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2 July 2023 ⏲ 8 Minutes Policy
The Federal Government’s proposed legislations targeting vaping reforms have made headlines for all types of reasons. Perhaps the most notable of those have been pro-tobacco groups, who have submitted claims of rebound lobbying against the Federal decision. This article explores the implications of lobbying efforts in the vaping market to the Australian economy, using an economic interpretation. Furthermore, we aim to understand how the Government can react, exploring a potential recommendation targeting disincentivised lobbying strategies.
Australia's e-cigarette Market
The Australian e-cigarette market stood at US$492 million as of 2024, overtaking standard cigarettes, which were only…
Tobacco businesses have quickly jumped onto the increasing trend amid concentrated demand. Perhaps, the strongest propeller towards e-cigarettes have been claims made by WHO health officials, who have recommended vapes as a healthier alternative to casual smoking. This, paired with shifting consumer behaviour and preferences amongst youth users, have stimulated market share and demand for tobacco-substitute product such as vapes. Tobacco companies are capitalising upon trends by switching to e-cigarette products, however, face the threat of the government’s proposed vaping reforms.
What are the Economic Implications of Vaping Lobbying?
An Australian-based study revealed that tobacco companies employ revolving-door practises, a type of rent-seeking method to lobby against vaping legislations and ultimately increase market stability and shareholder confidence of the vaping industry (Watts et al., 2023). Revolving-door schemes see public office representatives shift between interests of legislator public-sector roles and lobbyist roles representing private companies, strategically aiming to provide decision-making power to private industries and influence from within (Yates & Cardin-Trudeau, 2021). For perspective, 48% of Australian tobacco companies have employed Federal, State and/or Territory Government officials within the public health policymaking sector (Watts et al., 2023).
This rent-seeking strategy sees tobacco companies attract market share and profits of vaping products without engaging in market trade (known as rent). Reforms restrict market supply of vapes by setting access only through medical prescription. Tobacco companies are able to distort market conditions by using anti-competitive tactics such as setting favourable policies in which efforts are grouped and characteristic of an oligopoly and monopolistic competition.
In figure 1, rent profits achieved from lobbying is equal to socially-optimal value of vapes (E0) shifting backwards to the profit-maximising value (E1), noticed by a price burden on consumers from P0 (optimal price) to P1 (monopoly price). Increasing prices whilst also maintaining profit allows pro-tobacco companies to retain market dominance. Hence, private benefit from lobbying exceeds public benefit, resulting in allocative inefficiency noticed by social welfare deadweight loss (Area H).
Firms capture profits of Area T. However, to implement lobbying and rent-seeking strategies, companies redirect scarce resources and money, categorised as bureaucratic costs. This includes costs of hiring lobbyists, federal campaigns, political donations to capture rent and private parliament meetings (Craig & Madland, 2014). Hence, Area T does not truly represent profits received by companies, rather includes wastage of resources and money occurs leading to inefficiency.
Figure 1: Monopolistic Outcome of Rent Seeking Strategies
Lobbying is prone to inducing negative externalities to society. Direct health consequences from vaping represents reductions in productivity and employment of labourers, where increased hours of leisure are substituted for work, limiting labour supply. Inefficiencies are also established through replacement costs of workers. Although, this may be minimal considering the largest demographic of vape users are youth, who display higher unemployment rates. Vaping products also induce health consequences that burden costs to the public health budget, reducing GDP and increasing opportunity cost of foregone budget spending, based off studies conducted in USA (Wang et al., 2023).
It is integral to note that increases in demand and market share of vaping products can also provide economic relief to the government, through tax revenue raised supporting a higher GDP. Particularly, market trends suggest vaping products target a youth demographic, who historically portray behavioural characteristics that induce marginal propensity to spend. However, a US-based study reveals that youth attitude to nicotine e-cigarettes portray higher demand elasticity, suggesting uncertainty and ineffectiveness in supporting long-term government revenue (Corrigan et al., 2020).
Cooling-Off Periods?
A lack of authorisation means that public office representatives have unrestricted access between private and government interests, exacerbating successful lobbying attempts through long-term penetration. A potential solution is to increase the lobbyist cooling-off period to a base of 5 years which is the minimum time allowed between transitioning from public to private-sector roles (Knaus, 2019). This will disincentivise both public officials from shifting positions and tobacco firms from funding these officials incurring significant costs.
The Canadian system implements a 2-year lobbying prohibition period after a government official leaves office (OCIEC, 2018). Increasing this period could reduce efforts of lobbying companies from targeting former officials that may still command power, adding to the transparency of the system.
Close
By implementing a transparent system not susceptible to strong influence, subsequent impacts from tobacco lobbying attempts that fabricate market conditions and promote profit-maximising behaviour are minimised. Efficient policies can be developed that mitigate social welfare loss and negative externalities.
Thank you for reading this article. I am always open to feedback on articles to improve. Please feel free to connect with me on LinkedIn or reach out directly via: shashikubsad48@gmail.com.
References
Corrigan, J. R., Hackenberry, B. N., Lambert, V. C., Rousu, M. C., Thrasher, J. F., & Hammond, D. (2020). Estimating the Price Elasticity of Demand for JUUL E-cigarettes among Teens . National Library of Medicine.
Craig, J., & Madland, D. (2014). How Campaign Contributions and Lobbying Can Lead to Inefficient Economic Policy. Center for American Progress.
Knaus, C. (2019). Five-year lobbying ban needed for former ministers, public sector ethicist says . Retrieved from The Guardian: https://www.theguardian.com/australia-news/2019/jun/29/five-year-lobbying-ban-needed-for-former-ministers-public-sector-ethicist-says
OCIEC. (2018). POST-EMPLOYMENT RULES . Retrieved from Office of the Conflict of Interests and Ethics Comissioner: https://ciec-ccie.parl.gc.ca/en/rules-reglements/Pages/INPEOblig-AIObligAM.aspx
Wang, Y., Sung, H.-Y., Lightwood, J., Yao, T., & Max, W. B. (2023). Healthcare utilisation and expenditures attributable to current e-cigarette use among US adults. BMJ Journals.
Watts, C., Jones, M., Lindorff, K., & Freeman, B. (2023). How tobacco companies use the revolving door between government and industry to influence policymaking: an Australian case study. Retrieved from Public Health Research & Practice: https://www.phrp.com.au/issues/online-early/how-tobacco-companies-use-the-revolving-door-between-government-and-industry-to-influence-policymaking-an-australian-case-study/?fbclid=IwAR2MEZd7__zIDOPR8db1xPn3MyjZg7GCNwwmyWRdDIRqN84-DzTGKorrDo0
Yates, S., & Cardin-Trudeau, E. (2021). Lobbying “from within”: A new perspective on the revolving door and regulatory capture.
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