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Sunday, November 1, 1998

Wrecking: The Ominous Rationale for Attacks on the Tobacco Industry

Constitutional Restraints on Government Power Have Been Rescinded in Favor of Collectivist Principles

Daniel Hager is a senior research associate with Patrick Henry Associates in East Lansing, Michigan.

The state of Minnesota’s lawsuit against the tobacco industry has ended in a multibillion-dollar settlement. Litigation by other states is expected to yield them lucrative windfalls as well, and Congress has had its own eye on forcing the industry to capitulate to its demands.

In the wake of Minnesota’s triumph, the Associated Press quoted state Attorney General Hubert Humphrey III as saying, “Today the tobacco industry has surrendered, and they have surrendered on our terms.” But before he and other members of the anti-tobacco forces become over-jubilant, they should examine the ramifications of their actions.

With the tobacco industry’s loss of constitutional protections, the government’s philosophical justification for its assault is clearly collectivist. As in the Soviet Union 70 years ago, the rationale for wanton attack is simply that the accused is a “wrecker,” culpable for damaging the collective. In the absence of due process, anybody is vulnerable to being found guilty of “wrecking activities.”

Whose Money Is It?

To extract monetary penalties from the tobacco industry, Humphrey and the other judicial and legislative adversaries have to apply the dubious collectivist principle that governments own the money they spend. Minnesota and other states claim that their Medicaid expenditures for individuals allegedly injured by smoking “cost” these governmental bodies a certain amount of money and that they are therefore entitled to recover it from the alleged culprits.

However, there is no actual cost to governments because they have a custodial rather than ownership role with respect to the taxpayers’ money. Governments take money from some and distribute it to others, who become beneficiaries. The beneficiaries receive as much as the governments disburse, so the costs are canceled out by those gains.

If the tobacco industry caused the state government to pay medical costs of some Minnesotans (those who smoked and received state aid), then the industry also created benefits for Minnesota’s doctors, nurses, and ancillary medical staff, as well as a sizable bureaucracy to administer associated paperwork. In addition, any such illnesses enabled Minnesota’s hospitals and nursing homes to increase their occupancy rates and thereby contributed to their economic health. A heightened demand for rooms may even have prompted the building of new facilities, a boon to the construction industry and its employees. In other words, when government intervenes as a third-party payer, illness becomes a form of public works, ranking alongside projects like government-funded buildings, roads, bridges, sports facilities, and so forth.

Thus the current tobacco controversy reduces itself fundamentally to an exercise in interventionist public-works theory. Government spending on public works is sometimes justified on the grounds that it stimulates the economy and creates jobs. Under that theory, the purported transgressions of the tobacco industry have had a salubrious stimulative economic effect. The irony of collectivist and quasi-collectivist systems is that illness is like public works. Curious, is it not, that the tobacco industry is blamed for the costs but not credited for the benefits.

What the present controversy swirling around tobacco actually elucidates is that the fundamental problem is not the industry but state intervention, which distorts issues of culpability and redress and expands the level of public works.

Advocates of public-works expansion should be directed to the works of French economic analyst Frederic Bastiat, who demolished their arguments a century-and-a-half ago. In Essays on Political Economy, Bastiat wrote: “The great Napoleon, it is said, thought he was doing a very philanthropic work by causing ditches to be made and then filled up. He said, therefore, ‘What signifies the result? All we want is to see wealth spread among the labouring classes.’”

But the wealth is chimeric: “While you state the destination given by the State to the millions [of francs] voted, do not neglect to state also the destination which the tax-payer would have given, but cannot now give, to the same. Then you will understand that a public enterprise is a coin with two sides. Upon one is engraved a labourer at work, with this device, that which is seen; on the other is a labourer out of work, with the device, that which is not seen.” (Italics in original.) When individuals spend in their own interest, markets respond, and greater wealth is generated than when their money is siphoned off to pay for something the state represents as being for the collective good. When societies are organized for the furtherance of an ostensible collective good, dire results are not unexpected. Individual rights are abrogated, and a ruling caste emerges to define what constitutes that public good. Public expenditures must be kept to a bare minimum.

The abuse of power by government in attacking the tobacco industry differs from the conduct of the Soviet Union of 1930 only in degree. The Piatiletka, Stalin’s five-year economic plan initiated in 1928, collapsed in chaos, and expediency dictated that scapegoats be identified and punished as “wreckers” of the proletariat. In the case of the state fisheries, scientists who had been conscripted into managerial positions, most of them apolitical, were singled out and punished.

On one level the tobacco spectacle is playing out simply as the machinations of ambitious politicians and lawyers using extortionary tactics to achieve their own ends. But since constitutional restraints on government power have been ominously rescinded in favor of collectivist principles, nobody is safe.

  • Daniel Hager is a writer and consultant in Montgomery, Illinois.