What’s in Suing Big Tobacco?: The states interests may not always be the community’s interests

Commentary, Taxation, Marco Navarro-Genie


The Alberta government recently announced that it will join a rushing posse of provincial governments in multibillion-dollar lawsuits against tobacco companies in Canada. Their declared aim is to recover health costs of illnesses caused by tobacco consumption. But even with such good intentions, grabbing even more money from big tobacco will do nothing for the health problems tobacco and expanding governments create.
Some have rightly identified as hypocrisy the conflicted dimensions in the governments’ attack on tobacco companies. It is at least fickleness since tobacco is a legal substance: governments license its growers, manufacturers, and sellers. 
The numerous layers of conflict chafe against ethical boundaries. Governments in Canada profit the most from tobacco. They receive nearly $9 billion in taxes from tobacco these days while the companies make a paltry (by comparison) $1.5 billion a year.
Governments also gain more than money in the regulation of tobacco through the employment of a sizeable public service. An even greater division of government employees (doctors, nurses, hospital administrators and health technocrats) cares for the sick and dying resulting from tobacco consumption. About 4,500 people a year die from it in Canada.
Worse yet, state-run medicine already compromises the relationships between patients and doctors by having the anonymous third party pay for services at no direct cost to user and provider. The relationship between doctor and a patient suffering from tobacco usage is compromised so much more because the state licenses the harm-causing substance while profiting from it. 
I’m not suggesting that governments give tobacco companies a free pass, but the wisdom of having governments grab more from manufacturers of a substance they openly permit needs questioning in light of these conflicts of interests.
The last time (in the 1990s) government policy dramatically affected Canadian tobacco supply, it sparked a massive wave of cigarette smuggling across the US border, flooding the market with cheap cigarettes, further enriching organised crime and questionable groups. 
The trigger for the surge in demand of black market tobacco was nothing less than a big tax hike. One lesson in the 1990s tax-hike fumble was the unintended reduction of government revenue as more people turned to smuggled cigarettes. The lesson within the lesson is that governments in Canada are addicted to tobacco tax revenue, and they won’t willingly give it up.  
While the mega lawsuits against the tobacco industry are dressed up as caring for public health, they are fundamentally about revenue dependency. These lawsuits involve hundreds of billions of dollars, which Canadian tobacco companies can’t afford to pay on yearly profits of $1.5 billion. Governments will have to settle for payments spread over decades (perhaps across centuries) and will consequently remain interested in keeping tobacco companies afloat. 
State dependency on tobacco revenue creates a perverse incentive for governments to seek stable cigarette sales. If the tobacco companies went bankrupt, governments would lose the thing they covet most with their lawsuits, and they would have to make up for it by raising taxes elsewhere or curtailing services. Both of these choices have undesirable political cost.
Now that governments have received court endorsement to squeeze greater sums out of legal enterprises for the sake of public health, governments gain enormous power easily extendible to other industries. And if perchance big tobacco does collapse, others will be made to take its place. Alcohol is first to come to mind. It is well established that alcohol, when abused, harms our health. The fact that all governments in Canada profit handsomely from its sale will not be an obstacle. Cellular phone makers, snack manufacturers and fast food chains may soon be next. 
Canadians are fickle. Albertans ought to pay close attention. Think of how popular and appealing tobacco was only a generation ago. Many around the world already think that our oil industry is poisoning the planet and all species on it. Health wise, the alleged planetary demise is surely many orders of magnitude worse than what the tobacco industry is accused of. 
The combination of a fickle public with governments unable to live within their means is a dangerous one.  The state’s addition to tobacco revenue serves as a warning that public policy endorsed by vast majorities (or courts) against an unpopular but wealthy group can easily become corrupt.
Meanwhile, the machinery of government gains and grows in the process of protecting us. Attacking tobacco really shows how the machinery can harm us even while it claims to protect us.