 30, 2021 by guest. Protected copyright. This is the tobacco industry’s favourite is only a single farm dependent county in the economic myth. Conveyed to legislators and entire US that derives a majority of its farm cabinet ministers (and journalists), its intent is revenues from tobacco.56 According to a US to encourage the development of an Department of Agriculture economist, “to- indigenous tobacco industry within a given bacco plays a minor economic role in most country, or to discourage the adoption of local economies where it is grown”.6 tobacco control policies likely to decrease Although the importance of tobacco’s role is tobacco product consumption. often exaggerated in the public’s mind, there is Department of Health no denying that the number of people whose Management and The half truth in this myth resides in the fact Policy, School of that tobacco farming and product manufac- livelihoods depend on tobacco, at least in part, Public Health, ture, distribution, and sale do constitute is substantial, both globally and in selected University of significant economic activities in many countries, as noted above. Many of the Michigan, Ann Arbor, Michigan, USA economies, and in the world as a whole. estimates emanating from tobacco industry K E Warner Globally, according to tobacco industry public relations documents tend to inflate estimates, 33 million people farm tobacco, these numbers considerably, however, by Correspondence to: Dr Kenneth Warner, albeit many of them part time and most in including “expenditure induced employment” Department of Health addition to other crops.1 Approximately half in addition to core tobacco sector jobs and Management and Policy, School of Public Health, that number work in tobacco product those of industry suppliers. “Expenditure University of Michigan, 109 manufacture, distribution, and retailing. In induced employment” refers to jobs created in S Observatory, Ann Arbor MI 48109-2029, USA; addition, another 10 million or so are all sectors of the economy when tobacco work- [email protected] employed in supplier industries providing ers spend their incomes on other goods and Received 20 July 1999. materials and services to the tobacco industry services. Because this income “recycles” as it is Accepted 27 October 1999. (for example, harvesting tools and cigarette spent over and over again, the expenditure Economics of tobacco: myths and realities 79 induced employment eVect tends to dominate the transitional problems that have accompa- Tob Control: first published as 10.1136/tc.9.1.78 on 1 March 2000. Downloaded from estimates of total employment associated with nied many far more rapid shifts in industrial tobacco sales. Yet similar employment would activity, such as the decline in the steel and be created by workers from any industry shoe industries in the US. spending a similar amount of income. Certainly, there are a few countries that are The myth in the tobacco industry’s so dependent on tobacco that any substantial economic importance argument is that a declines in their tobacco industries would rep- significant economic presence necessarily resent genuine and important shocks to their implies significant economic dependence. economies, most notably Malawi (in which Implicit in the industry’s argument (occasion- tobacco accounts for 60% of total export earn- ally explicit) is the notion that a decline in ings) and Zimbabwe (23%).1 Note that the tobacco economic activity will entail a compa- problem for these countries lies not in the area rable decline in the economy of the country in of domestic tobacco control policy—declining question. In point of fact, when resources are domestic tobacco spending would not aVect no longer devoted (at all or as much) to a given the trade balance—but rather in the global economic activity, they do not simply demand for exported tobaccos. Thus, disappear into thin air—the implication of the campaigns to reduce domestic tobacco industry’s argument. Rather, they are consumption could benefit the health of the redirected to other economic functions. If a citizenry of these countries without signifi- person ceases to smoke, for example, the cantly damaging their economies.18 money that individual would have spent on For selected countries, such as China, Brazil, cigarettes does not evaporate. Rather, the and India, each with a large indigenous person spends it on something else. The new tobacco industry and each including a large spending will generate employment in other proportion of smokers, making the transition industries, just as the spending on cigarettes from a tobacco dependent to a tobacco generated employment in the tobacco industry. independent economy poses some special tran- Studies by non-industry economists in several sitional challenges. The issues diVer, too, countries have confirmed that reallocation of between those countries in which tobacco spending by consumers quitting smoking products are manufactured and distributed by would not reduce employment or otherwise government monopolies and those in which significantly damage the countries’ the industry is privatised. Recognising, economies.7–13 however, that even the most successful tobacco The industry understands this reality. control campaigns tend to reduce consump- Pressed by a journalist, a US Tobacco Institute tion gradually, the real issue for all such coun- vice-president concurred that declining spend- tries is to reconcile the need to combat http://tobaccocontrol.bmj.com/ ing on tobacco would not necessarily mean smoking for public health purposes with the that overall economic activity would be need to ensure a smooth transition toward adversely aVected.14 The industry’s own alternative economic enterprises. economic consultants clearly perceive this Globally, concerns about the transitional truth, acknowledging it in their reports to the costs associated with declining tobacco industry.15 16 However, no industry public rela- consumption evaporate when one recognises tions document has ever mentioned that alter- that tobacco consumption is rising, not falling. native economic activity would replace declin- The World Health Organization predicts that ing tobacco activity. the number of tobacco consumers will
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