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Why Congress Should Stub Out The Tobacco Deal


Economic Viewpoint

WHY CONGRESS SHOULD STUB OUT THE TOBACCO DEAL

When tobacco executives, state attorneys general, and public-health advocates announced their 25-year deal on June 20, it seemed an extraordinary coup. The industry gave up a $368.5 billion pot for victim compensation and antismoking education. It got a cap on liability and a delay in nicotine regulation. Tobacco stocks rallied.

But the settlement is backfiring on the industry, as well it should. Private deals such as this are a bad way to set regulatory policy. The costs of smoking-related illness were $88 billion in 1995 alone, while the deal covers only about $8 billion a year, adjusted for inflation, according to recent Senate testimony by Jeffrey E. Harris, a physician and economist at Massachusetts General Hospital and Massachusetts Institute of Technology. Tobacco came to the table only because tort litigation against tobacco was at last making headway. It was the litigation that uncovered the most damaging documents on what the industry knew and what it concealed. Courtroom sympathy is shifting dramatically to plaintiffs. Only last week, a Florida trial judge ruled that the industry's favorite defense--that the public was well aware of the hazards of smoking--could not be used in that state's Medicaid reimbursement suit.

The more headway made by litigation, the less reason antismoking advocates have to settle. After all, the industry exists to sell cigarettes. The more insulated the industry is from litigation and regulation, the more tobacco it will sell. The industry has a long history of turning "constraints" to its advantage. Package warnings, hailed as a public-health advance in the 1960s, became the basis for defeating lawsuits. The ban on TV ads spurred a generation of tobacco-sponsored events and product-placement strategies.

PIPE DREAM. The deal, of course, requires ratification by Congress, since only Congress can delay or hobble the Food & Drug Administration's efforts to gain authority to regulate tobacco as a drug, and only Congress can change the product-liability rules. The industry thought state attorneys general and public-health advocates would troop to Capitol Hill to bless the deal--a pipe dream. The proposal smoked out much tougher opposition by former Republican health appointees C. Everett Koop and David A. Kessler, as well as new demands from mainstream health organizations and the Administration.

The $5 billion annual cap on claims, combined with a $1 million ceiling on individual suits, means as few as 5,000 claimants a year could collect. Several arcane provisions would discourage litigation. For example, a special panel of three federal judges would have to approve access to documents that the industry claims are privileged. Litigation would have to pass through the eye of this needle. The deal also bans most class actions.

SACRED TENETS. As the antitobacco side took a closer look at the details, one supporter after another has defected. Apart from its details, the deal was dubious all along on two key grounds of process. The parties got together, in secret negotiations, to settle a major issue of public-health policy. Congress, a bystander, was supposed to sign on the dotted line. This was not exactly what the framers of the Constitution had in mind, nor is it the role Congress fancies for itself. The deal mocks one of the sacred tenets of law and economic theory, which holds that private parties, on their own, will reach efficient bargains. In this case, the absent party was the public, and the deal reached precludes the future use of the common law for future redress.

Second, it is bizarre to design a product-liability cap for one industry. The Supreme Court recently threw out the proposed mass settlement of asbestos claims, on the grounds that one group of negotiators could not properly abrogate the rights of those not at the table. And if the tobacco industry, of all industries, gets a cap on product liability, why shouldn't more deserving groups, such as auto makers or toy manufacturers, get one, too?

Others in the business community are in a quandary. Should they support their tobacco brethren, hoping the pact will set a precedent for similar product-liability agreements? Or should they shun this deal because its obvious failings are giving anticorporate Naderism a boost? Business would be wise to treat Big Tobacco like, well...like a cancer.

This deal is billed as the best trade-off obtainable, but a regulated industry should not be given a veto over the acceptable terms of regulation. Many of the public-health provisions of the deal that step up antismoking campaigns and restrict tobacco marketing are admirable. They should be enacted--and private antitobacco litigation should continue. In a few years, we can revisit a settlement with a deservedly weaker tobacco industry.BY ROBERT KUTTNER


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