Tobacco Documents Online

Curbing the ~ Govern~_r~ts and the Econor, ',,, Dra~4 • February I: Draft only, noi foreitation o_~_r ci_~culation Thtadocume~lthasarestrtcted~d:tr::nltioP'n~~~1~'~'~'~ '-'-~''~ ..... ~a~ed ~ recipients o~ ~f~ma, we of their o~cial duti~. Its conten~ m~ not othe~R¢ be disci~~ authorization in the form of written permi3sion ~om Prabhat Jha, T~k Team Leader 321422960

rbmg the eptdem~c: : Govern)~t__s and the Economics of TobacCo Control February 1999 Draft only, not)~e~culation Documen~the World Bank ~ This do~ment h~ a r~tricted distribution an~ ~ed by recipients ~ ~~mance of their o~eial d~ti~. Its contcnt~ m~ hoe oth~is~ b~ discl~ Ban~ authorization, in the form of wr~tt~n perm~sion from Prabhat Jha, r~k re~ Leader 321422961

Foreword and team members 1. Introduction: the purpose of this report 2. Executive Summary 3. Global trends in tobacco use 3. I Rising consumption in low-income and middle-income countries page xx 3.2 The impact of trade liberalization page xx 3.3 Tobacco use is increasingly associated with poverty page xx 3.4 Patterns of tobacco use by region, gender and age page xx 4. The health consequences of smoking page xx 4. I The addictive nature of tobacco use page xx 4.2 Long-term disease cause~by smoking page xx 4.2. l Damage to smokers themselves page xx 4.2.2 Damage to non-smokers page xx 5. Do smokers know their risks?page xx 5.1 Awareness of the health hazard~ is a deterrent to tobacco use page xx 5.2 Factors that complicate the relaticmship between knowledge and demand page xx 5.3 Predicting the impact ofinforrnafion in developing countries page xx 6. Is there an economic rationale for intervening in the tobacco market? page xx 6.1 Counting the costs of smoking page xx 6.2 Market failures and the grounds for intervention page xx 6.3 What types of intervention should be considered? page xx page xx page xx page xx page xx 7. Measures to reduce demand can succeed--and raise dollars page xx 7.1 Reducing demand by raising the price: tobacco taxes page xx 7.2 Reducing demand with improved health information page xx 7.3 Reducing demand with restrictions on smoking in public places and the workplace page xx 7.4 Nicotine replacement therapy page xx 7.5 Conclusion 8. Most measures to reduce supply will fail page xx 8.1 Policies with a low probability of success page xx 8.2 Control of smuggling remains a priority page xx 9. Is tobacco control ~vorth paying for? page xx 9.1 The impact of falling demand on consumer welfare and jobs page xx 9.2 The cost-effectiveness of interventions page xx 10. An agenda for action page xx 10.1 Overcoming barriers to change page xx 10.2 Research priorities page xx 10.3 Recommendations for action page xx Three components of tobacco control at national level page xx An agenda for international action page xx 321422962

List of Boxes List of Tables List of Figures Background papers, meetings and acknowledgements Annexes 321422963

Foreword Pending The Report Team This Report has been prepared by a team led by Prabhat Jha and Frank J. Chaloupka, and comprising Phyllida Brown, Son Nguyen, Jocelyn Severino-Marqucz, Rowena van der Merwe and Ayda Yureldi. Phillip Musgrovc, Thomas E. Novotny, Kent ganson and Abdo S. Yazbcck provided valuable contributions and advice. This work benefited from substantive early work on tobacco at the World Bank by Howard Barnum. Input from the World Health Organization was coord'~nated by Derek Yach, and input from the US Centers for Disease Control and Prevention was provided by Michael Eriksen. The work was carried out under the general direction of Helen Saxenian, Chris Lovelace and David de Ferranti. ". ': The production sta.ff of the Report includcd.=~ The Report benefited from input from an External Advisory Panel (see acknowledgements) and from many others inside and outside the Bank. Their work is gratefully noted here. External review meetings were held in Bcijing, China in August 1997, Cape Town, South Africa in February 1998, Lausanne, Switzerland in November 1998, and Washington, USA in March 1999. Fred Paccaud hosted the Economists Technical Review Meeting in Lausanne. Support for this report came from the Human Development Network, the Institute for Social and Preventive Medicine, University of Lausanne, and the Office on Smoking and Health at the US Centers for Disease Control Their assistance is warmly acknowledged. Draft: Not for circulation or Citation 321422964

I. Introduction: the purpose of this report Tobacco is expel:ted to become the single biggest cause of death worldwide within the next 20 years, with most of the burden borne by middle and low-income countries. Yet few national governments or international agencies have developed their responses to this global epidemic. Many policy makers have not taken steps to control tobacco because of fears that their action would have undesirable economic consequences. For, whereas there is now little dispute about the damaging impact of tobacco on health, debate about its contribution to national economies is growing. Some policy makers fear that raising taxes on tobacco to reduce demand would simply reduce government revenue or much more tobacco smuggling, lhdeed, the tobacco indus, try itself has increasingly used the~e arguments as it has shifted the substance of its opposition to tobacco control policy into the territory of economics. The World Health Organization, the principle international agency on health issues, has taken a clear lead in responding to the epidemic with its Tobacco Free Initiative. The World Bank aims to work in parmership with the lead agency, offering its particular analytic resources in economics. Since 1991, the World Bank has had a formal policy on tobacco, in recognition of the harm that it does to health. The policy (explained in more detail in Box 10.3) discourages lending on tobacco and encourages control efforts. At the 10th World Conference on Tobacco, in Beijing, China, in August 1997, the World Bank organized a consultation session on the economics of tobacco control. The meeting was part of an ongoing, two-year ~-eview of the Bank's own control policies. There was clear recognition at this meeting that insufficient global attention was being paid to the economics of reducing tobacco consumption in response to the global epidemic of smoking-related deaths. The meeting's participants also agreed that the discipline of economics was not being applied to tobacco control in many countries, and that even where economic approaches were being used, their methodology was of variable quality. At the same time that the World Bank began reviewing its policies on tobacco, economists at the University of Cape Town had begun a project on the economics of tobacco control for Southern Africa. These initiatives were brought together, in partnership with Fred Paccaud at the University of Lausanne in Switzerland and others, to form a wider project for a larger audience. The South Africa work culminated in a conference in Cape Town in February 1998. The proceedings of that conference are published ("The Economics of Tobacco Control: Towards an Optimal Policy Mix". Abedian et al, University of Cape Town, 1998). This report summarizes the policy implications reached as a result of a set of studies on the economics of tobacco control which grew out of the collaboration, and which will be published shortly ("Tobacco Control Policies in Developing Countries'" Jha P, and Chaloupka F J, editors, Oxford University Press, forthcoming late 1999). Draft: Not for circulation or citation 321422965

intended for ministers of economics, finance, trade and commerce, but its other readers may include health ministers and others. Importantly. this report offers striking new evidence of the impact of tobacco on the health and life expectancy of poorer people. The study focuses largely on economic issues It makes no attempt, beyond summarising the latest research, to add to the already extensive literature on the health consequences of tobacco, which are well established in most developed countries Nor does it at'tempt to provide psychosocial analyses of smoking behaviour, on which economic theory has little to say, leaving this important subject for others to discuss else,,~here. The purpose of this report is to provide an informed discussion of the modest, simple and effective economic measures that are possible to stem a growing ancl unprecedented epidemic. Draft: Not for ¢U'cuiauon or citation 321422966 BATCo t. S DOJ v Philip Morris

2. Executive Summary Tobacco is already killing some 4 million people a year. By the time today's children reach early middle age, it is expected to account for one in three of all adult deaths, more than any single disease. By 2030, perhaps a little sooner, 10 million people will die of tobacco-related disease each year-roughly equal to the current combined mortality from diarrheal disease, malaria, pneumonia and tuberculosis. The accelerating epidemic of tobacco-related disease and premature death will not, in the main, be borne by the rich countries. By 2020, 70 per cent of each year's deaths will be in low.income and middle-income countries. Half of these deaths will be in productive and socially important middle age (35-69), losing two to three decades of life both. While few people now dispute the damage that tobacco does to health, debate about the economic consequences of smoking continues. What are the costs of tobacco to society? Who bears those costs? What is smoking worth to smokers? Is tobacco a consumer good like any other or is it different because of i~s"addictivc component, nicotine? Are governments justified in acting to reduce tob~,cco consumption? Can their policies succeed, or will they destroy jobs, squeeze government revenues downward and encourage smuggling? The report addresses these economic questions. It concludes that the social costs of tobacco are large and growing and outweigh the value of smoking to smokers and producers. It argues that tobacco is not a typical consumer good and that governments are justified in intervening in the market. Drawing on the evidence from various countries and from economic models developed for this study, the report identifies the most effective policies and their potential impact, globally and in each region, on cigarette consumption and on tobacco-related deaths. Effective policies to reduce the demand for tobacco include raising taxes, imposing bans on advertising and promotion, improving warning labels and other health information for consumers, restricting smoking in public places and the workplace, and widening access to nicotine replacement therapy. Not only could these measures prevent millions of deaths among smokers alive now--an impact on a scale virtually unparalleled by conventional health measures--but they are also highly cost-effective. In contrast, the report warns, there is little to be gained from measures intended to reduce the supply of tobacco, such as crop substitution policies or trade restrictions. The concerns that have prevented governments from acting to reduce tobacco demand for fear of harming the economy are largely unfounded, the report concludes. Most economies would be unharmed overall by a reduction in tobacco consumption, and the handful of countries in which there would be net job losses would be able to adjust over a generation, not overnight. Imposing higher taxes would not erode Cigarette tax revenues; in fact, they would grow in the short-to-medium tenn. Fears that higher tobacco taxes would simply ifi.crease the illegal trade in smuggled cigarettes are also exaggerated. 321422967

The report begins by summarizing briefly what is known about trends in smoking worldwide and the effects of smoking on health, both in terms of addiction and long-term disease. It describes how people's knowledge of the health effects of smoking mediates their demand for tobacco. It discusses the economic rationale for intervening in the tobacco market and then examines various measures for doing so. It weighs the costs of implementing these measures against their potential gains, and then makes recommendations for governments and international agencies. Trends in smoking An estimated 1.1 billion people worldwide smoke, 80 per cent of them in low-income and middle-income countries. Although tobacco consumption is declining in the high-income countries, it has risen elsewhere, on ayerage by 3.4 per cent per year over the last two decades. Freer trade between nations'is contributing to increased tobacco consumption in low-income and middle-income countries, though not in high-income countries. The habit of smoking is almost always acqui.r.cd in youth or early adulthood. In the USA, 80 per cent of smokers begin bcforc the age of l 8. Poor people in industrialized countries are now more likely to smoke than rich people, a reversal of the pattern in thc early decades of the twentieth century. While this association between smoking and poverty may not be established worldwide, it has nevertheless been observed recently in several large low-income and middle-income countries, for example China and Brazil. The health consequences Nicotine addiction. One component of tobacco, nicotine, is an addictive substance as defined by major medical organizations. Nicotine addiction is established rapidly after the start of smoking. In the USA, studies suggest that four out of five teenage smokers believe that they will have quit in five years' time. In reality, almost half of the would-be quitters still smoke five years later. Studies in several industrialized countries show that around g0 per cent of adult smokers regret having started, and would like to stop. However, success rates for quitting arc comparatively low: about 97 per cent of smokers who try to quit unaided will have started again within 6 months. Long-term disease. About half of all smokers will eventually be killed by their habit, according to studies in the industrialized countries and China. Half of those killed will die in productive middle age, losing perhaps 2 or 3 decades of life. Major fatal diseases that are strongly associated with smoking in industrialized Western nations include lung cancer, heart disease, emphysema and various other types of cancer. In China, heart disease is a less significant cause of death, while emphysema and other chronic airway diseases are more important. Among Chinese smokers, deaths from tuberculosis equal that from heart disease. Since poor people are more likely to use tobacco than rich people, they are also more likely to be harmed by it. Analyses for this report show that, in Canada, Poland, the USA, Draft: Not for circulation or cttation 321422968

and the UK., tobacco may be responsible for at least half the widening gap between rich and poor men's risks of premature death between ages 35-69. Tobacco affects the health of non-smokers too. Babies born to smoking mothers arc at greater risk from respiratory diseases, have lower birth weights, and are more likely to dic of sudden infant death syndrome than babies born to non-smokers. Adult non-smokers exposed to tobacco face slight but real increased risks of respiratory disease and cancer. Non-smokers also face nuisance costs from unwanted smoke. Knowledge and tobacco In general, the greater individuals' knowledge and understanding of the health effects of smoking, the less likely they are to smoke. Two types of study provide the evidence for this assertion--those that monitor trehds over time, and those that examine smoking bchaviour at any one time across different socioeconomic groups in a society. For example, time-based studies in the industrialized nations have shown a steep decrease over the past three decades in the number~)f educated people who smoke; whereas less educated people have reduced their tobacco,consumption only slightly. Cros~-scctional studies from high-income and low-income Countries alike, rangifig from the USA to Taiwan to Nigeria, show that tobacco consumption is greater at any one time among those with only basic education than among those with higher education. It might appear that the health effects of smoking are now universally known. This is not the case, however. A study in China in the mid-1990s found that six in ten of smokers questioned there believed that tobacco did them "little or no" harm. There is also widespread ignorance about the types of disease that smoking can cause. Even for those who have access to health information, however, the relationship between knowledge and demand is complex. Studies assessing individuals' perception of the risks they face from smoking reach different conclusions, but the most widely accepted of these find that people tend to underestimate the hazards of tobacco relative to other perceived risks. Whether they estimate the statistical risks accurately or not, they may fail to internalize those risks, believing themselves somehow exempt from the statistics. Perhaps the greatest problem is that teenage smokers and young adult smokers tend to discount the future more heavily than adults, placing a much lower value on life lived in the future than on life lived in the present. Thus, at the time that they are most likely to adopt smoking, they are also least likely to believe that it will harm them. Once they have a more accurate risk perception, they are likely to be addicted to nicotine. The discipline of economics has comparatively little to offer in understanding how to overcome this problems, but this report acknowledges its significance. there an economic rationale for intervening in the tobacco market? From the standpoint of public health, the world would undoubtedly be better off without any tobacco at all. From the standpoint of economics, however, the situation is more Draft: Not for circulation or citation 321422969