By: Conrad Clifton
In 2016, we would be hard-pressed to find an American who did not know the dangers of smoking. Since 1965, when the overall American population who smoked was 42.4%, smoking prevalence among adults has steadily declined to the 14.9% rate we are at now. While it is hard to pin-point one specific reason for the decline, anti-smoking campaigns, expensive excise taxes on tobacco products, Federal and state tobacco laws mandating label warnings and age restrictions, along with a general influx of health information regarding the dangers of smoking tobacco products have all played there part in reducing the hold Tobacco products have on Americans. In a free market economy, one may logically arrive at the conclusion that tobacco is out dated and is no longer a sustainable business because of the obstacles they have endured. However, that could not be more wrong when looking at the industry as a whole.
The Tobacco industry has seen nothing but growth in the last 30 years. For example, Philip Morris International, a spin off from its parent company Altria, is the most profitable publically traded tobacco company in the world. Since the birth of its international division in 2008, Altria’s stock has increased 289%. Economists insist that hatred, fear and disgust of tobacco has actually benefited the company. The constant threat of litigation has lead weary investors into avoid tobacco stock altogether. Thus, this low investor demand has enabled the company to return higher stock dividend yields and massive returns to the owners who hold stock. Tobacco companies like PMI have hardly innovated over the last 50 years. PMI’s returns are reliable and its growth is constant. Its expansion, while restricted in the United States, is attributable to their economic and legal dominance over the international market. Moreover, the company has exploited international trade agreements between underdeveloped countries to ensure generations of smokers continue to use their products.
Uruguay, for example, where PMI’s market share is less than 15% tried to institute new major public health initiatives accompanied by two regulations intended to control tobacco sales. The changes predominately focused on the size of the health warnings and limiting the number of brand variations the companies could sell. PMI, headquartered in Switzerland, filed suit in 2010 against the small country claiming that its warnings interfered with the Marlboro brand and essentially were depriving them of their property without compensation. Furthermore, they claimed that the regulations deprived them of their intellectual property rights. The company cited provisions of a bilateral treaty between Switzerland and Urguay signed in 1988, which essentially insured the unobstructed flow of business between the two nations in order to support their claim that Uruguay was in fact violating the treaty and infringing on one of its trading partners.
Despite the bullying, there has been some success against PMI. When Australia instituted plain packaging regulations, PMI sued them in international court, and lost. However, this victory was short lived in the international arena. Togo, one of the poorest countries in the world whose illiteracy rate is near 40%, tried to institute cigarette packaging laws where 80% of the box would show physical manifestations of the long term effects of smoking. PMI then sent them a letter threatening a lawsuit, citing the one dissenting opinion in support of their case against Australia, and essentially forced Togo into repealing their regulations. Ultimately, big tobacco companies like PMI uses its financial dominance to trap poorer countries into unhealthy trade deals and ensure that generations of new consumers will continue to use their product.