If You Can’t Kick the Smoking Habit, Control It
If you can’t kill the demon, do you bargain with it? Should the U.S. government exempt the cigarette industry from claims by smokers or their surviving relatives in return for strict Food and Drug Administration regulation of cigarette contents, higher taxes and restrictions on distribution?
As unlikely as the idea may seem, such an arrangement could come to pass in the next year or so. If it did, it might save lives. And it would certainly cause the stocks of tobacco companies to rise.
Meanwhile, the furor over cigarettes remains contradictory. The American Medical Assn., which has a history of both cooperation with and opposition to the cigarette industry, last week called on investors to sell their tobacco company stocks.
Public pension funds in New York announced their intentions to cut back tobacco holdings; Maryland public pension funds recently announced full divestiture.
Yet leading tobacco issues went up in price on the week’s trading--Philip Morris by $1.12 to $89.25 a share, RJR Nabisco by about 50 cents to $30.12--although both stocks have fallen more than 10% in the last month.
And the chairman of Philip Morris, the world’s largest cigarette company, told shareholders that the company plans to spend hundreds of millions of dollars to expand cigarette production in the United States and abroad.
Business is brisk. U.S. cigarette sales rose last year for the first time in more than a decade--a new generation of young people is said to find the habit fashionable. Cigarette sales overseas are booming.
So even as anti-smoking fervor and lawsuits mount and former tobacco executives reveal that their companies covered up knowledge of smoking’s links to cancer, the decades-long battle against cigarettes remains a standoff.
A pending class-action lawsuit that attempts to cover all smokers won’t get a ruling until later this year or early next--and tobacco companies will take the matter to the U.S. Supreme Court if the decision goes against them.
A recently proposed settlement of state lawsuits by Liggett Group, makers of Eve and Chesterfield cigarettes, was less a breakthrough than a conditional attempt to cap company liabilities.
The message is clear: “The companies will litigate for the next 10 to 20 years while more young people become addicted,” says Richard Kluger, author of “Ashes to Ashes,” a new book on the battle against smoking, which began decades before the surgeon general’s 1964 report on smoking and disease.
Kluger, a veteran journalist and book publisher, has no brief for the tobacco industry. Its executives have misled the public and distorted evidence, he says. But as a practical matter, he suggests that Congress make a deal, classing tobacco companies as producers of known dangerous materials--thus protecting them from lawsuits by buyers who should know the dangers--in order to bring them under strict FDA regulation.
Under the FDA, cigarettes could be made less toxic by sharp reductions in tar and nicotine levels--5 milligrams of tar and 0.5 of nicotine would be desirable, Kluger says. And regulation could more effectively restrict distribution of cigarettes to young people.
Richard Daynard, a leading anti-smoking lawyer, dismisses Kluger’s suggestions as “peace in our time” appeasement, but in fact they’re a recognition of society’s ambivalence toward cigarettes.
First of all, the United States is not about to prohibit cigarettes, as it did alcohol in 1918. To do so would create an $80-billion-a-year bootleg market among today’s 45 million U.S. smokers--a larger market than that for cocaine.
And even as attorneys general in some states sue tobacco companies for a share of public health expenses, other state governments are substituting cigarette taxes for property taxes because voters prefer to fund schools that way.
Calls for divestiture of tobacco stocks “don’t affect the business of these companies,” notes Walter Beach of Widmann Siff, a Philadelphia investment firm. Tobacco is an immensely profitable business and a growing one around the world, with developing countries taking up cigarettes as a first, small luxury.
Philip Morris’ international sales are growing 17% a year, and huge markets in the former Soviet Union and much of Asia are barely tapped. The company will earn $4 billion in pretax profit from overseas sales this year, reckons analyst Diana Temple of Salomon Bros., and a like amount from domestic tobacco sales.
Together with its name-brand food products--Kraft cheeses, Post cereals, Jell-O and the like--Philip Morris is one of the most successful consumer products companies in the world, comparable to Coca-Cola and Gillette, says Michael Sandler, a partner of Pacific Financial Research in Beverly Hills, which manages the Clipper Fund.
But Philip Morris stock doesn’t enjoy a premium price as do the stocks of Coca-Cola and Gillette. If it did, Philip Morris would sell for more than $200 a share. It sells for less than $90 a share because of the continuing threat of tobacco lawsuits.
Yet in that stock price divergence, as well as in those lawsuits, may lie the carrot and the stick that will lead to tighter regulation of tobacco.
If the government imposes a broad settlement with tobacco companies in return for tighter regulation, financial experts are unanimous that tobacco stocks will soar.
Also, the companies may wish to cease fighting regulations because public opposition is becoming intense--there are 200 anti-tobacco lawsuits now. “Sooner or later, the companies will lose,” says Kluger, “so they’d be wise to settle.”
We should understand what settlement with tobacco means. The problem with the cigarette is that it’s an addictive device with a terrible effect on health--as anybody who has watched a relative or friend die of lung cancer can attest.
But emotion is not getting society anywhere, just as emotion against alcohol years ago was less effective than regulation has been.
If U.S. regulation can refine the cigarette, reduce its toxicity, its standards will spread to the world. The long-term health effect here and abroad could be very beneficial. If we can’t kick the habit, maybe we should at least control it.
