When the major tobacco companies agreed in 1998 to settle a series of lawsuits filed by eight state attorneys general, the agreement was hailed as an historic event that would add hundreds of billions of dollars to state coffers and give millions of smokers a new incentive to quit.
But Stanford University economist Jeremy Bulow argues in the latest Milken Institute Review that the public was conned: the tobacco companies passed on more than 100 percent of the cost to smokers, many states were locked into terrible financial settlements and billions in fees were set aside for trial lawyers.
"Few people trust tobacco companies, trial lawyers or politicians," he writes. "But somehow when the three groups got together and spoke with one voice they were able to convince most people — particularly nonsmokers who benefit from higher cigarette tax revenue — that the settlement had achieved a noble public health goal. In reality, the settlement preserved tobacco companies′ profits, while it gave the trial lawyers an incredibly large ongoing source of income gouged from the hides of smokers, and handed state politicians bragging rights as Davids to Big Tobacco′s Goliath."
Also in this issue of the Milken Institute′s quarterly journal of economic policy, two researchers at the Fraser Institute weigh the pros and cons of Canada′s government-run, universal health-care system, which has long been held up as a model for the United States.
Nadeem Esmail, director of Fraser′s Health System Performance Studies, and Michael Walker, president of the Fraser Institute Foundation, conclude that, in terms of health outcomes (i.e. preventable deaths), there isn′t a lot of difference between Canada′s system and America′s. But in terms of patient frustration and delays in non-emergency service, U.S. residents generally fare better.
"Canada′s single-payer system delivers on the promise of universal access, but at a price that reflects its failure to use market-based incentives to ration services and to maximize the efficiency of their delivery," they write. "It′s hard to imagine that planners who started afresh couldn′t do better."
Other highlights from the new Review:
- Robert Looney of the Naval Postgraduate School in Monterey, Calif., examines the economic boom in Dubai, which has become the place in the Middle East for jetsetters and investors lured by its wide-open economy, low taxes and first-rate infrastructure. "The wealth created by the world-class firms attracted to the emirate proves that Dubai Inc. is much more than a mirage. Whether Dubai Inc. is a paradigm for other Arab countries, though, is another question."
- Edward Miguel and Gerard Roland of the University of California (Berkeley) assess the enduring consequences of America′s bombing of Vietnam and conclude that the worst-hit areas have caught up with the rest of the economy. "We found no robust long-run effect of the bombing on local poverty, consumption or population density in Vietnam a quarter century after the end of the 'American War.′ If anything, the bulk of the statistical evidence points to moderate reductions in long-run poverty and somewhat better access to electricity in the areas most damaged by bombing, as well as faster consumption growth."
- Kevin Cullen of the University of Glasgow writes that many universities are caught between a rock and a hard place in pleasing constituents eager to benefit from technology originating in academics′ research labs. "The key here is an understanding of what universities are being asked to do. If you want them to advance economic development, that′s fine. Just understand that such projects require subsidies. If you want universities to make money from commercialization, that′s fine, too. Just understand that the commercial motive will often not align with regional aspirations."
- Linda Bilmes of Harvard′s Kennedy School of Government and Nobel laureate Joseph Stiglitz of Columbia University argue that the price tag for the war in Iraq — estimated at $1 trillion in an article in the last issue of the Review — will, in fact, top $2 trillion. "A major contributor to this long-term cost is the medical care and disability benefits provided to veterans. More than one million U.S. troops have now served in Iraq. And once they leave, each is entitled to a long list of benefits for the remainder of his or her life."
This issue′s book excerpt comes from Knowledge and the Wealth of Nations by David Warsh, a former economics columnist for the Boston Globe, who offers a witty and graceful capsule history of the coming of age of modern, mathematically based economics. Also in this issue: a Charticle by Milken Institute economists outlining the dramatic increase in terrorist incidents around the world since the mid-1990s; "Research F.Y.I."; and another offbeat, end-of-book "Lists."
The Milken Institute Review is sent quarterly to the world′s leading business and financial executives, senior policy makers and journalists. Its editor is Peter Passell, former economics columnist for The New York Times.