An article in today’s NYT reports on cigarette smuggling in Europe, and its impact on reducing tax revenue. It is a breezy feature piece with no new information, though the story probably comes as news to people who are not expert on the topic — which includes average people who have never thought about it, as well as clueless anti-tobacco industry people like Simon Chapman, who thinks that cigarette smuggling is no big deal. One interesting thing about the topic is that unlike other economic news — like why we are in a depression — that the average person does not understand (and the mainstream media does nothing to improve that situation), this is a story that is pretty intuitive to everyone. It is also a phenomenon that is quite familiar to the perhaps 10% of the population that participates in this grey market.
Aside: The term “grey market” is sometimes, though not always, used to refer to a lawbreaking (most often, tax evading) market for a legal good, in contrast with using “black market” for products that are illegal. Sometimes “black market” is used for both. Indeed, the degree of lawbreaking varies continuously, from mere tax evasion, to violence and counterfeiting, and on through versions of the products that would indeed be illegal to sell, an thus the border between the two is, well, grey. The grey/black market for cigarettes consists of a combination of legitimate name-brand product that is diverted from low-tax markets to be sold below retail prices in high-tax markets, unbranded product that is completely evading taxes and may or may not be inferior to the branded product, counterfeit product which is like the previous but is passed off as a name-brand product, and to a lesser extent stolen name-brand product. The NYT misleadingly implied that the black market is mostly the second of these, with only a bare mention of the third.
The remarkable thing about the NYT article is what it said about how the tax and tax evasion issue relates to public health:
Yes, I mean that it said nothing at all. There was no suggestion by the reporter or anyone interviewed that this has anything important to do with public health. I cannot help but see this as a recognition that governments really do not care much about discouraging smoking, and are really in the cigarette business for the money (and they are most definitely in the business: in Europe, North America, and much of elsewhere in the world, the government makes far more profit from the sale of cigarettes than do the manufacturers or retailers). Presumably some pseudo-public-health people from the anti-tobacco industry were interviewed for the story, but it was clear to the reporters that they had nothing useful to contribute.
Or perhaps the reporter talked to one of the minority among anti-tobacco industry people who is clever and thoughtful, rather than one of the public nutcases or their cadres of useful idiots. Such a person would realize that it was a bad idea to call attention to the fact that this tactic — taxes to discourage use — is played out. That industry cannot afford to let people know that they have nothing further to offer that is useful, and that the only remaining promising way to reduce smoking (harm reduction) is something they oppose. To mention the anti-smoking goal of taxes in a piece about how taxes have driven smokers to embrace an inexpensive grey market might have the annoying impact of causing people to question whether the tactic can continue to work.
Whatever the reason, it is quite interesting that the article did not mention health and made clear that government’s interest in the cigarette market was ensuring that they could keep collecting taxes.
Sadly, the article still managed to get a few things wrong, even within the context of having an unusual accurate take on the subject. I have to think that most of these were a forced tack-on by some editor, since they are at the end, and completely out of sync with the tone of the article and out of context. For example, the article is primarily about people who are not career criminals seizing the opportunity to make some money smuggling cigarettes. But there is a random couple of sentences about organized crime that includes the line:
While governments fret about lost revenue, law enforcement officers are concerned about how smuggling profits are reinvested in other criminal activities.
It is not terribly surprising that law enforcement officers do not understand how business works, but you would think that the reporters writing this story would figure it out. Here is a basic lesson for them: A business activity (say, selling heroin or loansharking) is either profitable or it is not. If it is profitable and someone realizes that that and knows how to engage in the activity, it will be done and it will self-perpetuate. The exception might be if it is capital intensive to start it up, and there is no access to the necessary investment funds. The above quote is trying to imply that this is the case, but that is obviously false since (a) these organized crime activities mostly do not need a huge initial investment, and (b) in any case, most organized crime operations are not hurting for cash to invest. The whole “you are funding this other activity” argument is such transparent bullshit; it is really sad that the press always lets government get away with it.
If they had wanted to make a legitimate argument, they could have pointed out that once a business is operating illegally, then such things as contract enforcement and competitive disputes are often settled with violence, since legal channels are not available, and regulation is absent. But this would tend to point out to the reader that the real negative side effects of black markets are caused not by the business itself, but by the fact that the government has banned the activity (or, in this case, moved in that direction — a ban, after all, is just a much higher price and so excise taxes differ from prohibition only in degree).
The reason for the tack-on seems to be that the reporters, or someone twisting their arms, did not want the story to completely be about relatively nice mom-and-pop cigarette smuggling operations. They wanted to at least throw in a message to smokers that when they buy these products, they might be supporting something they would find objectionable.
Of course, if that is the message, then what smokers might really want to consider is the extent to which their purchase of taxed cigarettes funds the anti-smoking industry, and its campaigns to make smokers’ lives miserable and to prevent them from pursuing harm reduction, to say nothing of whatever government activities a particular individual might object to (large standing armies, subsidized housing, assassinations using drone aircraft, wind power subsidies, etc.). Perhaps if they really thought about it, most smokers would rather support their friendly neighborhood smuggler.