Tobacco Negotiations Case

The tobacco industry, together with the pharmaceutical and natural resources industries, is arguably the founder and main actor in the integration strategy between market and nonmarket forces; the literature that we nowadays read unbinds to concrete industries track its origin in the earlier years of these company's actions. To understand this integration we have to analyze the elements of the tobacco industry in its golden years, the period 1960-1990. The best starting point is the industry's market strategy, analyzing the most relevant issues, actors, interests, arenas, information and assets ((ia)'3 framework) we will endogenously describe the elements of the tobacco industry's "non-market" strategy.

The issue for the companies active in the tobacco industry is to create and appropriate value through the selling of cigarettes to end customers; but tobacco is not simply a common good, it is a revenue earner for the state as well. In a period of economic boom, liberalization policies, victory of capitalism over communism, the revenue from the selling of cigarettes represented a significant and not-to-be-missed source of income; the states had all the interests in avoiding litigation and government regulations.

The actors involved are also twofold. The interested parties are those who have economical and ideological stakes in the issue. The market actors are the stakeholders of the firms, interested in revenues, but also the end customers and the actors involved in the supply and distribution chain. Non market actors are politicians and activists/doctors. Politicians during the period 1960-1990 had interest in building a strong economy for their country using all the means available, for example we can mention the Thatcherism of 1975-1990 as the model of the economic policies in several countries that also entailed a worldwide impact. Activists in those years had a starting voice only in the most industrialized countries such as USA, Canada and UK, the rest of the world was too busy to recover from the wars to pay attention to this issue, so on one side activists were newly born and not well organized plus they lacked international support. Doctors and scientists were not able to fully and scientifically demonstrate the dark sides of smoking tobacco, the research on illnesses caused by tobacco was recently started and the tools used were rudimental and lack reliability.

What are the interests of these actors? They diverge greatly. Market actors want to sell more and more cigarettes in order to increase their businesses while consumers want to be free to smoke tobacco at cheap prices. Nonmarket actors such as the state and political authorities have a twofold issue: gaining revenues from the taxes imposed on the sale of tobacco and protect the health of the citizens. During the period 1960-1990 the first aspect overcame the second, this was also facilitated by the fact that there was no scientific proof about how tobacco was bad for the health.

The arena in which the actors competed was not as today related to the issue of health and taxpayers; in the thirty years 1960-1990 half of the population in the most industrialized countries smoked and smoking was allowed pretty much everywhere (with distinctions from country to country). The battle arena for activists was focused on banning cigarette advertising from television, putting warning labels on the packages, forbidding commercials targeting children and achieving "smoke free" zones with no mention of the social impact that smoking caused for the national health system.

With information we mean the level of knowledge about causes and effects of strategic actions. While on the market side the managers hired by tobacco companies were among the most qualified in the world, these companies had also a clear view of the political influence and power they could exercise at state level. In the 30 years under analysis they maintained federal lobbyists who attempted to directly influence tobacco policy and they were successful in stopping every litigation in courtrooms before it reached a Congress level. Moreover it is important to notice that in these years the tobacco companies had a higher knowledge about the health effects of smoking tobacco than did the end customers and the activists/lawyers and this was often crucial in the courtrooms.

The firms' specific assets, understood as economic resources, were undoubtedly enormous on both the market side and the nonmarket one. Between 1960 and 1990 almost half of the population smoked, the average consumption in 1990 was 27 cigarettes a day giving the industry billions of dollars in revenues. This economic revenue was use in great part to maintain non market forces under control: the money spent by tobacco companies devoted to political persuasion at state level was more than any other industry. "The power and influence starts and end with their money" said by Congressman H. Walkman summarizes the millions of dollars spent yearly by Philip Morris, RJR Nabisco, BAT industries, Loews Corp and Liggett for their house lobbyist and hundreds of lawyers and consultants.

2) What happened during the period of the case that made that non market strategy untenable?

Mike Moore filed the first lawsuit against thirteen tobacco companies, arguing that they should repay the state for the costs of those treating with smoking related sicknesses, in 1994 and the final press conference in which he announced the final settlement is of June 20, 1997. Moore succeeded where several lawyers before him failed because he took an original approach addressing the