State-tobacco “cure” worse than the “disease”

In a recent book, Curing the Addiction to Profits, nationalizing the tobacco industry is presented as the solution for curbing tobacco consumption in Canada. The authors, Cynthia Callard, Neil Collishaw and Dave Thompson, are proposing to establish a more or less extensive public monopoly – going from Crown corporations to non-profit public agencies – which will be in charge of manufacturing and retailing cigarettes. According to them, the main problem with tobacco lies in the profits companies are making. Looking for higher profits is what drives them to skirt regulations and constantly try to get more people to smoke more cigarettes. Nationalizing the industry and selling fewer and fewer cigarettes in a more controlled way would presumably bring an end to tobacco use.

Such a “cure,” if actually implemented, would be worse than the “disease.” Not only will a public monopoly not contribute to bring tobacco consumption to an end – which in any case has been declining over the last decades and may continue to do so because of other factors. But, being less efficient, it will bring on a waste of economic resources and very likely push unsatisfied smokers into the black market.

Contrary to what the authors seem to think, it is not the search for profits which is at the root of tobacco consumption. It is the other way around: consumption, driven by smokers’ preferences and choices, eventually brings about profits for efficient producers. In every economy, it is consumers who are the ultimate judges of products sold on the market, and that includes consumers of cigarettes.

But the book proposes no new solution to decrease the demand for tobacco and the authors wrongly assume without proof or further arguments that less supply (selling less cigarettes, less promotion by the tobacco industry, etc.) will somehow mysteriously change people’s preferences. The authors apparently ignore the lessons we have learned from alcohol prohibition in the 1920s: trying to restrict supply will only increase opportunities for black marketeers, which are already active in Canada. Besides reducing revenues for governments, the existence of such a black market means that more and more public funds have to be injected into police surveillance, controls, inspections, etc.

As the history of Liquor Boards in Canada shows very clearly, what happens anyway is that state monopolies soon become commercially-minded monopolies whose priority is to try to imitate private entrepreneurs and to sell what people want. For example, the Société des alcools du Québec, implemented in 1921 to promote temperance and control alcohol consumption in the province when the rest of the continent had total prohibition, has since become an aggressive commercial monopoly. The result is that according to Statistics Canada, alcohol sales per adult increased a lot in Quebec (13%) between 1993 and 2003, while in Alberta private retail businesses faced almost stable sales (1,2%). Obviously, nationalization didn’t bring an end to alcohol consumption. On the contrary, the opposite happened.

Even if they are of no use for curbing consumption, public monopolies are well known however for their inefficiencies. Without competition there are going to be less choice of products, less quality, less retail outlets and higher costs due to union pressures and other rigidities. Here again a comparison of the economic performances of alcohol state monopolies (such as the LCBO’s in Ontario or the SAQ’s in Quebec) with a privatized system, as in Alberta, is a good illustration of what is going to happen in the tobacco industry if nationalized. There are three times fewer state retail outlets in Quebec – and five times fewer in Ontario – than there are private outlets in Alberta; there are almost three times fewer products commercialized in Ontario than in Alberta. And the ultimate paradox is that even with more control, governments receive fewer alcohol dividends from state monopolies in Ontario and in Quebec than the Albertan government receives with its privatized system.

Nationalization is not a rational solution for the health problems caused by cigarettes. It may cost a lot of taxpayers money (as much as 15$ billion) to buy out tobacco companies. It will have no influence on tobacco consumption, and will involve economic and other losses for smokers. Indeed, the only thing that this book really promotes is the particular interests of anti-tobacco activists who will substantially benefit from nationalization. It is no coincidence that two of the three authors are associated with Physicians for a smoke-free Canada, an Ontario based group directly financed by Health Canada for almost 70% of their budget. Canadians should not be fooled by such bad public policy, which is clearly against their interests.

Valentin Petkantchin est le directeur de la recherche à l’Institut économique de Montréal.