Published in The Laissez Faire City Times, March 19, 2001
The new European Union directive announced on February 28 would, by September 2002, force manufacturers to print on cigarette packs color pictures illustrating the presumed effects of tobacco related diseases. Thirty percent of the front of cigarette packs and 40 percent of the back will be expropriated to run these panic warnings.
This new action illustrates the phenomenon of diminishing returns to government intervention, i.e., the fact that additional reductions in tobacco consumption require more and more potent interventions. After all, 77 states in the world have required health warnings on tobacco packaging for at least 10 years. As World Bank economists admit in a recent book, "most of the potential improvements in consumer awareness have already been achieved," and "[f]urther reductions in smoking in countries where the health consequences of smoking is widespread will be more difficult" (Prabhat Jha and Frank Chaloupka, Ed., Tobacco Control in Developing Countries, Oxford University Press, 2000).
The phenomenon is also illustrated by cigarette taxation, where there are indications that decreasing returns have kicked in. From 1985 to 1995 in the United States, real prices of tobacco products increased by some 52 percent, mainly because of taxes, while cigarette consumption dropped by 18 percent; from 1995 to 1999, real prices jumped by another 48 percent, but consumption receded by only 11 percent. Larger tax increases would be required to achieve the same results as previously.
One reason why government intervention against smoking becomes less effective is that smokers who were the most easily persuaded have already quit. The remaining ones are those who value smoking more, and therefore require higher disincentive before they quit (or reduce their consumption). World Bank economists admit that consumers have been exposed to information on the health risks of smoking from private sources and organizations since the 50s, i.e., even before governments got heavily in the business of information. Or is it propaganda? At any rate, studies by American economist Kip Viscusi have shown that smokers overestimate the risks of smoking as evaluated by the public health literature.
Too much information may also kill information. As advice, warnings, and threats from authority become more numerous and visible, they tend to be discounted or ignored. In Canada, large warnings have occupied 20 percent to 25 percent of cigarette packs for more than a decade. Yet, starting January of this year, the federal government has mandated their replacement by larger panic pictures of diseased lungs, hearts, gums, etc. A chapter of Tobacco Control in Developing Countries cites research claiming that, indeed, the impact of information shocks decays with time.
Another reason for decreasing returns to government intervention is that consumers will try to circumvent more burdensome taxes and regulations. World Bank economists estimate that between 6 percent and 8.5 percent of world cigarette consumption is smuggled, and some European countries are above average: 10 percent of cigarette consumption is smuggled in Germany, 15 percent in Austria or Spain. Moreover, the problem is apparently growing, and tougher repression would lead to the excesses of another "war on drugs." In 1993, before federal and provincial governments in Canada decided to cancel previous tax increases, smuggled cigarettes reached 30 percent of consumption.
Other forms of resistance develop. In the province of Québec, the new panic warnings mandated by the Canadian government have brought entrepreneurs to distribute pack covers featuring neutral drawings, art forms, and even ironic warnings. After two months of wide distribution, the pack covers represent less than 1 percent of cigarette pack sales. But this proportion may increase as the new packs with the obtrusive pictures fill retail stocks. Or it may be that most smokers don't really see, or care about, such government warnings.
The increasing size and aggressiveness of government warnings on tobacco products point to decreasing returns to regulation. In order to maintain the antismoking movement's momentum, more and more regulations and taxes are required, which is also consistent with the interest of our large public health bureaucracies. Certainly, health bureaucrats have become addicted to power. One wonders what will be the next regulatory steps.
A push towards mild forms of prohibition should not be discounted. Indeed, smoking is prohibited in more and more so-called "public places" – which are generally pieces of private property open to customers. In the last two pages of his recent book (A Question of Intent: A Great American Battle with a Deadly Industry, Public Affairs, 2001), David Kessler, former head of the U.S. Food and Drug Administration, proposes the dismantling of the private, for-profit, tobacco industry, and its replacement with a sort of public utility that would sell cigarettes in plain wrappers at cost. The European Union seems to be drafted into the "great American battle."
European ureaucrats and politicians should instead heed the warning of German poet Friedrich Hölderlin: "What has always made the state a hell on earth has been precisely that man has tried to make it his heaven." Otherwise, all heaven will soon break loose.