Smoked out: Anti-tobacco activism at the World Bank

This policy bulletin is extracted from Smoked out: Anti-tobacco activism at the World Bank, an Occasional Paper published by the FMF in 2000. It is republished today in light of the ongoing assaulton civil liberties in South Africa. The entire text can be read here.

Foreword (by Deepak Lal)

The World Bank (WB) has joined the World Health Organisation (WHO) in a world war on tobacco. As its initial broadside, the WB recently published an astonishing report. This Occasional Paper exposes the many follies and economic errors in what is not a decent economic study, but a document for crusaders. Whatever one’s personal attitude to the poisonous weed, most past studies of the economics of smoking found that it has net social benefits (see e.g. K. Viscusi: Rational Risk Policy, OUP, 1998). Thus, for the US it was estimated that in 1993, the social costs and benefits per packet of cigarettes smoked were as follows. Social Costs: Medical care $0.55; Sick leave $0.01; Group life insurance $0.14; Fires $0.02; Second hand smoke $0.25; Local taxes on earnings $0.40. Total costs to society were therefore $1.37. Social benefits: Nursing home savings $0.23; Pensions and social security payments saved $1.19; Excise taxes paid $0.53. The total social benefits were $1.95, yielding a net social benefit of $0.58 per pack of cigarettes. The benefit could be even higher as this estimate takes at face value the highly disputed scientific basis for the dangers of secondary smoke.

The World Bank report does an intellectual somersault in denying this standard economic methodology based on consumer sovereignty. In post-modernist garb, it characterises a divided self. It claims a smoker has a physical addiction which prevents rational decisions, so that the mind (I presume) imposes life-threatening smoking on the body. This means that, within this divided self, there is an externality that the mind imposes on the body. Thus the usual consumer surplus benefits that individuals derive from the utility of smoking are in fact, benefits that accrue to the mind at the expense of the body, and hence can, from the viewpoint of the body, be completely discounted and be looked upon as costs! For mainstream economists who have (rightly) always taken a more robust view of the mind-body problem, this assumption can only be an example of higher nonsense.

Moreover, as the WB report recognises, the poor – in both developed and developing countries – are preponderantly smokers. So the consumer surplus losses from taxes and regulations of tobacco accrue in disproportion to the poor. For a majority of the world’s poor the ingestion of tobacco provides one of their few pleasures. To deny them this enjoyment, in lives which for the foreseeable future remain ‘nasty, brutish and short’, in the name of Western political correctness, is questionable.

In estimating the benefits from giving up tobacco, theReport uses a variant of the quality of life adjusted years (QALYs) that would be gained. Ignoring the serious conceptual flaws in QALYs (and DALYs, disability adjusted life years as used in theReport), they still require some estimate of standard life expectancy. TheReport takes Japan as a standard, which has the highest life expectancy in the world, and defines premature deaths from smoking in middle age to include deaths up to 69 years. It is ripe to tell a landless labourer in rural India that he is dying prematurely at the age of 69 because of his addiction to ‘bidis’!

I shall not detail the numerous other illogicalities and inconsistencies in this report as the authors do this admirably. More important are two other issues. The first concerns the reasons for the success of this form of political correctness. Resistance to smoking has a long history in the Christian West. But the crucial element which gave a recent impetus to the campaign by anti-tobacco pressure groups was the issue of passive smoking.

In most liberal Western societies ordinary people realised that if one was damaging one’s body wilfully, it was one’s own and not the State’s business. But once the scare about passive smoking began in the 1980s, these anti-tobacco pressure groups had the ammunition to inflame popular passions.

Passive smoking studies are littered with poor methodology, science and statistics. The most influential report, which promoted passive smoking fears, came from the US Environmental Protection Agency in 1992. But this report was discredited by a US Court last year for being inherently biased.

Similarly, the WHO had its fingers burnt when its review of passive smoking studies also claimed that there was an increased risk of lung cancer. When it was pointed out that the results were not statistically significant by the UK Sunday Telegraph, they were accused by the WHO of being pro-tobacco, as if this rebutted the scientific counter-claim. But these WHO and EPA studies are still cited as though they were quality research and have indirectly encouraged numerous places/countries to enact laws on smoking in public, including cities like New Delhi. This concern with passive smoking must seem a cruel joke to anyone who has to breathe the polluted air of New Delhi or Xian.

This false scare has led to this international war on tobacco, which raises the second issue. As is becoming common, attempts to legislate Western ‘habits of the heart’ worldwide, are now made through a treaty like the proposed WHO Framework Convention on Tobacco Control, which it is hoped, health ministry officials from Third World countries will readily sign. But apart from the welfare costs involved – particularly to the poorest – there are also serious fiscal costs. The WB report is illogical, claiming that a proposed annual 10 per cent real increase in taxes on tobacco for 10 years will save millions of lives and not hurt tax revenues. Either demand is elastic and so people will stop smoking at the expense of the exchequer or it is inelastic whence revenues will not fall nor will the numbers smoking. Finance ministries need to keep a careful eye and be part of any WHO negotiations to prevent any agreements which are against the interests of their poor and of their fisc.

Deepak Lal is an Academic Advisory Board, Free Market Foundation and Department of Economics,University of California.

AUTHORS Richard Tren & Hugh High. This Policy Bulletin may be republished without prior consent but with acknowledgement to the authors. As always the views expressed in this Occasional Paper are those of the authors' and are not necessarily shared by the members, directors or staff of the Foundation.

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