Philip Morris:
In a recent article in Business Week, written by John A. Byrne, an in-depth view of the world s largest tobacco manufacturing company shows the full scope of the tobacco issue. Philip Morris is one of the most reviled companies in the U.S., however the company continues to be one of the world s most generous corporations. The company contributes over $60 million in cash and $15 million in food to fight hunger, domestic violence, and to support the arts. Employees of the company contribute over $5 million a year to various charities. But, the company fights an uphill battle, even when it comes to charitable contributions. Recently, the company awarded a $4.3 million grant to the National 4-H Council but activists were quick to mount a lobbying effort to get state groups to reject the grants, alleging that Philip Morris generosity was little more than a public relations stunt to drum up new support for the ailing industry. More than half of the agencies have since turned down the funding. The company has been attempting to cut down on youth smoking by implementing forward-thinking campaigns against youth smoking. Philip Morris has ended cigarette sampling, mail distribution of cigarettes, vending-machine sales, and mass-transit and outdoor advertising. The company has spent money and time to train more than 30,000 retailers on how to recognize face I.D.s and upped its investment in youth smoking-prevention programs to $100 million. This does nothing for the public s image of the tobacco firm and the stock has shown this disdain. In the words of the current Chairman and Chief Operating Officer, Geoffrey C. Bible, the company has become the dog of the Dow, whose stock has dropped off $83.2 billion in value over the past several years. All of this has forced the company to expand its overseas markets in order to survive in the corporate world. The main incentives to overseas marketing and capitalization are the fact that there are more tolerant nonsmokers abroad and the opposition is less organized, but the most important reason to move is the fact that overseas consumers are less litigious than in the U.S. But, the company plans responsibility in the overseas markets. The company now has 83 youth prevention programs in 55 countries in order to prevent attack on the industry. (Byrne, 176-192).
The bottom line in the debate over the tobacco industry is responsibility. This is a question that each person must answer for themselves, but the law is on the side of the tobacco firms and the political climate, though changing rapidly, must take into account the ramifications of regulations that are too stiff on an independent, legal industry before passing judgment. Tobacco is dangerous. No one disputes this claim any longer. However, the responsibility must remain with the individual. The state cannot hold an industry responsible for the misuse of a product. Tobacco is a risky product. Beer is a risky product. There are foods .that are risky products. I think that adults are wise enough to make decisions about those things. I am concerned about a society that might restrict or restrain those choices. You know, today it s tobacco. Tomorrow, maybe it s beer. The next day, it might be hot dogs. I think I m capable of deciding whether or not I want to eat a hot dog. This quote is from Robert A. Eckert, Chief Executive Officer of Kraft Foods, Inc. (Byrne, 184) and vividly illustrates the slippery-slope possibilities surrounding more and more legislation of the tobacco industry.
Economic Issues
Since the 1930 s, the United States government has strictly regulated the tobacco industry. However, the last few decades have shown the most drastic regulations including the regulation of sale as well as advertising of tobacco in this country. The ultimate intention of the government is to reduce the amount of tobacco consumed by consumers in this country in order to provide healthier lives for the American population.
The tobacco industry has seen the consumption of its products rise worldwide. It has grown in about 100 countries and takes in more than $275 billion in sales with about 1.5 percent growth per year. These numbers are in spite of a 2 percent decrease in the 1.1 million smokers, which accounts for over one quarter of the world s population, over the last decade (Hoovers). One may wonder how this is possible. One reason is that some government restrictions actually work in the tobacco companies favor. Since the tobacco companies are not allowed to spend virtually any money on marketing domestically, they have more money to spend on marketing overseas, where its markets continue to grow due to the prestige of the American blend cigarettes. This rise in tobacco use accompanies the rise of disposable income in these markets, where regulation and demonization have not had an impact yet (Masters, 87).
China consumes about 30 percent of all cigarettes produced, more than any other country. The China National Tobacco Corporation also leads the world in tobacco and cigarette production. The U.S. only accounts for about 10 percent, but the industry takes in about $45 billion yearly. This comes out to the average smoker spending more than $260 per year on tobacco products. Sales in the industry have also shown an increase in the past decade from just over $200 billion to well over $260 billion (Hoovers).
The U.S. tobacco industry is extremely profitable because of the oligopoly the companies have, which makes entry into the market extremely difficult. The level of sales needed to justify the enormous legal cost associated with this controversial market also makes market entry difficult for new companies. Although tobacco companies profit margin is about double that of any other packaged good, the substantial costs of packaged goods on a national scale, along with the money it takes to acquire facilities for production and distribution, are major barriers to entry in the tobacco industry (Hoovers).
Higher selling prices and greater restrictions on where people are allowed to smoke have proven to be effective in lowering the consumption of tobacco. Another factor that has lowered consumption is America s increased interest in healthy living, largely attributable to the baby boom generation. The older people get, the more they pay attention to what constitutes a healthy lifestyle. These factors have called for the increased government regulation of tobacco in its industry. The regulations the government has set forth however, have ironically made the tobacco companies more profitable. The U.S. and state governments are direct beneficiaries of these profits receiving $11.9 billion from excise taxes in 1993 (Coltrain). Tobacco, in this aspect, can be argued that it is a great economical asset to our governments.
In 1998, a $206 billion agreement was reached between tobacco producers and 46 states to resolve all state claims for health costs related to smoking, which has forced the tobacco companies to make changes (Melillo). Earlier this year, advertising on billboards, sides of buses, subways, and tops of taxis has come to a halt. Stadium advertising has also stopped and tobacco companies are only allowed one sponsorship per year per company. In addition to this agreement, President Clinton signed legislation in August of 1997 to reduce tobacco consumption even further. This legislation will increase the federal excise taxes (FET), on cigarettes to 34 cents per pack beginning on January 1, 2000. Taxes on other tobacco products will also increase accordingly. On January 1, 2002, the FET will increase again for all tobacco products with a 39 cents per pack increase for cigarettes. In addition to the federal taxes, states can also impose taxes on tobacco products. These taxes range from one dollar per pack to as low as 2. 5 cents per pack. 43 states impose sales tax on cigarettes. The USDA has estimated that the taxes on tobacco have caused the consumption of cigarettes to decline nearly 10 percent from 1990 to 1998. The reason consumption has declined is because of consumers demand elasticity. Demand elasticity is a measure of how responsive a market is to price changes. Since the tobacco market is elastic, an increase in price would cause a drop in consumption (Standard & Poors).
The $206 billion dollar settlement that was reached last year between the tobacco companies and the 46 states was a compact replacement of the first attempted deal. The cigarette makers agreed to give the states $358 billion over 25 years, plus $10 billion up front in lump-sum damages. The money would have come from raising cigarette prices by 35 cents per pack straight away and by 62 cents after five years, plus allowances for evaluation. The only people this deal would hurt would be the consumers. This plan failed because congressional leaders were not brought on board, and for the plan to work they had to agree to it. The bill was then recast as a company-bashing measure and the manufacturers backed out. This resulted in the $206 billion settlement, a multi-state deal that required no cooperation in Washington (Standard & Poors).
It would have been better for states to impose an explicit, well-designed tax with more marketing restrictions. Instead, the settlement allows each participating state to levy a tax on cigarettes sold anywhere in America. The states that do not take part will still pay the tax and will receive no share of the revenues, which is a strong incentive for states to sign on. The reasons the explicit, well-designed tax with more marketing restrictions was not imposed is because there would have been nothing in it for the lawyers. These taxes would have also required express legislative approval state by state, which the settlement was designed to get around, and because an explicit tax could only be levied by any particular state only on cigarettes sold within that state. In short, the lawyers have come up with the settlement so they can get a piece of the action (Economist).
Agriculture
The nation s crop of leaf is grown by tobacco farmers, located mainly in the southeastern U.S., and accounts for 502,210 jobs (Capehart). Their crop is usually sold at public auction to the highest bidder. Leaf prices are supported under the Agricultural Adjustment Act of 1933, which has been amended many times over the years but the program s basic components remain in place. U.S. tobacco growers are guaranteed minimum prices through price supports and this system has made U.S. grown tobacco more expensive than most non-U.S. tobacco, which results in a decline in exports (Standard & Poors).
The number of farms growing tobacco has declined rapidly during the last 40 years. From 1992 to 1997 farm numbers declined more than any other period since 1950. This trend toward fewer, larger farms will continue, but at what rate will depend on several factors such as the factors covered earlier: policies and programs affecting tobacco, U.S. and world consumption of tobacco, and alternative crop and off-farm income opportunities for tobacco growers (Foreman).
Ethical Implications
Ethics is the general nature of morals and the specific moral choices an individual makes in relating to others. Like most major issues, the tobacco issue poses some ethical questions that are difficult to answer. One factor that makes these ethical questions so difficult is that people generally search for the answer that pleases them the most. For example, if one were to ask a person who had developed lung cancer from smoking whether or not the big tobacco companies should be responsible for his or her disease, he or she would probably answer affirmatively. However, if someone were to ask a nonsmoker who should be responsible, he or she would probably answer that the individual himself is responsible. Some of the ethical issues that society is facing with the tobacco industry are: the placement of responsibility on the consumer or the producer, the question of whether the producers have to pay compensatory damages for smoking illnesses, the issue of involuntary smoking, selling in foreign markets and lastly the promotion of tobacco products.
Tobacco use accounts for at least 29% of all cancer deaths, is a major cause of heart disease, and is associated with conditions ranging from colds and gastric ulcers to chronic bronchitis, emphysema, and cerebrovascular disease. On average, each cigarette pack sold costs Americans more than $3.90 in smoking-related expenses. The fact is, when smokers purchase a pack of cigarettes at the store they know what they are buying! Like many other products that are sold today, they are dangerous to your health if used excessively. If it were to be decided that the tobacco companies were responsible for smoking related illnesses, it could open up a whole new view on product liability. Take the alcohol industry for example: drinking an excessive amount of alcoholic beverages has been proven to increase the chances of developing serious health problems. Should the alcohol manufacturers be responsible for this? The logical answer is no! There have been warnings posted on cigarette packs since 1966 informing the consumer of the carcinogenic contents of cigarettes and their harmful effects. Consumers of tobacco products understand that there are certain health risks involved in smoking. It is not a case of merely educating people about the risks of smoking. What it comes down to is personal freedom: people have the right to smoke. Accompanying any type of right or privilege are consequences and responsibilities. People make the conscious choice to smoke and must therefore accept the consequences of that choice.
Smoking costs the United States approximately $97.2 billion each year in health-care costs and lost productivity. The ethical question posed here is whether or not the government should be compensated for this cost. The U.S. Justice Department launched a multi-billion dollar lawsuit against the tobacco industry, accusing the world s largest cigarette companies of conspiring to defraud and mislead the public for more than 40 years. The lawsuit, filed in Washington, seeks to recover the medical costs for treating smoking-related conditions paid by the federal government over the past six years as well as a potentially huge sum representing the disgorgement of ill-gotten gains dating back to the 1950 s (Edgecliffe, 1). Critics of this lawsuit say that the case is not based on facts and that the government is merely trying to make a financial gain. They also point out that the government has been involved in almost every aspect of the tobacco industry and has already collected tens of billions of dollars in taxes on cigarette sales. The case brought on by the justice department is not the only threat against the big tobacco companies. There are also cases being filed by 46 U.S. states, individual sick smokers, and even class action lawsuits. If the case with the U.S. Justice Department was settled, it would prohibit punitive damages for all future legal claims against the tobacco industry, set an annual cap on the amount of compensatory damages allowable in all future legal cases against the industry, prohibit class-action lawsuits, third-party payer suits, and claims against industry attorneys, and legislatively settle all present and future claims of potential plaintiffs, including generations of future tobacco victims not yet born (Siegel, 15). Each of these rulings involves some ethical implications. By prohibiting punitive damages and putting a cap on the amount of compensatory damages, the Justice Department is addressing the fact that the tobacco manufacturers are not doing anything wrong in production of their products, but it allows for people to collect compensatory damages up to a certain limit when serious illnesses occur.
When considering the ethical implications of smoking, one must look at everyone involved in the issue. Certainly, the consequences of tobacco use directly affect the user, who suffers the harm resulting from a conscious choice of using the substance. Just as significantly, passive inhalation has contributed to the declining health of non-users, who are exposed to this product (Otapski, 1). In 1993, the U.S. Environmental Protection Agency declared that secondhand smoke is a human carcinogen. They estimate that about 3,000 nonsmoking adults die of lung cancer each year as a result of breathing the smoke of others cigarettes. Government regulations relating to smoking in public buildings were rare prior to the 1970 s. Most of the regulations that were in effect were intended to promote safety through fire prevention. The number of regulations relating to second- hand smoke in public buildings has grown tremendously. These statutes, generally known as clean indoor air laws, extended public safety concerns by limiting the nonsmoker s exposure to tobacco smoke in public establishments and private work places (Otapski, 2). Smokers and nonsmokers have conflicting interests in exercising their respective liberty in shared facilities. To completely ban cigarette smoking would be unjust to smokers; yet allowing people to use tobacco products in public buildings, even if it is segregated, infringes on the non-user s rights. This is the ethical problem that concerns individual rights. Since the effects of secondhand smoke were discovered, most public places have banned cigarette smoking while others have divided the seating up into smoking and nonsmoking sections.