Daily Doc: PM, May 27, 1987: The Industry on Taxes, Liability, ETS and More
Daily Doc: The Industry on Taxes, Liability, Ets and More
Title: Social-Political Context of Cigarette Sales and Use in the U.S. - 1987
PM, May 27, 1987
Bates #: 2050864094/4097
November 13, 2000
This document, Social-Political Context of Cigarette Sales and Use in the U.S. - 1987, is full of revelations. It analyzes the myriad problems facing the tobacco industry, including the decrease in the social acceptability of smoking, the proliferation of attempts to enact local public-smoking restrictions, product liability suits, the possibility of advertising restrictions, federal excise taxes, and legislation to require that cigarettes be fire-safe.
The document is extraordinarily prescient, and shows us the industry is able to predict the future with great accuracy. It also tells us what it fears most andwhat really works to decrease smoking rates. Here's an example:
"It is apparent that the effects of ETS on others is now the most powerful anti-smoking weapon being employed against the industry,"and,
"The problem with tax increases is that it does decrease consumption, just as desired by the social engineers posing these increases want to see."The next passage shows an eerie clairvoyance that predates theindustry'sd esign of a Master Settlement Agreement which requires that cigarette sales be perpetuated in order to make continued payments to states:
"Cigarettes are not only taxed at the federal level but at the state and possibly local level. To the extent that governmental bodies tend to regard this tax as 'cash flow' there is a degree of reluctance to destroy the industry."And, most interestingly, here is a passage that indicates what may be a primary reason theindustryhas been so reluctant to make a fire-safe cigarette:
"If legislation is passed [mandating fire-safe cigarettes] it would probably be necessary to modify several aspects of current cigarette construction. This could have a negative impact on per unit costs."Let us also not forget that one of the keys to this industry's miraculous survival has been its tendency to view threats as opportunities (one example is the introduction of filter cigarettes in response to the "health scares" of the 1950's and 60's--a move which made the industry more profitable than ever):
"This gloomy picture of 1987 and beyond must be interpreted in terms of opportunity as well as challenge....A threat to the industry can be an opportunity for the company which can find consumer acceptable answers to the types of challenges discussed in this memo."
CITATION
Title: Social-Political Context of Cigarette Sales and Use in the U.S. - 1987 (Personal and Confidential Philip Morris document)
Author R.N. Ferguson and M. Waugh
To: Strategic Planning Committee
Date: May 27, 1987
Site: Philip MorrisTobacco Document Site http://www.pmdocs.com/
Bates No. 2050864094/4097
No. of Pages: 3
URL: http://www.pmdocs.com/getallimg.asp?DOCID=2050864094/4097 (Note: this copy is very hard to read, but readability is greatly improved by using the magnification function on the site).
Found using search criteria: 'Political and Confidential'
QUOTES
1. Social Acceptability
There is convincing evidence that the public perception of risk [from ETS] in general has heightened, due perhaps to major changes in the structure of society -- weakened religion, health crazes, ageing population, etc. Whatever the reason, smoking is now perceived as a health risk to nonsmokers....
...Since the current decrease in social acceptability, and all the negatives it entails, in based on the powerful ETS weapon, we have also enclosed a one page summary on this subject as a second attachment to this memo. It is apparent that the effects of ETS on others is now the most powerful anti-smoking weapon being employed against the industry.
2. Product Liability
...Almost half of the 130 pending product liability suits involve PM and thus this issue is of substantial interest to us....In the unlikely (but possible) event of plaintiffs winning some of these cases, a deluge of suits would be spurred on by 'hungry' lawyers. It is possible that at some point in time a significant portion of the retail sales price of cigarettes would be required to fund these suits and related damage awards, i.e., a significant price increase would be necessary.
3. Cigarette Taxation
This is a complicated but critical issue. Cigarettes are not only taxed at the federal level but at the state and possibly local level. To the extent that governmental bodies tend to regard this tax as "cash flow" there is a degree of reluctance to destroy the industry. Also, many realize this is a very regressive tax, which tends to restrain some legislators (except the zealots). The problem with tax increases is that it does decrease consumption, just as desired by the social engineers posing these increases want to see.
4. Advertising and Promotion
The cigarette industry accepted a total ban on television and radio advertising in 1972. Opponents of cigarette use have convinced themselves (and some others) that a total ban on advertising would undermine the industry. It is by no means certain that the Supreme Court would not uphold such a law, despite the commercial speech interpretation of the First Amendment...
5. 'Self-Extinguishing' Cigarette Legislation Cigarettes continue to be association with a large number of fires, many of which cause loss of life and property...
If legislation is passed [mandating fire-safe cigarettes] it would probably be necessary to modify several aspects of current cigarette construction. This could have a negative impact on per unit costs. Of more concern, it would be hard to maintain subjective acceptability of our major brands if design changes were legislated into these products. This is particularly unfortunate since there is really little reason to expect any decrease in fire safety without some nationwide effort to treat fabrics with fire retardant chemicals.
Summary
The increased success of anti-smoking forces at undermining the social acceptability of smoking is a real and present challenge for our industry. Rebuttal is crucial but reversal of the flow of events depicted here is unlikely. This gloomy picture of 1987 and beyond must be interpreted in terms of opportunity as well as challenge....A threat to the industry can be an opportunity for the company which can find consumer acceptable answers to the types of challenges discussed in this memo.
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