Whenever I used to think of nationalising industries, I would think of industries relating to critical infrastructure or ‘prestige industries’. Reading the following threw my intuitions overboard!
A tobacco industry buy-out
In the current model, the tobacco industry has a corporate mission of selling unhealthy products so as to profit its shareholders. Its aims and purposes are intrinsically misaligned with the public good and will ever remain so. However, if the tobacco industry were nationalised, with the intent of winding down operations, the interests of those providing tobacco and public health would be aligned.
For the amount of health harms caused, the tobacco industry is not highly profitable. The total profit of the three major tobacco companies in Australia in 2007 was $600 million on assets of $3.6 billion.27 The profit per tobacco related death was approximately $20 000. Profits must decline in time as smoking rates fall as intended. Based on asset base and a reasonable profit to projected earnings multiple, a buy-out in Australia might cost in the range of $5 billion. Estimates of the cost of nationalisation in Canada range from $0–15 billion.28 Purchase could be sweetened by protection from civil litigation. Even if it costs of the order of several billions, it would rapidly return that in terms of quantifiable reductions in healthcare costs.
Ugh. Improper aggregation abounds here. There are three main interested parties in a commercial endeavor: the shareholders, the employees, and the customers.
Measured profit, discounted and extended far in to the future (the AU$5B mentioned) covers only the shareholders. This seems like the much smaller set of stakeholders. The economic value to employees is likely much larger, and the imputed value to smokers, as measured by the amount they’re willing to pay, greater still.
imputed value to smokers, as measured by the amount they’re willing to pay, greater still.
Inferring preferences of addicts by ‘revealed preference’, that is, what they are willing to pay, is methodologically inadequate. They are characteristically time-inconsistent (to behavioural economists) or dynamically inconsistent (to game theorists)
The economic value to employees is likely much larger
I don’t rate the economic empowerment of tobacco industry employees particularly highly. I doubt they’re ethical consumers if they’re such unethical producers.
cohort of over 8000 adult smokers....The proportion of smokers who agreed or agreed strongly with the statement “If you had to do it over again, you would not have started smoking” was extremely high—about 90%—and nearly identical across the four countries.
The problem with ignoring these real humans’ desires is that your buyout plan fails. You can only pay off the current shareholders, and without some form of more serious government intervention, the employees and consumers will cause NEW enterprises to replace them.
And if you’re going to use the government mandate hammer to prevent that, why not just use it in the first place rather than spending the buyout money?
The existing tobacco companies are real assets that require compensation if they are nationalized, while the right to create new companies does not require compensation if it is destroyed.
You might also ask why people don’t create new American tobacco companies to acquire the advertising rights that existing companies gave up in Master Settlement.
A lot depends on what the “real assets” are. They have no property right in future revenue if customers choose to buy somewhere or something else. They may have contractual rights to a monopoly, which could be purchased (but which is pretty suspect to start with). They do likely have property rights in plant (heh) and equipment, which will be a natural barrier to competitive entry.
and without some form of more serious government intervention, the employees and consumers will cause NEW enterprises to replace them.
Perhaps you should read the link. The argument is that the existing industry can be bought out and replaced by a nationalized agency that, because of reconciled incentives (the same government which is earning the income must also pay most of the healthcare costs, which vastly exceed the profits) can engage in strategies to manage the demand consistently downward with a variety of strategies such as reduced advertising, reduced nicotine content, or higher prices, which reduce the number of people who want tobacco products. If there is no demand because people have not gotten addicted and there are other substitutes for it*, then there is no reason to expect a black-market of large enough scale to make a meaningful difference to public health; if at the end of the managing down of the current 3m smokers, there’s a small black-market of 10,000 people supported by cheaper stronger foreign cigarettes smuggled in through airports—then public health Mission Accomplished.
It’s true that for many popular drugs, regulations or banning can have backlashes, but it’s also possible for some drugs to just fade away or people rationally substitute similar but better drugs; the research chemical scene churns out hundreds or thousands of new drugs, many of which enjoy a brief burst of popularity until they get banned or people move on to the next new thing. The author gives some relevant examples from public health:
It is possible to combine restrictions on additives and nicotine delivery. The effect would be to reverse the development process of the modern cigarette, which could be effective. Removing the addictive elements of a harmful product is neither novel nor revolutionary. Compulsory reformulation of compound analgesics and the eventual ban on over-the-counter sales in the late 1970s effectively reduced consumption and were followed by dramatic reductions in analgesic nephropathy and other harms of compound analgesic abuse.25 It stands as one of the great achievements of public health by regulation. Importantly, the products were never banned outright but use just faded away. Control of petrol sniffing and other volatile substance use in Australian Indigenous communities is another example. Although a number of interventions and educational actions had been undertaken, it was fuel substitution finally culminating in the implementation of OPAL fuel that saw reductions in sniffing of the magnitude of smoking reductions that are required to reverse health harms.26 Although other actions will be required, only the elimination of a tolerable, addictive cigarette will truly address the harms of smoking in the most vulnerable groups and is the cheapest, effective action as the full costs are transferred to the tobacco manufacturer.
It’s remarkable to see you attack it as a proposal for a full illegalization when in the first first section of the preface, the author denies that as a suggestion and warns that pro-tobacco people will try to strawman proposals into prohibition:
That said, an outright ban is a very easy target for the arguments of the opponents of tobacco control. In general, prohibition has not been an effective strategy to eliminate use of other substances. It can easily be crafted by the tobacco industry as an affront to liberty or as counter to the autonomy of individuals. On those grounds, it will probably not be the answer. A separate consideration is whether some tobacco products presently available should be restricted or banned. Oral or chewing tobacco is banned in Australia but used widely in some other countries. There is thus a precedent.
* funnily enough, I think ‘substitutes’ here is as broad as smartphones. One of the major uses of tobacco products has always seemed to be as something to do with your hands, kill time, and idly socialize with others (as suggested by smoking studies where nicotine-free cigarettes offer relief, indicating that tobacco addiction is as much about the habit and activity as the actual chemical contents), and smartphones can do all 3 at once.
We use cigarettes for way more than effect (cause lets face it-the ‘buzz’ sucks), they serve as a social lubricant, and an excuse to stand outside and stare at things without seeming like a moron.
funnily enough, I think ‘substitutes’ here is as broad as smartphones. One of the major uses of tobacco products has always seemed to be as something to do with your hands, kill time, and idly socialize with others (as suggested by smoking studies where nicotine-free cigarettes offer relief, indicating that tobacco addiction is as much about the habit and activity as the actual chemical contents), and smartphones can do all 3 at once.
The myth in the tobacco industry’s economic importance argument is that a significant economic presence necessarily implies significant economic dependence. Implicit in the industry’s argument is the notion that a decline in tobacco economic activity will entail a comparable decline in the economy. However, when resources are no longer devoted to a given economic activity, they do not simply disappear into thin air; rather they are redirected to other economic functions.*
There are three main interested parties in a commercial endeavor: the shareholders, the employees, and the customers.
The employees and customers have no property rights, and the latter are a shrinking minority of the population with little political power to fight any nationalization (as evidenced by their failure to beat the many onerous regulations successfully put in place already). The former employees have somewhat better a chance to organize, but the best estimate I can find of the total number of employees is ~2100, who likewise have failed to stop the creation of the existing regulations; tobacco is no longer grown commercially in Australia, so you can ignore the farmers as they are overseas and are ill-placed to affect Australian politics and also suffer from steep coordination costs.
Measured profit, discounted and extended far in to the future (the AU$5B mentioned) covers only the shareholders.
Who are the ones who can most easily lobby against it and have the property rights which would be seized in a nationalization, and hence the NPV of their stake is the most important figure.
The economic value to employees is likely much larger,
What, all 2100 of them? ‘much larger’? You think each one values that exact job at >$23.8m (5000000000/2100 ~> 23,80,952.381)? The Australian economy has been consistently good for a long time now, so they can find other jobs in manufacturing and marketing, meaning the marginal value of the job existing is not going to be that high to them even if they were guaranteed lifetime employment.
and the imputed value to smokers, as measured by the amount they’re willing to pay, greater still.
No one believes that their willingness to pay reflects their true utility, and that’s why tobacco is getting regulated out of existence.
Dagon’s points are very good. There’s another aspect as well:
Tobacco import and distribution (and in some cases, production) are already nationalized in many countries, especially in the EU. National governments try to impose artificial scarcity (winding down operations, tax increases, fixed pricing), and this makes the statistics look better—officially monitored tobacco sales decrease.
Artificial scarcity cannot last: a black market of RYO tobacco, and home-made cigarettes of dubious origin is always ready to serve customer demands. In the end, the health effects of nationalizing the tobacco industry, and winding down operations, can easily be negative.
Artificial scarcity cannot last: a black market of RYO tobacco, and home-made cigarettes of dubious origin is always ready to serve customer demands.
True, but if it’s less than the total market that existed before hand, that’s still a public health gain
In the end, the health effects of nationalizing the tobacco industry, and winding down operations, can easily be negative.
It can be, but that’s just not the best supported hypothesis. The weight of evidence best demonstrates that control measures have thus far been quite uniformly positive.
The weight of evidence best demonstrates that control measures have thus far been quite uniformly positive.
I see. The black market effects are well-documented, but I am not familiar with evidence which shows that control measures have any measurable effects on public health. Where could I find that data?
I mean nationalized, as in the distribution of tobacco products (imports, wholesale, retail) is handled by companies that may or may not have been private at some point, but are now property of the state.
What quantifiable reduction in healthcare costs? Everyone dies once; unless death by old age is substantially cheaper than death by lung cancer, dying later wouldn’t decrease healthcare costs at all. Furthermore, if they die later, they consume more Social Security and other things generally consumed by older people. Letting them die of lung cancer can save money.
Furthermore, if they die later, they consume more Social Security and other things generally consumed by older people.
If human life is valueless, then there are even greater savings to be had than allowing tobacco use or subsidizing extreme sports...
unless death by old age is substantially cheaper than death by lung cancer
It is. Ignoring the costs of dying years earlier to the person in terms of DALYs/QALYs, smokers work less, are less healthy, have more comorbidities, worse outcomes from treatment, their cancers are long-lasting and require more expensive treatment than other things nonsmokers would die from (compare months or years of fighting lung cancer in your 50s to dying of a stroke while asleep in your 80s). ‘compression of morbidity’/rectangularization might also imply that diseases in late life will generically be cheaper because they are more likely to be quickly fatal and periods of disability shorter.
For lifestyle interventions to reduce healthcare costs you should incentivize people, especially older people, to take up extreme sports. For the best savings you want people to suddenly die just as they are starting to get sick more often.
I would recommend subsidies for things like ultralight airplanes, BASE jumping, fist-fighting sharks, and competitions to see who can get the furthest into the open ocean before his ice floe melts...
I think there were be different strata of marajuana legalisation advocates who would be satisfied with different things. But when I put forward a policy position, it isn’t to maximise political tractability, but rather to maximise public health gains. Political tractability can itself be advocating for with spin, coalitions, maneuvering and other such politics.
The fact is. marajuana is not tobacco. They are not interchangeable, in the same way that meth and marajuana aren’t interchangeable, or chocolate for that matter. They all have different weights of costs and benefits.
Oh, maximising public health gains would probably require force-feeding vegetables (in prison, if necessary) and mandatory exercise (ditto). But in the meantime you can start by banning sugar.
keep things simple, but never simpler than they are
force-feeding vegetables (in prison, if necessary) and mandatory exercise (ditto). But in the meantime you can start by banning sugar.
because that wouldn’t maximise public health gains. Would people be overall less or more happy? It’s pretty obvious and that’s a pretty dumb solution.
Bans are bad because smoking is addictive and withdrawal is harmful. It would be cruel. This kind of black and white thinking and slippery slope argumentation is really suprising to see on LW.
edit: maybe you’re on to something. Take a read of this about options for a tobacco endgame. The number of good options available to the regulatory community is sufficient to make any gentle-nudge policy researchers and advocates feel like they’re wasting their time (and maybe they are!)
You realize that there are pretty relevant differences between tobacco and marijuana other than the latter being “currently fashionable”? (assuming it actually is—it doesn’t look like it’s much more popular than tobacco or than it was 50 years ago to me, at least here in [country redacted])
(assuming it actually is—it doesn’t look like it’s much more popular than tobacco or than it was 50 years ago to me, at least here in [country redacted])
I said “fashionable” not “popular”. I have no idea which is more popular, I mean fashionable in the sense of high status.
Are you seriously saying that there is a sizeable fraction of people who regularly smoke marijuana but not tobacco? I haven’t met many, whereas I have met plenty of people who smoke both or neither.
I’m not sure that distinction is relevant to the point under discussion, which isn’t about reality so much as it is about how perceived “coolness” informs people’s ideas about what policy proposals are reasonable.
Who is considering what policy reasonable for tobacco but overly restrictive for marijuana, or reasonable for marijuana but overly liberal for tobacco?
Marajuana is only high status in certain sub cultures and low status in others and among the general public, unless it’s for medicinal use. I’d estimate it’s overall far more less status.
Here is another hint: Replace “Eugine Nier” with “OId Gold” (or Alternatively “Azathoth123”, “VoiceOfRa” or previous incarnations of “Username2”). Note how your karma changes.
Whenever I used to think of nationalising industries, I would think of industries relating to critical infrastructure or ‘prestige industries’. Reading the following threw my intuitions overboard!
A tobacco industry buy-out
-http://www.racgp.org.au/afp/2012/november/towards-an-endgame-for-tobacco/
Would the tobacco industry be for or against this? Would there be an opposition except from deontological libertarians?
Ugh. Improper aggregation abounds here. There are three main interested parties in a commercial endeavor: the shareholders, the employees, and the customers.
Measured profit, discounted and extended far in to the future (the AU$5B mentioned) covers only the shareholders. This seems like the much smaller set of stakeholders. The economic value to employees is likely much larger, and the imputed value to smokers, as measured by the amount they’re willing to pay, greater still.
Inferring preferences of addicts by ‘revealed preference’, that is, what they are willing to pay, is methodologically inadequate. They are characteristically time-inconsistent (to behavioural economists) or dynamically inconsistent (to game theorists)
I don’t rate the economic empowerment of tobacco industry employees particularly highly. I doubt they’re ethical consumers if they’re such unethical producers.
edit: if you’re interested see this:
The near-universal experience of regret among smokers in four countries: Findings from the International Tobacco Control Policy Evaluation Survey.
The problem with ignoring these real humans’ desires is that your buyout plan fails. You can only pay off the current shareholders, and without some form of more serious government intervention, the employees and consumers will cause NEW enterprises to replace them.
And if you’re going to use the government mandate hammer to prevent that, why not just use it in the first place rather than spending the buyout money?
The existing tobacco companies are real assets that require compensation if they are nationalized, while the right to create new companies does not require compensation if it is destroyed.
You might also ask why people don’t create new American tobacco companies to acquire the advertising rights that existing companies gave up in Master Settlement.
A lot depends on what the “real assets” are. They have no property right in future revenue if customers choose to buy somewhere or something else. They may have contractual rights to a monopoly, which could be purchased (but which is pretty suspect to start with). They do likely have property rights in plant (heh) and equipment, which will be a natural barrier to competitive entry.
Perhaps you should read the link. The argument is that the existing industry can be bought out and replaced by a nationalized agency that, because of reconciled incentives (the same government which is earning the income must also pay most of the healthcare costs, which vastly exceed the profits) can engage in strategies to manage the demand consistently downward with a variety of strategies such as reduced advertising, reduced nicotine content, or higher prices, which reduce the number of people who want tobacco products. If there is no demand because people have not gotten addicted and there are other substitutes for it*, then there is no reason to expect a black-market of large enough scale to make a meaningful difference to public health; if at the end of the managing down of the current 3m smokers, there’s a small black-market of 10,000 people supported by cheaper stronger foreign cigarettes smuggled in through airports—then public health Mission Accomplished.
It’s true that for many popular drugs, regulations or banning can have backlashes, but it’s also possible for some drugs to just fade away or people rationally substitute similar but better drugs; the research chemical scene churns out hundreds or thousands of new drugs, many of which enjoy a brief burst of popularity until they get banned or people move on to the next new thing. The author gives some relevant examples from public health:
It’s remarkable to see you attack it as a proposal for a full illegalization when in the first first section of the preface, the author denies that as a suggestion and warns that pro-tobacco people will try to strawman proposals into prohibition:
* funnily enough, I think ‘substitutes’ here is as broad as smartphones. One of the major uses of tobacco products has always seemed to be as something to do with your hands, kill time, and idly socialize with others (as suggested by smoking studies where nicotine-free cigarettes offer relief, indicating that tobacco addiction is as much about the habit and activity as the actual chemical contents), and smartphones can do all 3 at once.
The more I read the more compelling the smartphone replaces idea stands out to me.
Perhaps it could be marketed as a replacement to ciggies. If there were to be an app that replicated this kind of function, it would be good to go:
As the users of a drug forum comparing the difficulty of quiting cigarettes to heroin say:
Never thought of that! How clever.
see small game fallacy and conjuring evolutions and your ideological assumptions begone!
Addicted consumers cannot make free choices. This makes several economic assumptions collapse when they’re used to try to analyze drug consumption.
The employees and customers have no property rights, and the latter are a shrinking minority of the population with little political power to fight any nationalization (as evidenced by their failure to beat the many onerous regulations successfully put in place already). The former employees have somewhat better a chance to organize, but the best estimate I can find of the total number of employees is ~2100, who likewise have failed to stop the creation of the existing regulations; tobacco is no longer grown commercially in Australia, so you can ignore the farmers as they are overseas and are ill-placed to affect Australian politics and also suffer from steep coordination costs.
Who are the ones who can most easily lobby against it and have the property rights which would be seized in a nationalization, and hence the NPV of their stake is the most important figure.
What, all 2100 of them? ‘much larger’? You think each one values that exact job at >$23.8m (
5000000000/2100 ~> 23,80,952.381)? The Australian economy has been consistently good for a long time now, so they can find other jobs in manufacturing and marketing, meaning the marginal value of the job existing is not going to be that high to them even if they were guaranteed lifetime employment.No one believes that their willingness to pay reflects their true utility, and that’s why tobacco is getting regulated out of existence.
Dagon’s points are very good. There’s another aspect as well:
Tobacco import and distribution (and in some cases, production) are already nationalized in many countries, especially in the EU. National governments try to impose artificial scarcity (winding down operations, tax increases, fixed pricing), and this makes the statistics look better—officially monitored tobacco sales decrease.
Artificial scarcity cannot last: a black market of RYO tobacco, and home-made cigarettes of dubious origin is always ready to serve customer demands. In the end, the health effects of nationalizing the tobacco industry, and winding down operations, can easily be negative.
Australia has a track record of doing a better job of enforcing bans than other countries. It’s a island.
True, but if it’s less than the total market that existed before hand, that’s still a public health gain
It can be, but that’s just not the best supported hypothesis. The weight of evidence best demonstrates that control measures have thus far been quite uniformly positive.
I see. The black market effects are well-documented, but I am not familiar with evidence which shows that control measures have any measurable effects on public health. Where could I find that data?
that’s not what nationalising means
I mean nationalized, as in the distribution of tobacco products (imports, wholesale, retail) is handled by companies that may or may not have been private at some point, but are now property of the state.
What do you mean by nationalizing?
What quantifiable reduction in healthcare costs? Everyone dies once; unless death by old age is substantially cheaper than death by lung cancer, dying later wouldn’t decrease healthcare costs at all. Furthermore, if they die later, they consume more Social Security and other things generally consumed by older people. Letting them die of lung cancer can save money.
If human life is valueless, then there are even greater savings to be had than allowing tobacco use or subsidizing extreme sports...
It is. Ignoring the costs of dying years earlier to the person in terms of DALYs/QALYs, smokers work less, are less healthy, have more comorbidities, worse outcomes from treatment, their cancers are long-lasting and require more expensive treatment than other things nonsmokers would die from (compare months or years of fighting lung cancer in your 50s to dying of a stroke while asleep in your 80s). ‘compression of morbidity’/rectangularization might also imply that diseases in late life will generically be cheaper because they are more likely to be quickly fatal and periods of disability shorter.
For lifestyle interventions to reduce healthcare costs you should incentivize people, especially older people, to take up extreme sports. For the best savings you want people to suddenly die just as they are starting to get sick more often.
I would recommend subsidies for things like ultralight airplanes, BASE jumping, fist-fighting sharks, and competitions to see who can get the furthest into the open ocean before his ice floe melts...
This is exactly why people say LessWrongers are crazy. Don’t you see the forest for the trees?
Crayyyyyzeeeee… Krazi? Can you fist-fight sharks in that forest?
Given the interantional nature of the tobacco industry I’m not sure how a paln to nationalize it would even look like.
Here’s a hint, replace “tobacco” with “marijuana”, or some drug that’s currently fashionable. Note, how your intuition changes.
I don’t follow. Can you elaborate?
Do you think the people advocating for marijuana legalization would be satisfied with legalization under the terms you proposed for tobacco?
I think there were be different strata of marajuana legalisation advocates who would be satisfied with different things. But when I put forward a policy position, it isn’t to maximise political tractability, but rather to maximise public health gains. Political tractability can itself be advocating for with spin, coalitions, maneuvering and other such politics.
The fact is. marajuana is not tobacco. They are not interchangeable, in the same way that meth and marajuana aren’t interchangeable, or chocolate for that matter. They all have different weights of costs and benefits.
So why didn’t you simply propose a ban?
Oh, maximising public health gains would probably require force-feeding vegetables (in prison, if necessary) and mandatory exercise (ditto). But in the meantime you can start by banning sugar.
keep things simple, but never simpler than they are
because that wouldn’t maximise public health gains. Would people be overall less or more happy? It’s pretty obvious and that’s a pretty dumb solution.
Bans are bad because smoking is addictive and withdrawal is harmful. It would be cruel. This kind of black and white thinking and slippery slope argumentation is really suprising to see on LW.
edit: maybe you’re on to something. Take a read of this about options for a tobacco endgame. The number of good options available to the regulatory community is sufficient to make any gentle-nudge policy researchers and advocates feel like they’re wasting their time (and maybe they are!)
You realize that there are pretty relevant differences between tobacco and marijuana other than the latter being “currently fashionable”? (assuming it actually is—it doesn’t look like it’s much more popular than tobacco or than it was 50 years ago to me, at least here in [country redacted])
I said “fashionable” not “popular”. I have no idea which is more popular, I mean fashionable in the sense of high status.
Marijuana is… high status?
Yes, all the cool kids are doing it.
And not tobacco?
No, tabacco is the stuff those old guys smoke.
Are you seriously saying that there is a sizeable fraction of people who regularly smoke marijuana but not tobacco? I haven’t met many, whereas I have met plenty of people who smoke both or neither.
EDIT: I think what’s going on might be that you noticed that many young people smoke marijuana and think it’s cool and many young people don’t smoke tobacco and think it’s old people’s stuff, but didn’t notice they aren’t the same people. But just because Muhammad is a common first name and Wang is a common last name doesn’t mean Muhammad Wang is a common full name.
I’m not sure that distinction is relevant to the point under discussion, which isn’t about reality so much as it is about how perceived “coolness” informs people’s ideas about what policy proposals are reasonable.
Who is considering what policy reasonable for tobacco but overly restrictive for marijuana, or reasonable for marijuana but overly liberal for tobacco?
Marajuana is only high status in certain sub cultures and low status in others and among the general public, unless it’s for medicinal use. I’d estimate it’s overall far more less status.
Here is another hint: Replace “Eugine Nier” with “OId Gold” (or Alternatively “Azathoth123”, “VoiceOfRa” or previous incarnations of “Username2”). Note how your karma changes.