Question: Tobacco Politics The tobacco industry has long been an economic juggernaut. By one estimate, as of 1998 tobacco accounted for 500,000 jobs and generated up to $170 billion in revenue annually in the United States-an amount approximately equal to the gross domestic product of Columbia.35 Tobacco was grown in 20 states and was one of the most successful cash crops. Renewed efforts to regulate tobacco were fueled by new reports on the effects of secondhand smoke, such as one claiming that smoking accounted for as many as 400,000 deaths annually. The federal government's efforts to control tobacco and cigarette advertising can be traced to 1954, when Representative John Dingell (D-MI) proposed a bill banning interstate advertising of tobacco products and alcoholic beverages. Although Representative Dingell's proposal did not succeed, in 1970 President Nixon signed a bill banning cigarette advertising on radio and television. In the 1980s several additional measures were passed that restricted smoking, including a ban on smoking on domestic airline flights. The 1990s saw further action taken against the tobacco industry, with legislation enacted to limit tobacco advertising and ban smoking in federal buildings.
Throughout this period, antismoking advocates portrayed the tobacco industry as an all-powerful, evil empire that held lawmakers in its hip pocket. Antismoking advertisements in the late 1990s claimed that tobacco companies consciously targeted teenagers in their advertising campaigns in the hope of recruiting and addicting the nation's youth. The threat to the tobacco industry and its beneficiaries increased significantly in November 1997, when S.1415, the National Tobacco Policy and Youth Smoking Reduction Act, was introduced by Senator John McCain (R-AZ). Provisions of the Act S.1415 was an outgrowth of an agreement reached on June 20, 1997, known as the Tobacco Resolution. The agreement between the major tobacco companies, state attorneys general, and class action lawyers provided the tobacco industry with protection from future punitive damages lawsuits and set caps on damage payments in exchange for a substantial per-pack tax increase and lump-sum damages payments.36 Overall, the bill would constitute a significant increase in the regulatory role of the federal government with respect to the tobacco industry.
As proponents of the bill portrayed it, the bill required tobacco companies to pay $506 billion over 25 years to cover health care expenses related to smoking. The mechanism for funding this transfer was a $1.10 excise tax on the price of each pack of cigarettes. The bill also provided block grants to states to deal with medical costs stemming from tobacco use. In return for the tax increase, the liability of tobacco companies would be capped at $6.5 billion per year. In addition to the monetary and legal provisions, the bill also restricted tobacco advertising and promotion. Tobacco companies would be prohibited from advertising on billboards, in public arenas, and on the Internet. In an attempt to reduce underage smoking, human or cartoon characters such as R. J. Reynolds's "Joe Camel" were to be banned from advertising campaigns. Companies also would not be allowed to sell items of clothing bearing their brand name, provide gifts to customers, sponsor public events, or pay for product placements in television programs or movies. Advertisements could no longer use phrases such as "low tar" or "light" that would imply that a given cigarette brand was less dangerous than another brand. Other provisions would affect the regulation and distribution of tobacco.
The Food and Drug Administration (FDA) would have the power to regulate nicotine like a drug, including, with the consent of Congress, the power to ban it altogether. Retail stores would have to apply for licenses to sell tobacco, and tobacco companies would have to disclose all corporate documents about their product, which would then be placed in a national depository for public use. Interests In addition to the tobacco companies, other interests would be affected. Trial lawyers for plaintiffs in individual and class action lawsuits would receive a financial windfall. To avoid the public fallout and demands for accountability associated with the payment of extremely large fees, the bill created a payment mechanism whereby three "arbitrators" representing lawyers and tobacco companies would determine the actual payment figures. In addition, tobacco companies agreed to provide the class action lawyers, who were instrumental in the agreement, an annuity of up to $500 million a year.37 State attorneys general who had filed state lawsuits wanted S.1415 to pass for two reasons. The first was to recover damages associated with smoking that could be used to cover state Medicaid expenses. The second and more subtle reason was the expectation of political gains from public sentiment for helping to pass what was being promoted as a major blow against the tobacco industry.
Foremost among the bill's supporters were dozens of antismoking groups, including the Coalition on Smoking OR Health, Americans for Nonsmokers' Rights, Action on Smoking and Health (ASH), Airspace, The BADvertising Institute, Smoke*Screen, the National Center for Tobacco-Free Kids, Effective National Action to Control Tobacco (ENACT), the American Heart Association, and the American Lung Association. Wholesalers would be hurt by the per-pack excise tax provision because of the way the tax was to be collected. Wholesalers would have to extend credit to many retailers, and the book value of wholesalers' inventory would be higher, resulting in higher insurance costs and "shrinkage" (theft). In estimating the damage at $367 million over 5 years, the American Wholesalers Marketers Association's spokeswoman, Jacqueline Cohen, explained, "Your shrinkage will grow."38 Cigarette-only stores would benefit under the proposed legislation because they would be exempt from point-of-sale promotional restrictions that would affect other retailers. Some of these stores were "adult bookstores." Convenience stores would be hurt by the excise tax and the registration requirements. Convenience store cigarette sales accounted for approximately 40 percent of U.S. cigarette sales, and cigarettes alone comprised 20 percent of the average convenience store's total business.39
A 1997 Department of Agriculture study confirmed the suspicion that many of these stores would likely not survive price and distribution reforms such as those included in S.1415. The National Association of Convenience Stores, an international trade association, represented almost 3,300 convenience store operators, petroleum marketers, and suppliers, with 63,000 convenience stores around the world. In 1996 the convenience store industry posted $151.9 billion in sales.40 Grocery chains would also be hurt, since tobacco companies currently paid $2 billion annually in slotting fees to obtain prime placement for their products. Grocery retailers were organized in a number of associations, including the Food Marketing Institute (FMI)-a trade organization of over 100 grocers, including Giant-Eagle, Dominick's, PigglyWiggly, Safeway, and Tom Thumb. The FMI's annual trade show hosted over 35,000 representatives from the supermarket industry. Additionally, the National Grocers Association had a membership of 2,060 and a budget of $5 million. It had food retailer members in 50 states and also included 60 wholesale food distributors. The advertising industry would also be affected. By one account, tobacco advertisements and promotions totaled $5 billion, and the provisions of S.1415 chipped away at virtually every advertising approach used by firms.41
Although print advertisements only generated $20 million in revenue, the prohibition on billboard advertising would eliminate $290 million in revenue. Point-of-purchase displays would also be prohibited and would reduce retailer revenues from slotting fees. The American Association of Advertising Agencies, with membership of 6 percent of the 13,000 U.S. agencies, accounted for 75 percent of advertising revenue in the United States.42 Tobacco farmers naturally opposed S.1415, but a 1997 Department of Agriculture study found that the preponderance of jobs attributed to tobacco were in the retail and wholesale trade-not in farming per se. Furthermore, the bill as drafted was sensitive to farmers' concerns, providing transition payments for them. Meanwhile, the foreign market for cigarettes continued to grow. Concert promoters would be rocked by the expected loss of underwriting, which was dependent on prominent displays of advertisements. Likewise, organizers of golf tournaments would be driven to find alternative sources of underwriting revenue, while the net proceeds for tennis promoters would decline. Not even universities escaped the reach of tobacco politics. By one estimate as many as 70 percent of university portfolios included tobacco stock, and some portfolio managers began to contemplate alternative investment strategies due to heightened public antitobacco sentiment and/or reduced profitability of tobacco firms. Harvard and Johns Hopkins had already divested, and Yale's board of trustees considered selling $16.9 million of tobacco stock from its $6 billion portfolio.
1. For each of the following groups, assess the likelihood that it will engage in nonmarket action on S.1415, and identify the specific cost and/or benefit characteristics underlying your assessment: smokers, tobacco companies, tobacco farmers, trial lawyers, antismoking groups, cigarette-only stores, grocery stores, convenience stores, advertising agencies, concert and event promoters, and universities.
2. Using the Wilson-Lowi matrix, what kind of politics best characterizes the activity surrounding McCain's bill?
3. Assess the prospects for coalition formation.
4. What outcome do you predict for the bill and why?