Hawking World’s Deadliest Product Just Got Harder

The world’s tobacco merchants are down on Australia after the country’s highest court backed the toughest cigarette-labeling rules anywhere.

So far, the focus has been on intellectual-property rights, possible lawsuits by British American Tobacco Plc, Japan Tobacco Inc. (2914) and their ilk, and the plight of investors. More attention should be on how many lives will be saved and how much economic output won’t be squandered as other nations follow Australia’s lead.

There’s a reason Big Tobacco waged such a ferocious fight against Australia’s ban on logos and requirements for graphic health warnings that cover 90 percent of the back of cigarette packs and 70 percent of the front. Should this precedent spread, and there’s every reason to think it will, it would hasten the end of the industry’s run of growth and profitability.

One figure explains why Asian governments should emulate Australia: $193 billion. That’s how much smoking-related illness and lost productivity costs the U.S. economy alone each year, according to the Centers for Disease Control and Prevention. That loss is greater than the annual output of nations such as Kazakhstan, Peru and Romania.

China’s Losses

Or consider all the lives that will be snuffed out because of smoking in China: 3.5 million a year by 2030. That figure comes from a 2011 report by prominent Chinese health experts who can only imagine the drag on productivity and growth that will be lost in the second-biggest economy as more of its 1.3 billion people smoke.

That more Chinese do so is certainly the hope of cigarette makers. As developed nations impose higher taxes, limits on advertising, and smoking bans in public places, Asia beckons. It is the same strategy being pursued by other product makers. Consumers in the West are aging and consuming less. Executives at multinational companies see opportunities to sell more cars, handbags, air conditioners, movies and wine in the East. With shareholders looking over their shoulders, they have no choice but to respond to market demand.

The economic fallout of this shift should be tallied by Asian governments. They must raise cigarette taxes to finance the resulting increase in health-care costs and initiate anti- smoking educational campaigns. They also must reconsider the fiscal trap inherent in current policies.

Japan is a perfect example. Japan Tobacco is 50 percent government-owned. This unseemly arrangement creates a toxic conflict of interest: Politicians are hardly inclined to do anything to hurt profits or the nice flow of revenue from excise taxes. Even after a series of tax increases, cigarettes in Tokyo are still less than half the price consumers pay in New York.

You can almost understand the dilemma of Japan’s lawmakers. The country is burdened with more debt relative to its size than any developed country, and government officials need all the revenue they can get. So do Japan’s counterparts in China. That also explains why leaders in other Asian countries tend to put the interests of tobacco profiteers ahead of public health.

The good news is that the U.K. and New Zealand are among the countries likely to copy Australia. Others will hopefully follow over time. Australia, after all, has done all it can short of banning tobacco, or making it a prescription drug. As these efforts spread, will developed and developing nations get the message?

Maybe Asian policy makers should consider their demographic comparative advantage. Nations such as China and Indonesia can’t talk enough about their youthful populations. In Indonesia, for example, 26 percent of the nation’s 253 million people are less than 15 years old. In the Philippines, it’s 34 percent. Those are enticing audiences for cigarette makers.

Unstoppable Force

It’s up to leaders to understand the risks and minimize the potential economic harm. China could endure the equivalent of the population of Lithuania dying annually from smoking-related disease. Does that strike anyone as a sign that China policy makers are infallible? The unstoppable economic force that’s an inspiration for developing nations the world over?

Other Asian nations must be careful, too. The close ties between governments and tobacco interests are emblematic of the region’s vulnerabilities. Asians should smoke less, but priorities at the government level encourage them to light up.

Granted, Australia, with $1.4 trillion of output and 22 million people, is a small country. But it has proven itself to be a leader in other areas, such as using carbon credits to reduce greenhouse gases and the effects of climate change. Clamping down on tobacco merchants is another example of that national foresight. And it’s a reason for cigarette makers to worry.

Consider how rapidly smoking bans are taking affect -- from Ireland to Germany to the U.S. and, of course, Australia. Really, who would have thought five years ago that you could have a coffee in a Paris cafe without getting smoked out? It makes you wonder what it will be like in 20 years if lighting a cigarette in public becomes an act that leads to pariah status. Smokers, not to mention tobacco companies, may complain about that turn of events; economists won’t.

(William Pesek is a Bloomberg View columnist. The opinions expressed are his own.)

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To contact the writer of this article: William Pesek in Tokyo (NKY) at wpesek@bloomberg.net

To contact the editor responsible for this article: James Greiff at jgreiff@bloomberg.net

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