History and Economics of Tobacco Part 2

Economics of Tobacco

Economics deals with the making and selling of products and services to consumers. Products are things like chewing tobacco, cigarettes, televisions, houses, and cars. Services include medical care, education, and insurance. Consumers are the people like ourselves who buy or receive the products and services.

The U.S. has a capitalist economic system. Under this system, one or more people get together and form a company to make and sell something. They do this to make money. The money that they make after paying off their bills or expenses is called profit. In other words, a profit is the money they have for themselves after paying rent, salaries, utility bills (electricity, gas, telephone) and buying machines/computers and any other equipment they need to make their product and run their business.

When companies sell more than they spend, they make a profit. Selling their products to other countries is called exporting. The product that is sold is called an export. Buying from other countries is called importing, and what U.S. companies buy is called an import. For example, if Ford Motor Company buys steel from Japan to make a car, it is importing a product. Steel is the import. When Ford sells its cars to Brazil, it is exporting. Cars are the exports.

When companies or governments export more than they import, they have a trade surplus. A trade surplus is another way of saying a profit. On the other hand, when they import more than they export, they have a trade deficit. A deficit means a debt or money owed to someone else.

Throughout history, tobacco companies have had a trade surplus. That is one big reason why they have been important to the economy of the U.S. In 1992 the tobacco industry reported a $5.65 billion dollar trade surplus. In the first half of 1992, tobacco exports were $2 billion more than imports. The taxes that the tobacco companies pay provide a lot of money for the U.S. government. In 1992, Philip Morris alone paid $4.5 billion in taxes. This makes it the largest tax payer in the U.S.

Credit: Copyright © 1994 by The New York Times Company. Reprinted by permission. "How Do They Live With Themselves?" Roger Rosenblatt, The New York Times Magazine, 3/20/94

Tobacco companies export their products (cigarettes, cigars, chewing tobacco) to at least 146 countries around the world. They sell to Hong Kong, Saudi Arabia, United Arab Emigrates, Turkey, South Korea, Singapore, China, Russia, and many more countries. In 1992 Philip Morris sold 11 billion cigarettes to Russia alone.

One of the reasons tobacco growing is so profitable is because its costs are so low. There are only about 800,000 people working in the tobacco industry. There are 136,000 tobacco farms in more than 16 states.

Tobacco Acres Harvested by State in 1991

State	1991 Acres
Connecticut	1,750
Florida	6,700
Georgia	40,000
Indiana	7,200
Kentucky	223,150
Maryland	7.400
Massachusetts	480
Montana	3.000
North Carolina	274,000
Ohio	1,0,500
Pennsylvania	10,500
South Carolina	51,000
Tennessee	61,700
Virginia	53,600
West Virginia	1,800
Wisconsin	7,400
United States	761,080
Credit: Dr. Joel Dunnington, Tobacco Almanac, Revised, May 1993

The making or manufacturing of cigarettes is almost completely automated. It is done by machines without people. Machines crush and clean tobacco leaves and add chemicals like nicotine. They also roll cigarettes, put on filters, cut them to length, and then package them.

All of the six U.S. companies producing cigarettes are large and powerful. They are so strong that not even all the medical reports of the health dangers of smoking and all the laws restricting smoking and advertising have been able to weaken them. They are still able to make big profits by buying up other non-tobacco companies in the U.S. and by selling and making cigarettes outside the country. For example, Philip Morris bought Miller Beer and Kraft General Foods, and R.J. Reynolds bought the Nabisco Food Group and General Entertainment Corporation.

Tobacco Companies: The Companies They Own & The Products They Make

Philip Morris

Bird's Eye	Louis Kemp Seafood	Jello
Louis Rich Meats	Light 'n Lively	Kool-Aid
Crystal Light	Lender's Bagels	Kraft
Minute Rice	Oscar Mayer	Tang
Post Cereals	Claussen Pickles	Lowenbrau
Stove-Top	Log Cabin	Country Time
Millers Beers	Maxim Coffee	Maxwell House
Shake and Bake	Baboli Bread	Seven Seas
Miracle Whip	Louis Rich	Cool Whip
Milwaukee's Best Beer	Sharp's Beer	Bulls Eye Sauce
Knudson	Meister Brau Beer	Parkay Margarine
Capri Sun	DiGiorno Pasta	Food Club
Entenmanns	Sealtest Ice Cream	Bakers Chocolate
Chiffon	Richmix Candy	Breyer's IceCream

Brooke Group (formerly Liggett & Myers)

MAI (computers, information systems)	NBA Hoops (baseball cards)
Basic Four	LineDrive Pre-rookie(baseballcards)
Distributor of football & hockey cards	Marvel superhero cards
GI Joe cards	World Championship Wrestling cards
Terminator II movie cards	Disney cards
NFL Proline Portraits	1992 Olympic cards
Star Trek	X-men
Full House	Perfect Strangers
Family Matters	DC comic book characters

Lorillard

Loews Hotels	Loews Theatre Management Corp.
CNA Insurance Co.	Bulova Corp. (watches, clocks)
Diamond M. Offshore Drilling	Majestic Shipping Corp,
Regency Hotel, New York	Summit Hotel, New York

R. J. Reynolds
RJR Nabisco Products (non tobacco)
Annual Report 1991

cookies -
Almost Home Family Style Cookies	Bakers Bonus Oatmeal Cookies	Lorna Doone
Barnum's Animal Crackers	Bugs Bunny Graham Crackers	Cookie Break
Biscos	Cameo	Chips Ahoy
Cookies 'N Fudge	Heyday	Ideal
Made 'em Myself	Mallomars	Mystic
National Arrowroot	Nilla Wafers	Nutter Butter
Social Tea	Suddenly S'mores	Teddy graham
Newtons	Oreo	Pinwheels
crackers -
American Classic	Better Cheddars	Cheddar Wedges
Chicken in a Biskit	Crown Pilot	Dip in a Chip
Harvest Crisps	Honey Maid	Nips
Oysterettes	Premium	Ritz Bits
Royal Lunch	Sociables	Swiss Cheese
Twigs	Uneeda	Vegetable Thins
Wheatsworth	Wheat Thins	Zings
Tid-Bit	Graham Cracker:	Oat Thins
Ritz	Triscuit	Waverly
cereals -
Nabisco 100% bran	Shredded Wheat	Team
other products -
Comet Cups	Doo Dads	Easy Cheese
Mister Salty Pretzels	Mr. Phipps Pretzel Chips	Mr. Phipps Dips
NAB Packs	Cracker Meal
specialty products -
A1 Steak Sauce	Brer Rabbit Syrup	College Inn
Cream of Wheat	Davis Baking Powder	Milk bone
Grey Poupon Mustard	Ortega Mexican Food	Regina Wines & Vinegars
Royal Gelatins	Fleischmann's Egg Beaters and Margarines	My T Fine
Blue Bonnet Margarine	Cream of Rice
Canada Products -
Aylmer	Christie	Coronation condiments
Dad's cookies	Del Monte	Harnois Cookies
Ideal Canned Vegetables	Magic Baking Powder	Milk bone
Nabisco Cereals Peek Freans	Red Oval Farm	Royal Rose Vegetables
Nabisco Int. -
Anselmi Cookies	Aurora Gelatins	Bubble Yum
Chips Ahoy	Del Monte	Famosa
Fleischmann	Gloria Milk Products	Honey Bran Cracker
Konitos Cookies	Lifesavers	Martinson
Oreo Cookies	Pepito Bubble Gum	Planters Snacks
Portenas	Premium Crackers	Ritz Crackers
Royalina	Saroma	Snuki
Universal	Cameo	Fiesta
Kraker Bran	Omega Bun	Pommy
Royal Gelatins	Trakinas
Planters Div. -
Planters Nuts and snacks
Lifesavers Div. -
Lifesavers	Gummi Savers	Breath Savers Mints
Breath Savers Mints	Carefree Sugarless Gum	Beechnut Gum
Bubble Yum Gum	Fruit Stripe Gum

American Brands

Franklin Life insurance	British Navy Pussers Rum
Jim Beam	Kamchatka Vodka
Ron Rico Rum	The Claymore
Wolfschmidt Vodka	Crawfords
Gilbey's Gin	Tomintoul-Glenlivet
DeKuypen Schnapps	Old Fettercairn
Windsor Canadian	Vladivar Vodka
Whyte and Mackay Scotch	Moen Faucets
Lord Calvert Whiskey	Touch Control
LeRoux Brandy	Chicago Specialty
Kessler Whiskey	Dearborn Brass
The Dalmore Scotch	Hoov-R-Line
Gilbeys Vodka	Anchor Brass
Old Grand Dad	AristoKraft Cabinets
Kamora	Decora
ACTUA	Soft-Joys Shoes
Masterlocks	STA-SOF Gloves
Waterloo Toolboxes	Weather SOF Gloves
Craftsman Toolboxes	Doland and Aitchinson Optics (UK)
All American	Acushnet Rubber Products
Swingline Staplers	Golden Belt - Cigarette Filters
Pocket Day-timer	Prestige Pressure cookers
ACCO Staples	Dexter Locks
ACCO paperclips	Wilson Jones Pads and binders
Perma Products	Kensington Microwave Computer Access.
Vogel Peterson	ACCO data
Eastlight (UK)	Rexel (UK)
Sasco (UK)	Twinlock(UK)
ValRex (France)	King-Mec (Italy)
Office Products International (Australia)	Marbig-Rexel (Australia)
Hetzel (Germany)	Titleist Golf Balls and Accessories
Foot-Joy Golf	Titleist lrons
Pro Trajectory Clubs	Classics Golf Shoes

Brown & Williamson

Appleton Papers Inc.

Saks Fifth Ave.

Marshall Field's

Ivey's

Breuners

Farmers Group Inc.

Credit: Dr. Joel Dunnington, Tobacco Almanac, 1993

We can see the power of the tobacco companies by reading about what happened to Greg Louganis, an Olympic diver.

The Greg Louganis Story

Take the case of Olympic diver Greg Louganis. He trained for the 1984 Olympics (where he was to win two gold medals) at the Mission Viejo training center in southern California. Mission Viejo had been the home of the top American swimmers and divers, including Mark Spitz, who won seven gold medals at the 1972 Olympics.

The swimming club, and the town in which it is located, is owned by a subsidiary of Philip Morris called the Mission Viejo Realty Group.

Greg Louganis was born in 1960. By the time he was eight years old he had started to smoke. He said to a congressional committee studying cigarette advertising, "Smoking was more of a way of rebelling than something I enjoyed. I thought I was cool and that it would make me more grown up like my parents who both smoked. I thought that my neighborhood pals would accept me if I joined the guys every day outside school to sneak a smoke. By the time I was in junior high, I was hooked on these deadly products, and I was willing to risk whatever future I might have had as a diver and an athlete, all to get my daily fix of those little tobacco sticks. I know now from reading the statistics on nicotine addiction and smoking habits that 85 to 90 percent of smokers start before or during their teenage years. As a diver I kept rationalizing that I didn't need a great amount of wind to succeed, just power and strength."

Louganis continued to smoke until he was twenty-three, even though he had to do it surreptitiously: "My diving coach at the time, Dr. Sammy Lee, would never coach me again if he ever found out that I had even contemplated the idea of smoking cigarettes. " But then one day he had a personal epiphany that enabled him to quit smoking: "I had been practicing at the Mission Viejo facility one day and on the way out I noticed this twelve-year-old kid smoking. When I asked him why, he said that he wanted to be just like me! He knew I smoked and he figured that it did not seem to affect my diving performance, so he thought it must be all right to smoke. At that point I began to question what I was doing, and I quit smoking. I realized that in a way I was a 'Marlboro Man' of sorts...."

Louganis later told me, "After I quit I wanted to tell every twelve-year-old that I had quit." So he started doing volunteer work for the American Cancer Society. According to his manager, Jim Babbitt, the Mission Viejo executives were not very happy about this: "They grimaced when the ACS was mentioned." And they warned Louganis to "keep a low profile." "I was very disappointed," he says. "Number one, I was acting as an individual and I don't feel that it was right for the company to have the power to say, 'Don't say this, it's against what our company is selling.' Maybe they could say that I was biting the hand that fed me, but I believe that there is a higher value."

Louganis's activities that the Mission Viejo executives and their masters at Philip Morris on Park Avenue found so displeasing reached a crescendo in January of 1984. In that Olympic year, Louganis was asked by the American Cancer Society to be national chairman of its annual Great American Smokeout. Babbitt was very enthusiastic. He told me, "I was pushing for it heavily. I thought this would have made Greg a hero in other areas than diving. It would have been a real coup for him, a great move for Greg and his career. And, after all, he's told me that he considers quitting smoking the greatest accomplishment of his life." An athlete of his stature in that position would have a major effect on the image of smoking among young people.

But it was not to be. Babbitt got the message from the public relations department of Mission Viejo. If Greg were to accept the honorary position from the American Cancer Society, he would be barred from training at Mission Viejo. "It was done very subtly, very polished. But also very definite." Louganis's coach, Ron O'Brien, was the best in the world. The diver could not contemplate competing in the Olympics without his guidance. But O'Brien worked for Mission Viejo.

Babbitt says the threat of Louganis's being sent away from Mission Viejo, away from his coach, was the sports world's equivalent of saying, "I'll kill your mother." And it didn't stop there. Two of the public relations people told Babbitt that if Louganis accepted the Cancer Society invitation, they too would be fired. "Heads would roll," Babbitt says.

Both Louganis and Babbitt agreed that there was really no choice The diver declined the honorary position so that he could go to the Olympics. Of course, he could not explain why, at the time, since even this would have been considered a hostile act.

The U.S. government and the tobacco companies help each other. Since 1964 all the Surgeon Generals of the U.S. have talked and written about the health dangers of cigarettes. Still, cigarettes are made, advertised, and sold. The tobacco industry gives thousands of dollars to help cover the costs of political campaigns of people running for political office. These are people who want to be elected or reelected as Senators, Representatives, Vice-President, and President. In turn the politicians help the tobacco industry.

One way politicians help is continuing the tobacco price support system. Under the price support system, tobacco can only be grown on a certain number of government-approved farms. The government gives farms special, low interest loans to help cover the costs of growing tobacco. The U.S. Department of Agriculture allows a certain amount of tobacco to be grown each year. This is called a quota. It also sets a minimum price for tobacco. When the farmer takes his/her tobacco to the market, any tobacco not sold one cent above the government price is bought by grower cooperatives and stored to be sold another year.