Quite a lot has been said and done about Business Ethics. Several studies have been conducted emphasizing on the importance of what and How in business environment. However there has been put quite little effort in describing in a unified term of what business ethics exactly asks. Nevertheless existing giant businesses have not been scrutinized of their ethical practices.
This study is an attempt to investigate what ethics does Tobacco Industry practice. The case of Pakistan is taken to complete this research so as to check in absence of strict government regulations how responsible does the industry behaves. Cost Benefit analysis procedure for clarifying this ethical dilemma shows that in the absence of strong health hazard data the industry's overall functioning can be considered ethical under utilitarian school of thought. This is because the number of beneficiaries of the industry in a developing country like Pakistan is immense and the recognized harms are comparatively less. This thesis gives the real coaster effect when these results are revealed.
However this is a deductive study that leads to further research questions and discovers new undiscovered ventures to explore.
Ethics is mostly known as the study of decision making that while doing this considers the widely accepted moral standards. One of the ethical questions however is the ethical dilemma, in which an issue has two conflicting bur arguably valid sides. A classical ethical dilemma example can be of the debate on allowing the tobacco companies to advertise. If allowed to do so then that means encouragement of an unhealthy practice but on the other hand if they are not allowed to advertise then it is clear discrimination between rights.
Similarly Employees have the right to privacy, but employers also have right to expect safe, competent behavior from employees. Now who is to decide the winner between employees choice of taking drugs or employers' liberty to let undergo their employees through drug tests? Many such ethical questions are faced by managers every day.
The common theme in all ethical dilemmas is a clash between the privileges of two or more stakeholders over one another. Traditionally, the place of ethics in business practices has been to supply a decision procedure or some formal normative orientation. The place of ethical theory in the making of business decisions is problematic, and the symptoms are numerous. This can be seen, for example, in the difficulties authors of "business ethics" texts often have in employing ethical theories to resolve or clarify issues of ethical or social concern.
In my opinion the theories for resolving the ethical dilemmas themselves create an ethical dilemma. For instance some of the employees in the organization feel that there shouldn't be fixed working hours. As long as they are productive there should not be any restrictions on them regarding the time schedules. If we analyze this case under the two schools of thought i.e. Utilitarian and the deontological we will see that if the employees are productive without imposing the limit of fixed working hours on them i.e. the consequence of the proposition is positive then according to the utilitarian theory the act is ethical. While Deontological concept will take it as unethical for it will see it as breaking the laws and conventions of the organization
It can be observed that presently accepted and practiced ethical theories posit strong foundations. In my opinion however these theories are of limited use in solving ethical problems. Their reliability and ability to be generalized can be challenged because they ignore certain aspects of morality and prefer others according to different situations that arise in different contexts. This study is devoted to resolve the conflict of deciding between what is and what is not ethical in the Tobacco industry.
The theory chosen for the study is utilitarian theory which has two advantages over other alternative ethical theories as how to be applied in various business endeavors. Firstly as we know that business works for the motive of benefiting self and so does utilitarian theory defines morality i.e. morality is to prefer self interest as prime. Secondly utilitarian theory is analyzed by comparing the benefits and harms of a given option and this is how it again finds similarity with profit and loss in accounting and business.
Since utilitarian theory is quantified with the help of cost-benefit analysis so the data is analyzed by using cost-benefit analysis model. The strive was to be able to resolve the ethical dilemma regarding the existence and functioning of Tobacco industry without creating an ethical dilemma through the process of resolving it.
Business ethics is a form of applied ethics that identify and solve the ethical and moral issues in the business environment. "In the increasingly conscience focused marketplaces of the 21st century, the demand for more ethical business processes and actions (known as ethicism) is increasing" (wikipedia, 2007).
Historically, interest in business ethics accelerated dramatically during the 1980s and 1990s, both within major corporations and within academia. For example, today most major corporations use alternate words such as social responsibility charters, corporate social responsibility etc to highlight the importance of social values and norms.
Business ethics has to decide on ethical issues by looking through the lens of the employee, the enterprise or the society as a whole.
It is the situation in which an issue has two conflicting but arguably valid sides. Ethical dilemmas continue to receive a great deal of attention from philosophers and management experts, who have developed a number of tools to guide managers through sometimes confusing and always difficult decisions regarding ethical dilemmas. However it is important to note that like the problem the methods for resolving this problem are also not absolute and agreed upon. Even the best models rarely lead to a single answer that is absolutely right, just or fair, but they do point the way to answers that seem more right, more just, or more fair than others Hosmer(1988 a).
Principles of ethical analysis have their roots in normative philosophy, the study of proper thoughts and conduct, or how people should behave Hosmer(1988 b). Five commonly applied normative approaches are described as under.
Deontology depends on the intentions of a person making the decision or performing the act. A deontologist would disagree with the emphasis on outcome as the determinant of moral actions because consequences are generally indefinite and uncertain at the time the decision is made. Immanuel Kant (1724-1804) provided much of the base for understanding this concept in all eras.
Theories of Justice.
Theories of justice explain ethical decisions on the basis of fairness and impartiality (Stead et al, 1990). This philosophy stresses social justice. Critics point out that this theory assumes that social cooperation provides the basis for all economic and social benefits, which may or may not be true (Stead et al, 1990).
Theories of Rights.
Theories of rights as from the name indicate that the most ethical decision will be based on protecting peoples' right that might potentially be affected by the decision (Courtland et al, 1992). Theories of rights, unlike theories of justice, depend upon on equal opportunities for choice and exchange, not on equal allocations of wealth and income. As discussed earlier sometimes the conflicting rights become the shortcoming of the application of this theory (Courtland et al, 1992).
Social Contract Theories.
Social contract theories hold that when individuals become a part of a bigger community such as an organization of a local community then they agree to share the values of that group and also agrees to the means of reaching the agreed upon goals (Thomas, 1991). Critics argue that social contract theories do not give liberty to the individual thinkers who might have a contradicting opinion from their fellow community members (Thomas, 1991).
Utilitarian theories support the idea that ethical behavior results in the greatest good for the greatest number. So, according to utilitarian theories, the most ethical decision creates the greatest degree of benefits for the greater number of people while having a potential of inducing comparatively lesser amount of damages or harm (Hitt & Columbus, Ohio 1990). Consequentialist moral theories are teleological which means that they aim at some goal state and evaluate the morality of actions in terms of progress toward that state.
Tobacco Industry and Business Ethics.
This section will outline some historical facts related to tobacco industry and will also highlight how this industry grew from the scratch. This section also includes the description of the functioning of the tobacco industry in terms of business ethics since from the beginning of its origin right up till now. Finally the chapter concludes by briefly stating how it became a part of Muslim and Asian culture.
Tobacco is a natively fostered plant of America. Tobacco plant has very small seed such as one ounce approximately contains over three hundred thousand seeds. This plant started being cultivated according to an estimate thousand years B.C.
As early as one B.C., Tobacco started being used in various religious activities. Not only religious but also was thought to be of quite a medicinal importance by American Indians. It was basically thought of as pain killer and was also used by quite a number of people as a cure all solution.
Discovery of the New World.
Christopher Columbus was gifted dried tobacco leaves by the American Indians. As it was brought to Europe it started to be grown all over the Europe. Europeans grew it against a misinformation that tobacco has a healing tendency and that it can cure all the diseases no matter how big or small.
According to a book written by a Spanish doctor in 1571 tobacco could cure at least thirty six health problems. Thomas Harriet a Virginian in 1588 invented smoking as he wanted to discover a way that could help take a daily dose of tobacco. Later he died of nose cancer because it was through the nose then that they use to breathe tobacco.
In 1610 Sir Francis Bacon realized that trying to quit smoking was really difficult. In 1632 for the first time for moral reasons smoking got prohibited in Massachusetts.
Tobacco: A Growth Industry
For the first time when tobacco industry got significant industry value was in 1776. In the American Revolutionary War It acted as a security against the loans America borrowed from France.
However scientists continued to understand the chemicals in tobacco, as well as the dangers they had. In 1836 tobacco was recognized as a lethal commodity.In 1847, the famous Phillip Morris was established, selling hand rolled Turkish cigarettes. Until 1900 chewing tobacco was the most famous tobacco product however cigarette started becoming famous in 1990's. As the cigarette was gaining popularity so was anti smoking campaigns with the notion of some states in America asking for total ban on tobacco. The demand for cigarettes however kept growing.
The Recent trends.
In 1980's was the time when legal actions gained their pace against the working of tobacco industry as in 1982 from the Surgeon General reports it was evident that tobacco is injurious to health and by no means its use or sale can be termed legal. It was also known that passive smoking may cause lung cancer. It was in 1990 that smoking got banned in all the flights except for the flight to Alaska and Hawaii.
In 1990, Ben & Jerry's initiated anti smoking campaigns and terminated business with tobacco industry allies. This lead Tobacco industry to change their strategy in the 80's and 90's and they started marketing their products heavily in developing countries of Asia. The strategy was to acquire market share from the markets with more flexible rules for tobacco business.
It has been revealed that tobacco industry has realized all long and is aware of the harmfulness of their products. Knowing this did not stop them from doing and expanding business and they have been justifying this by stating that people make informed choice. This draws our attention on the fact that those who are being blamed need to take measures against this blame.
The arrival of Tobacco in the Muslim World.
Quite similar to the situation in Europe Tobacco use started by physicians and started to gain popularity through medical manuals and journals in the Middle East by the last years of the sixteenth century (Grehan, 2006). Those responsible for carrying the same message were mostly non Muslims that had contacts with Europe and could easily understand, interpret and translate the work of Europeans for the locals (Gokhale, 2009).
There were not any segments of Middle Eastern society that did not contribute to this constantly increasing demand. While investigating tobacco's prevalence in his era, the Damascene jurist Abd al Ghani al Nabulsi confidently declared in 1682, "Tobacco has now become extremely famous in all the countries of Islam ... People of all kinds have used it and devoted themselves to it ... I have even seen young children of about five years applying themselves to it" (Ghauri, Atcha, Shiekh, 2006, p.34). Among these early users were quite a lot of women (Grehan, 2006).
As Grehan (2006, p.413) states "from the time of its first entry, tobacco would have to rebuff strenuous challenges from political and religious authorities, who in the most critical tests of its appeal would join forces in sporadic anti-smoking campaigns". One widely accepted methodology was to win a debate for proving tobacco as an intoxicant and that it has the same affect on the body as wine therefore strictly forbidden by Islamic law as resourced in Quran and Hadith (Grehan, 2006).
Tobacco manufacture in subcontinent started in Akbar's reign. But by 1617 its use had become so widespread that Akbar's successor Jahangir (1605-1627) issued a verdict forbidding the smoking of tobacco Gokhale (2009).
Tobacco Industry of Pakistan.
Smoking can be proved as dangerous for people's health but for the economies such as of Pakistan and other such nations, it is the good news that they will always want to hear. This section intends to highlight the important role tobacco plays in the economics of the country.
Tobacco industry contributed 4.4 per cent or over Rs 27.5 billion to the total GDP of Pakistan including Rs 15.17 billion, including Rs 14.54 billion in excise duty and sales tax, in 1997. According to data provided through the internet resources it can be seen that tobacco industry pays six times more taxes than is earned from the cotton industry. This makes the tobacco industry to pay over five percent of all the taxes that are collected by the country. Furthermore over a million people are working as tobacco industry employees.
Cultivation area has also increased in the last decade that means increase in business. The figure indicates the increase of thirty percent which is even less than the percentage increase of production i.e. hundred and forty five percent.
The only crop of Pakistan whose yield exceeds the world average is also tobacco i.e. its per hectare yield equals that of the US and several other developed countries that makes approximately nineteen hundred kilograms.
Tobacco Industry and Ethics.
Tobacco Companies cannot be treated like rest of the companies as all their practices and products are not like other companies. Tobacco industry produces the products that are not only legal but at the same time they are also deadly for their consumers. How wondrous is that a product can kill more than half of its regular users?
As such, in terms of CSR activities, they cannot simply figure among the ranks of other consumer goods companies. Despite the tobacco industry's thinly-veiled attempts to gain corporate respectability and companies' claims to have changed their practices, they keep on adopting unethical strategies to promote their products, expand markets and increase profits (WHO, 2003).
Objective of study
The research will focus on the Tobacco Industry of Pakistan as the case of Ethical dilemma situation.The research will investigate what ethics do the tobacco industry practice. And can they be termed ethical under Utilitarian school of thought. Utilitarian theory is the world renowned theory to solve various ethical dilemmas in terms of the consequences an activity has. In short the study will be conducted to justify the role of Tobacco Industry in terms of business ethics.
This chapter serves as a backbone of the whole study. This study is deductive in approach so a complete review of the existing literature and schools of thoughts was mandatory to recommend future issues for research. The section starts with defining the core concepts and terminologies followed by how and where these concepts have been used. This section also states why one theory and method has been selected over the others. As the chapter grows there are arguments far and against of the practices of tobacco industry and how they varied in two time zones i.e. from 1980-1999 and from 2000-2007.
Business ethics Dilemma:
Business ethics adapts its functioning from the methods prescribed by normative believes to resolve the moral issues in businesses. Business ethics studies both profit and non-profit corporations. Existing practices are judged on the basis of what ought to be done in the given situation. One specific feature is vital to the business ethics. Business ethics has to account for strategic concerns. In the business sphere, ethical reflection has to allow for the interest at stake, in order to avoid being so high principled that one disregards all consequences for the corporation's future (Peter Pratley 1997).
The common opinion seems to be that the term "business ethics" is not found anywhere in its true spirit. This is thought because ethics and business in soul are different. Where ethics preaches being nice and charitable there business finds its way to satisfy self interests and nasty objectives.
Organizations spend a lot of time and effort in implementing new initiatives for profit making and cost cutting however not even half of this commitment of resources can be seen for the implementation of ethical programs. The impression is given that adherence to the ethical code of practice is adequate rather than embracing its true spirit. Ethical considerations have no more value than the choice of plants in the office.
The view of Friedman (1976) that the only "social responsibility of business is to increase its profits". Other literature has suggested that specialized ethical theories should be applied to business to better understand behavior in the context of the business organization. RobertAllanCooke (2004, p.2-5) evaluates in his study some fundamental fallacies about business ethics and finds that the good ethics is good business should still be termed as true.
On the one hand we have the common good for society arising spontaneously from a largely unregulated market of companies pursuing their self interest and on the other hand looking for the benefit for the company that it is standing for. In both cases the benefits are supposedly efficiency and fair distribution. Taken from the level of the corporation this appears to be a real time situation offering a minimum of restriction on market behavior and maximum control over internal affairs (Andrew Bartlett & David Preston 2000).
We encounter various situations in our life where we have to resolve any dilemma. And Businesses are no exceptions. Businesses and managers have to maximize their profits and optimize their costs in terms of resources and while planning for this all they come across many situations where they have to choose among two choices i.e. termed by economists as opportunity cost. The choices sometimes create an ethical dilemma and the decision in such cases become more complex.
With regard to consumers, the example of tobacco is particularly typical to understand. When seen in the through the lens of time it can be observed that in the short term, a need is satisfied on the expense of the long term loss of health of the customers. This has always been the strategy of the tobacco industry to not let their business slow down. While the advertising campaign in the United States was getting pace to encourage adolescents not to smoke, the tobacco companies were making new customers of the same age or teenagers in Asia an Africa by distributing free cigarettes (Levin 1991).
Ethical dilemma Theory:
Such dilemmas are dealt with ethical theories. One considered under the study is Utilitarian Theory. Utilitarianism is a Western adopted theory that has a history starting from the late 1700s (Harris, 2002; Shanahan & Wang, 2003). Harris stated that "utilitarianism is one of the most powerful and persuasive traditions of moral thought in our culture" (p. 119). Rachels (1998) described utilitarian theory as based in social transformation in human nature and behaviour, and it is that alternative to natural law that encompasses it as well.
Along with the applause the utilitarian theory is also criticized by many. As Peter Pratley (1997, p.140) states that 'it may happen that an option seems to be most profitable for the large majority, while at the same time we feel that it is morally totally improper from the point of view of distributive justice. Whereas most receive a relatively minor benefit, a small number have to cope with outrageous costs.
Applying Utilitarian guidelines continually is impossible, even for private corporations with noble humanitarian intentions. Utility asks too much from individual private businesses. If each time decisions were made corporations adopted only the utilitarian most perfect solution, many would have to close down especially if they had to pay for the environmental damage they do'.
"Utilitarian thinking favors bringing about the greatest total amount of good that we can" (Harris et al 2000 p. 77). According to a utilitarian, we have, as our most basic obligation, to:
- produce "the greatest good for the greatest number," or
- "Maximize aggregate happiness" (these are assumed to be equivalent).
Problems for the general utilitarian approach are (Harris et al 2000 pp. 77-78):
- Utilitarianism is an information-intensive view, since there can be an enormous number of relevant factual issues.
- Another problem is determining the "audience" for a decision, which the textbook defines as "the population over which the good is to be [ought to be] maximized" (p. 78); that is, "audience" refers to all those whose happiness would be affected by the agent's decision. This is problematic because decisions can sometimes affect an enormous number of people (not to mention non-human animals), into the indefinite future.
- Finally, the utilitarian approach is claimed to neglect considerations of justice, because it ignores the distribution of benefits and harms.
Cost - Benefit Analysis:
How do we decide whether a given action is morally right or wrong? The answer given by cost-benefit analysis that maximizing benefits should be the priority is very similar to the answer sorted out by utilitarian. Economists who do cost-benefit analysis claim that certain non market things are hard to quantify in terms of money value but yet it is exciting and challenging (Steven 1981).
Bentham's ideal of a precise quantitative method for decision making is most fully realized in cost-benefit analysis. This method differs from Bentham's hedonistic calculus primarily in the use of monetary units to express the benefits and drawbacks of various alternatives (Mishan, 1976). Primarily hedons and dolors i.e. positive and negative values were used to calculate utilitarian results. Any project the dollar amount of the benefits exceeds the dollar amount of the damages is worth pursuing, according to cost benefit analysis, and from among different projects.
A distinction is mostly made, moreover, between cost-benefit analysis and cost-effective analysis. Cost-effective analysis assumes that there is already some agreed upon end and what is the most efficient means for achieving this end. Cost-benefit analysis, by contrast, is used to select both the means to ends and ends themselves (Baram, 1980).
Experts in cost-benefit analysis attempt to overcome the problem of assigning dollar figure to non economic goods with a technique known as shadow pricing. This consists of determining the value reflected by people's market and non market behavior.
According to Macintyre (1977) cost benefit analysis is offered as a method that is itself value-free and applies only the values that people express in the market. Critics charge, however, that the method is heavily value-laden since the values of the analyst cannot be excluded entirely. Cost benefit analysis requires the analyst to determine what constitutes a cost and a benefit.
However the defenders of cost-benefit analysis reply that any theory is "value laden," and an advantage of cost-benefit analysis that it makes its value commitments explicit, so that they can be "flagged" and properly taken into account. This view has been supported in the work of Boatright (1997, p.46).
A virtue of cost/benefit is that it seeks to lift a murky and endless policy debate out of the realm of ideology or moral preference into a more objective realm of testable factual propositions. The object is to gather the best available evidence of social impacts or costs and then, within a social accounting or utilitarian framework, to compare social prescriptions in terms of their prospects for reducing those costs. Yet, as Alasdair Macintyre has cogently argued, utilitarianism has unavoidable limitations that the cost/benefit specifists seldom take into account.
Pragmatists who present cost/benefit analysis as a value-neutral tool, Macintyre argues, often lose sight of the fact that "utilitarian tests always presuppose the application of some prior non utilitarian principle which sets limits upon the range of alternatives to be considered."(Macintyre 1977)These inputs into the putatively objective cost/benefit analysis are inherently value-laden. When they are not made explicit and are not subjected to the same rigorous tests applied within the circumscribed framework of the cost/benefit analysis itself, they can compromise the objectivity of the entire enterprise.
Criticism has been immense but the allegation to assign monetary value to the non market entities is not only the challenge faced by utilitarian theory but also all other political and ethical theories (Shepley, 2006).
Cost-benefit analysis can be thought of as an attempt to operationalize utilitarianism using economic analysis.
The textbook's template for applying cost-benefit analysis (Harris et al 2000 p. 79):
- Assess the available options.
- Assess the costs and benefits (each measured in monetary terms) of each option for the entire audience of the action, or all of those affected by the decision.
- Make the decision that is likely to result in the greatest benefit relative to cost; that is, the course of action must not be one in which the cost of implementing the option could produce greater benefit if spent on another option.
Problems for cost-benefit analysis are (Harris et al, 2000, pp. 80-81):
- Considerations of justice in the distribution of benefits and costs are ignored.
- Can all of the relevant costs and benefits really be adequately represented in monetary terms?
- What about public (non-market) goods?
- Can a monetary value be placed on human lives?
- It has been used in the past to justify morally unacceptable practices like slavery and child labor.
McMaken (2001) in his article shows how trustworthy the method is to come up with such sensitive decisions such as government regulations etc. In his article he states, "It's the return of cost-benefit analysis.
Coast (2004) argues that money represents a passage to consumption so loss of money can represent the worth of things lost and vice versa. The advantage of using money in analysis is that money is very familiar to people and its worth is highly recognized.
CBA addresses allocative efficiency which is achieved by minimizing the waste of resources and then to make one person better off without making another loose (Rushby & John Cairns, 2006).
Tobacco Industry Ethics:
The study is conducted for observing the tobacco Industry's ethical practices for that reason some literature has been explored regarding the desired objective. Tobacco is a major health hazard and an important economic commodity. It is very rational to say that if it would have been useful to use tobacco products then anti tobacco campaigns must not have been accepted so widely. On the other hand, the market for tobacco is so big that these anti tobacco regulations are hard to implement.
The management of every joint-stock company is commissioned by the shareholders to achieve the maximum profit on the capital invested and to increase its market share. Consequently, a decrease in tobacco consumption or the number of consumers is not in the interests of the tobacco companies. Their goal is to increase production and consumption. The tobacco companies do not, as a rule, make statements implying that the use of their products can lead to illness or death. They may say that tobacco has been considered to be associated with increased risks.
As ethical considerations now are accepted by the tobacco industry itself, an analysis of their practice of autonomy, doing good, justice and doing no harm could be done and analysed (Fagerberg et al, 1990). Now when people make informed choice that is claimed by tobacco industry to be autonomy. When people enjoy the tobacco products and consider them as their need, tobacco industry terms it as doing well to people. Allowing people to make the choices under no authority is doing justice and there is no final medical report for health consequences so that means doing no harm in the eyes of tobacco industry (Tobaks, 1990)
All these arguments can be refuted asserting non-profitable motives in the service of humanity, and with the guiding principle of ethical responsibility formulated by the philosopher Hans Jonas in (1984). Thus the tobacco companies can be accused of misusing the word autonomy as they overlook the fact of chemical dependency on tobacco.
Also, the long-term effects are so immense that it is difficult to defend short-term motives of both consumers and the industry. The arguments for justice and doing no harm are counteracted by the knowledge that use of tobacco leads to lesions, sometimes direct mortal lesions, and by the circumstances that general knowledge based on facts can hardly be achieved to a sufficient degree in a whole population. To sum up, it is insane for the tobacco companies to find moral defenses for their misconduct.
Despite overwhelming scientific evidence against cigarettes, the tobacco industry continues to debate over the controversial results of different scientists for proving or disproving smoking as an important cause of deaths by various diseases (Resnik, 1990).
In the late 1980s and early 1990s, a number of studies demonstrated the ease with which youth could obtain cigarettes and proposed policy and enforcement strategies for reducing youth access to tobacco (Altman et al, 1989). For the most part, the policies advanced by researchers and advocates focused on the retailer, not the adolescent. Many other voices in favor of this approach, argued that purchase and possession laws are ineffective, shift responsibility away from tobacco merchants and the tobacco industry, and are philosophically flawed (Carol, 1992 & Cismoski, 1994).
The tobacco companies not only target geographically but also to the value system a geographical area pursues. It is clearly reflected by the following argument by (Philip Morris 1987) that a system should be developed by which Philip Morris can understand the link between smoking and Islam and be able to identify Islamic religious leaders who oppose interpretations of the Quran that can ban the use of tobacco. They wanted to devise some ways to encourage such leaders. Questioned about the ethics of targeting the world's poor, Rothmans Public Affairs Manager said that it would be silly to not respond to a growth market and we do not know about dilemma because all we are doing is responding to a demand (Sweeney, 1988). An ex tobacco employee interviewed by Marketing Week said that the only way to retain our business is to increase sales to the developing world (Morelli, 1998). Another statement against ethics is that at present, we do not enjoy the support of the print media in Pakistan because we do not advertise in the press but we are thinking to spend something on the print media in an attempt to gain some support from them (Philip Morris, 1994)
The act of smoking in an indoor facility may be viewed as a self sustained act at one moment but, consequentially smokers contribute to the social health of the society and also the economic health of the tobacco industry. Profit may be viewed as a good that needs to be seen in relation to other consequences generated by that activity. Smokers sustain this economic activity which produces a great deal of consequences affecting nonsmokers, as well as society in general. Utilitarianism, as an ethical theory, evaluates the consequences of an act as being moral if it tends to produce the greatest amount of good for the greatest number of people (Mill, 1957). The act of smoking, by itself, is morally neutral, but it does, in fact, produce moral consequences. Applying utilitarianism in this context may be very difficult. Business leaders are accustomed to weighing consequences in arriving at business decisions. But, how is one to determine all the good and bad consequences to all those affected either directly or indirectly?
How can one accurately attribute value to each of these consequences in arriving at the ultimate utilitarian calculation? These considerations must be separately applied to the consequences of total ban of smoking in enclosed facilities. No one can state accurately that the health risks associated with tobacco usage outweigh the resulting positive economic benefits. One may even argue that the health care industry has benefited greatly from the increased revenue associated in treating tobacco related illnesses.
Consumption of tobacco products in low and middle income countries because of strong promotion by the industry is continuously increasing from the last three decades. Rational range of measures should be adopted in order to control the growing tobacco prevalence in developing countries. The strategies such as effective education programs, a ban on all forms of tobacco advertising and promotion, and increasing prices that have shown positive results in Western countries should be adopted and followed (World Bank, 1999).
It has been estimated that there are about more than a million smokers in the world today, with almost three quarters of the total number being the residents of developing countries (World bank & WHO, 1999). The projected worldwide mortality figures from smoking are expected to be 10 million deaths in the next two to three decades again developing countries contributing to the three quarter of the total percentage (Peto et al, 1994).
In Pakistan much of the fertile land is used for tobacco cultivation i.e. about fifty thousand acres (Merchant et al a, 1998). Most of the tobacco grown is consumed within the country. The tobacco industry is expanding at a rate of 5% per year, which is greater than Pakistan's annual population growth rate of 2.6% (Merchant et al b, 1998). It signifies that the number of smokers in Pakistan show an increasing trend. Smoking is quite a common practice in Pakistan. Many isolated reports show that 20-30% people in Pakistan are smokers (Alam, 1998). There is no established record of the health consequences of smoking in Pakistan (Asghar & Jan, 1989).
Barnum (1990) argued that the benefits of tobacco, the sum of consumer's acquired surplus and producer's surplus were more than the direct and indirect morbidity and mortality costs from tobacco use. This is supported by modern economic theory that considers consumers to be the best judges of how to spend their money. When consumers bear all the costs of their actions and are aware of all the related risks then this means resources are allocated efficiently.
Smokers clearly achieve benefits from smoking, such as pleasure or relief from pains and stress and also weigh these against the costs it might incur. This shows that the perceived benefits outweigh the perceived costs else smokers must not have opted to smoke (Jha et al, 2000). There are though arguments against this assumption as well such as the fact that many smokers, particularly in low and middle income countries, are not fully aware of the level of risk involved.
There are many countries where the proportion of total household expenditure that goes on tobacco products is quite high (Sayginsoy et al, 2002). It has been estimated that 2-4% of income spent on cigarettes can have a very high opportunity cost for a family living under poverty line while 10-15% can uplift the family's standard of living (Gong et al, 1995).
Smoking causes heart, lung, respiratory, and vascular diseases and its common outcomes also include heart stroke and numerous types of cancer (Parkin et al, 1994). Smoking habit does not affect a person's health for almost thirty years of its usage depending on the starting age (Murray & Lopez, 1996). Half of the world's lifelong smokers die in middle ages and lose on average twenty years of life expectancy if they had been non smokers (Peto et al, 1994).
The premature loss of a human life has an impact not only on the family and but also as a whole on a country's economy. Treatment cost dues to tobacco related disease, absenteeism, fire cases are some examples of the everyday loss. In 1993 World Bank estimated that tobacco use results in a global net loss of over two hundred billion dollar per year and developing countries make half of the pie. Tobacco losses in the world are more than the current health losses of all the people of the developed countries combined (The World Bank, 1993).
It is not only the global economy and peoples' health that is suffering because of tobacco industry but it is also posing severe effects on the environment. Tobacco production consumes the natural resources that could be used by the cultivation of other useful crops. Global extensive use of wood fuel in the process of curing tobacco leaves leads to deforestation. Cutting forests for tobacco production causes soil erosion. Tobacco growing requires the constant use of strong chemicals that put tobacco farmers at serious health risk. This is particularly true in developing countries, where much of the equipment used for spraying chemicals is not available and so the whole process is mostly manual (Yach, 1996).
Through the media these tobacco giants has convinced people that smoking symbolizes glamour, sportsmanship and style. They have been selling the message that smoking is associated with accepted Western lifestyles and this can be the only hope for them. The best targets who got into this net were mostly young people and women (Warner et al, 1998).
The trend of urbanization in developing countries and changing trends of income among the population have made them attractive targets for tobacco companies (Yach, 1996). The tobacco market is so successful expanded in the developing world that round about seventy percent smoking related deaths will incur in the developing countries in the nest two decades (WHO, 1997).
Comprehensive anti tobacco strategies including tobacco control legislation, pricing policies, and health education not only help reducing levels of smoking but also develop an environment that serves as a platform to not let bad businesses foster. Studies have shown that price increase of cigarette de motivates people from smoking and deters others from ever starting to smoke (Warner, 1990).
There is one thing worth mentioning that the developed countries have not shared sufficient information about why's and how's of tobacco prevention programs with developing nations. Not even basic health affecting data or how to keep record of the health problems related to smoking has been educated to the people of the developing countries. Now we easily witness the consequences of such behaviour that first of all tobacco industry got the big fish and secondly there is a catastrophic rise in the rate of tobacco usage in developing countries.
The other issues are country specific. Developing countries have restricted financial resources and hence they cannot compete against the multimillion dollar advertising strategies of the tobacco companies. Other developing countries are either undergoing political or social transitions that make their economic and political conditions more unstable and that doesn't lead to make tobacco control a priority. This ends up in public unawareness of the health consequences and also on the information to quit the bad thing.
The industry however continues to argue that regardless of its effects on physical health, tobacco plays an important role in the wellbeing of the economic health. Regulation against their business will also end up in job cut and loss of tax revenues to the government. However this has been found out that increasing the taxes will increase government revenue. From any government's point of view, tobacco taxation is a most important source of revenue and it can be raised or lowered very easily with Government's consent.
Among the insidious ways of tobacco industry's growth are to devise ways to influence the public health policy agenda and the media debate about tobacco usage. Ong and Glantz (2001) in a special issue of a Journal show that tobacco companies plan to destabilize already accepted epidemiologic practices and by intervening in various academic and private commercial interests they create perplexity about the role of epidemiology and risk assessment in public policy development. By doing this the industry aims to promote how trivial is the risk attached to tobacco use. Just like eating chocolate smoking cigarette is one additional risky fun.
As far as tobacco control research is concerned the challenges posed on the way are not over but surely have altered. Tobacco companies do not dispute any longer on the fact that tobacco uses cause serious health damage as in case of active smoking. What they still debating about are the scientific evidence about the harm caused by exposure to secondhand smoke. They suggest ventilation as an alternative to smoking bans in public places for passive smoking (Anon, 2001). The advocates of public health keep on putting their and the people's attention to the tobacco industry's role as "the vector of the tobacco epidemic" (Yach et al, 2000). They also expose and highlight industry's role in ignorance towards public health and what ethical concerns arise by such practices (Hicks 2001).
Such countries that are still devising strategies to tackle already existing diseases associated with low level of living due to poverty now have to further face cancers, respiratory and circulatory diseases that are caused by tobacco. More immediate harm caused by tobacco is the loss of intake of healthy food that could have been bought instead of tobacco. These way family resources get wasted on tobacco instead of spending on other essentials (de Beyer et al, 2001).
Let us she some light on how the employees accept the change in their ethical considerations and how such organizations such as tobacco companies become the part of the society that believes to have high ethics. This process of human interaction is not a planned move from one stable state to another, and outcomes cannot be predicted but emerge by trial and error between people (Stacey, 2003; Karp & Helgo, 2008). Organizational change through the lens of complexity is therefore better understood as a socially constructed reality with negotiated power relationships (Grant et al., 2005; Diefenbach, 2007). It has been observed that despite some apparent differences the role of both managers and leaders can be complimentary (Caldwell, 2003Organizational change leaders need to act as change agents (Ian, 2005). Evidence also suggests that change is often not lead exclusively by top executives, but also by staff at other levels. A combination of flatter structures, team based working, and "networked" organizational forms, combined with the concept of "empowerment", dilute as well as complement the formal leadership roles (Caldwell, 2003; Burke, 2002). Balogun & Hailey (2005) and Armenakis and Harris (2007) suggest that change readiness is vital for an organization before attempting to implement and manage any sort of change.
Finally certain dispositional factors are associated with change endurance in an organizational setup. Diggins (2004, p. 34) suggests that 'Emotional Intelligence' is the key to effective performance at times of organizational change. Suliman and Al-Shaikh (2007) observed that 'Emotional Intelligence' of leaders and followers does impact their ability to create and innovate.
An emerging concept among organizational theorists and practitioners is the argument that organizations are complex, non linear systems (Arndt and Bigelow 2009; Black 2008; Fitzgerald 2002; MacIntosh and MacLean 2009; Stacey 2003) therefore it still is difficult to predict the exact standard structure for such operations.
There are many other business matters demonstrated by companies that went through a critical observation all round the world. In many western countries such practices would not be allowed as businesses in these countries undergo a serious process of critical analysis. In short such practices comprise of: acquiring the political dominance and involving government agencies like WHO financially supporting the front groups and other proxy PR processes for the promotion of the cause offering money to scientists or training people to the required level and funding for publishing articles without the disclosure of the funding source ; efficient and effective lobbying to secure the prospects from measures through which the harm caused by its products would be reduced justifying their business through deception such as 'light' cigarettes despite the twenty five year old concept that these products have no faithful record; the enhancements made in tobacco control programs which are likely to collapse has no impact on PR reasoning and to offer solutions that could be effective(Action on Smoking and Health, 2008).
Except for the media there is no reliable evidence yet that can prove the tobacco industry's motives to carry on its promotional activities in the developing world (Simpson, 2000). Despite this fact we can observe that lung cancer is among the leading malignancies in Pakistani men (Bhurgri et al, 2000). If the indirect indicator of such cancers is taken to be growing trends of tobacco use then in such countries in this decade it can easily be anticipated that there will be a definite increase in such malignancies.
Economists keep on arguing that non smokers incur larger health care costs than smokers. The explanation for this is that because non smokers as assumed and recognized live longer than smokers and so when they reach old ages they sustain large health care costs. While smokers pay heavy tobaccos taxes all the way and get little benefit from public pensions than non smokers. So if this is the scenario then taking health as a prime cost will not do justice according to some authors to see when tobacco business holds more cost than benefits. Therefore from an economic point of view it should be calculated that whether production or consumption of tobacco results in net social benefits or net social costs (Pierre, 2001).
About 1.1 billion people worldwide smoke, most of them in low and middle-income countries (Jha et al, 2002). In developed countries of the world, the overall smoking trend is declining, but also it continues to rise among some population sub-groups. In most low- and middle income countries, by contrast, cigarette consumption has been increasing. In most countries today, the poor are more likely to smoke than the rich.
Few people now dispute that smoking damages health, and well over 70,000 articles in peer reviewed journals link smoking with a range of health problems. Smoking-related diseases are already responsible for nearly 5 million deaths worldwide about 1 in 10 adult deaths (Ezzati and Lopez, 2003).
Within a generation, the ratio may well be 1 in 6 of adult deaths, or 10 million deaths a year. Until recently, this epidemic of chronic disease and premature death mainly affected the populations of rich countries, but it is rapidly shifting to the developing world. Already, half of all tobacco-attributable deaths are in low- and middle-income countries, and this is likely to increase to 7 of every 10 people who die from smoking-related diseases by 2020 (Peto and Lopez, 2001; World Health Organization 1999).
Despite knowing these facts and figures governments have not taken any action to control smoking because of concerns about potential economic harm. For example, some economists believe that putting a ban on tobacco industry would lead to loss of thousands of jobs, especially in the agricultural sector. They also believe that the large number of tobacco taxes would result in lower government revenues, and massive cigarette smuggling.
Smoking has two major health consequences. First, smokers rapidly become addicted to nicotine. Secondly, as a result of smoking one might get disabled and or become a victim of fatal diseases, like cancers, heart diseases, and respiratory diseases. In regions where the disease of tuberculosis is high, smokers are more likely to die of it as compared to non (Gajalakshmi et al, 2003). Half of all long-term smokers eventually die as a result of smoking; of these, half die during productive middle age (35-69 years). Finally, smoking also affects the health of nonsmokers, such as babies born to smoking mothers, and non-smokers who inhale "second-hand smoke" while somebody is smoking inside their home, place of work and other enclosed areas.
Policymakers traditionally raise several concerns about tobacco control policies. The first of these is that tobacco controls might cause permanent job losses in an economy. However, falling demand for tobacco products does not necessarily mean a fall in the total level of employment of the country. Expenses made on buying cigarettes can be used to buy something healthy or other goods and services, which would ultimately create new areas of jobs especially for those who lost their jobs because of the ban on tobacco. Many independent researchers have shown that in most of the countries of the world there not going to be net job losses, and that some would see net job gains, if tobacco consumption fell (Jacobs et al. 2000).
A second concern is that the higher sum of amounts paid in terms of tax rates will lower the revenues of the government. Empirical evidence shows that an increase in tobacco taxes typically raises tobacco tax revenues (Chaloupka et al. 2000).
The main reason is that the proportionate reduction in demand is smaller than the proportionate size of the tax revenue increase because people who are addicted to smoking mainly do not care much about price changes.
Secondly, depending on the share of taxes in the retail price, a given percentage tax increase will "feed through" as a smaller percentage increase in the price. Usually, the full tax increase is passed on to consumers, and often the industry will raise prices by an amount exceeding the tax increase (van Walbeek 2003). An econometric analysis concludes that worldwide increase in cigarette excise taxes by 10 percent will increase the revenue generated through tobacco tax by about 7 percent globally, these effects vary by countries as well (Jha and Chaloupka 2000).
Thirdly another concern prevailing among the different policy makers is that if higher taxes are imposed on tobacco, this will lead to smuggling, keeping cigarette consumption high but reducing government revenues. Smuggling poses a massive threat, but even where it occurs at high rates, tax increases bring greater revenues and reduce consumption (Merriman et al., 2000).
Therefore, rather than forgoing tax increases and health gains, the appropriate response is to crack down on criminal activity. The concerted cooperative efforts of Spain, France, Britain, Ireland, Andorra and the European Anti Fraud Office are a good set of recent examples of success in combating cigarette smuggling (Joossens and Raw, 2000).
This fact cannot be ignored that high tobacco taxes have a potential to increase the revenues. In China, for example, conservative estimates suggest that an increase by 10 percent in cigarette tax would decrease consumption by 5 percent and the revenue is going to produce a 5 percent increase in revenue. These increases would be enough to provide financing for health essential package services for one-third of China's poorest 100 million citizens (Hu and Zhengzhong, 2002).
There is empirical evidence of this effect from several countries, including for example, South Africa, where, after large cigarette tax increases during the 1990s, the poorest groups of households showed the largest falls in the percentage of households that bought cigarettes and in the proportion of the total household expenditures allocated to cigarettes (van Walbeek, 2003).
Substitution of the crops is usually proposed as a solution of reducing the tobacco supply, but there is no evidence of any impact on consumption, and nor is it likely to reduce supply so long as the incentives to farmers to grow tobacco are greater than for many other crops.
The national survey of household expenditure held in India in 1986-87 found that between 2.5 and 4% of all household expenditures were for tobacco, pan and intoxicants; the percentage of tobacco expenses was found to be the highest for people who had the lowest income in the setting of urban households (Basheer 1993). Any each of these at least one smoker, the lowest income quartile in South Africa spent 4.7% of their income on cigarettes in the year 1995, and this percentage was gradually on the decreasing side for the groups with higher income, to between 0.6 and 1.3% for the highest income quartiles in the various race groups (Walbeek 2000). Health care costs and lost income because of ill health and premature death are frequently cited by poor people as their gravest concerns.
Smoking is also found to have an association with a number of diseases in western populations (Peto R. et al 2000); association of tobacco use with the diseases have also been found in the Pakistan.
Some analyst argue that as the smokers die earlier than the non smokers so the health costs associated with smokers might be less than the health costs associated with the non smokers. However, this issue remains controversial, and study conclusions are highly sensitive to the assumptions and methodology used (Lightwood et al. 2002).
This section takes into consideration all the equipments necessary for the intended research. First of all the objective of the study is stated followed by detailed description of the methodology used. This section also briefly reviews the data collection and analytical methods that will be further explained in detail in the next section.
Objective of the Analysis:
The main objective of this study is to define business ethics in a unified term that will be able to resolve the ethical dilemma of the existence and working of tobacco industry.
Torrance et al, 2000 distinguish 'what is' and 'what if' studies, with the former tending to have more and better quality data and the later addressing issues before good data are available but when a policy decision is still needed. This study is not just intended to contribute to the evidence in an area of ethical dilemma cases but is the pathway to other research initiatives regarding the subject, whose results would be needed to make a specific decision.
Audience for the Evaluation:
Audience for this study can be:
- Business Ethics Students & Researchers.
- Government (Ministry of Health).
- International Organizations (World Bank, World Health Organization (WHO)).
- Policy Makers.
- Society Decision makers (Smokers, Third party payers i.e. families).
The study is based on one fiscal year that covers all the main costs and benefits that are incurred. This time frame allows for any cyclic variations and covers the period over which an execution plan is set up, implemented and run.
The working of Tobacco Industry is likely to affect four main groups: the tobacco industry, government, tobacco consumers, and third party. The industry of tobacco consists of tobacco growers; tobacco related products manufacturers and suppliers, people importing it, and people retailing these products.
The target population of the study is to measure the effects of the working of Tobacco industry on the above mentioned groups in Pakistan.
Employment information at the grower's level is estimated with the amount of land used for the cultivation of tobacco and the amount of labor required in this regard. In formation is mainly collected from "Pakistan tobacco Board" and from some informal discussions with the leading farmers in the tobacco cultivated areas.
As for the employment at the retail level, estimates have been made using Nielson's research (2007). For Farmers, income has been measured using the profit earned by farmers excluding their crop expenses. To estimate the income at the manufacturers' level, information wages, salaries and business profits has been used. This information was collected from the manufacturing companies' annual reports/accounts.
Published information from annual reports of various companies and insights from Central Board of Revenue (CBR) have been used to calculate the tax revenues. Data regarding Export and Import of tobacco and tobacco related products is furnished by Federal Bureau of Statistics (FBS).
This study as indicated before rely mostly on the secondary for this reason many information sources have been utilized such as:
- Federal Bureau of Statistics
- Central Board of Revenue
- Annual Reports of PTC and LTC
- State Bank of Pakistan
- Pakistan Tobacco Board
- Ministry of Health
- World Health Organization
- Pakistan Tobacco Company
- Forestry Department
Certain modifications have been made to calculate the impact of tobacco industry in Pakistan due to insufficient data and lack of time. They are explained as following:
- The expenditure on buying the cigarette has been excluded from the cost under the assumption of equality with the satisfaction acquired by fulfilling the need through smoking.
- The values of certain heads have been taken as constant values throughout the study span because either they showed constant trend by themselves as the case of Deforestation or no study has been conducted on the yearly basis to mark the changes in them e.g. in the case of Income of Distribution & retailing sector from the industry and Employment in farming and manufacturing sector.
- Since the mortality rate due to smoking in Pakistan has only been calculated in 2000 the same rate has been included in the study however a variable component has been chosen to represent it i.e. average salary which shows an increasing trend with the years.
The study will use Cost-Benefit Analysis to analyze the data and then the certain uncertainties will be considered by doing Sensitivity Analysis (McMaken, 2001).
Decision analytic modeling has increased exponentially in recent years. Modeling appears to be used differently depending on the type of economic evaluation. Nixon et al, (2000) found that models were used in 16.7% of Cost-Effectiveness Analysis and in 20% Cost-Benefit analysis but in 60.2% in Cost-Utility Analysis. In high-income countries, decision analytical techniques have been used with economic evaluation in a wide variety of cases (Chilcott et al, 2003). In low-income countries, there has been less use of decision analysis alongside economic evaluation but it is increasing, helped by a few high-profile examples (Goldie et al, 2001).
There are many other costs to the society of smoking that are in most of the cases not registered or estimated (Chaloupka and Warner, 2000). These costs can be the expenses on the people burnt or other things related to smoking fires. Collins and Lapsley (2002) showed in their study that Queensland Fire and Rescue Service have claimed that 1.9 percent of the fires caused in Queensland are due to smoking materials. Only few of the studies have shown the cost of the environmental impact of passive smoking causing problems like morbidity and disamenity created by tobacco-polluted air.
This research shows the cost benefit analysis of the Tobacco Industry functioning compared with no policy change. The study is not aimed at assessing other solutions to bring reduction in the consumption of tobacco.
Main steps in the cost-benefit analysis:
The analysis will be done in the following order using Benefit/Cost ratio:
- Estimate costs and benefits of working to the tobacco industry.
- Estimate health cost to tobacco consumers.
- Estimate impact on government
- Estimate other effects
- Aggregate the costs and the total benefits into total net benefit value
- Assess uncertainties
- Consider incidence of the policy on different social groups
This section will be based on the data facts that lead to the final findings of the study. Various methodological procedures and sources for collecting data will be discussed and how they justify the demand of the study will be analyzed. This chapter closes with the findings and discussion on the findings of the study. Finally a platform for future research is identified and stated.
Revenue from the Industry:
Tobacco Industry plays a prominent role in the economy of Pakistan by generating income and employment in sectors such as farming, manufacturing and retailing. It also contributes significantly to the national exchequer in the form of tax contribution, and to the social sector through its various corporate social responsibility initiatives all over the country.
Income farming Sector
Tobacco is an important cash crop of Pakistan and is grown mainly in North West frontier Province (NWFP) and the Punjab. Around 74% of tobacco is produced in NWFP, while Punjab follows with 24% share. The shares of Balochistan and Sindh are negligible.
Growing tobacco leaf, particularly Flue-Cured Virginia is a very labor-intensive process, with peak employment occurring at the harvesting phase, followed by curing and grading phases. Consequently, there are substantial fluctuations in seasonal employment as well.
In 2006-07, tobacco worth Rs. 5,480 million was produced. The cost of input can be derived by subtracting the wages of the farmers from the total value added of tobacco crop, i.e. Rs. 5,480 Million. Hence, the cost of inputs is around Rs 1,498 million. This makes it 27% of the total value of tobacco crop.
Income manufacturing sector:
The overall market consumption of cigarettes in Pakistan stood in the vicinity of 77 billion cigarettes during 2007. The market is dominated by two players, Pakistan Tobacco company (PTC) and lakson Tobacco company (LTC). These two major companies jointly have 78% of the tobacco market share by volume. The rest of the 22% is distributed between smaller companies and others (Duty evaded & counterfeit).
According to Pakistan Tobacco Board (PTB), there are more than 20 cigarette manufacturing plants (tax paying sector) in Pakistan. Six of these units run independently. Some of these small units have very low or even zero production.
The two major players collectively have around 3500 employees. The data for the small players is not available. It is estimated that each of these units would have 30-40 employees making a total of about 1000 in almost 18 units. Hence the total number of direct employees in the tax paying sector comes out to be around 4500.
Further more, around 20-25 small units also exist in the tax paying sector as per PTB's estimates. The number of employees in these units is estimated to be 3000-4000.
The total number of direct employees in the entire cigarette industry is estimated to be around 8000. The indirect employment in cigarette manufacturing sector is estimated to be around 48,000.
Cigarette Distribution and Retailing Sector:
Pakistan has a complex distribution and retail structure for cigarette products. A wide array of outlets ranging from small pan shops to huge superstores is involved in retailing of tobacco.
According to credible research there are around 500,000 outlets involved in selling tobacco products at retail level and they are backed by a network of around 10,000 distributors/ wholesalers around the country.
In retail outlets, around 84% are grocery, 13% are convenience and 3% are HoReCa (i.e. Hotels, restaurants and Cafes).
The 500,000 (approximately) retail outlets dealing in cigarettes, are estimated to have about 815,000 people working in them.
On average, cigarette turnover at these outlets makes 16% of total turnover. Taking the same proportion in employment, the number of employees working specifically for cigarettes comes out to be almost 130,000.
There are around 30,000 people working in the distribution and wholesale network. Thus, the number of employees working full-time for cigarettes comes to 160,000. Another 30,000 are indirectly involved in the retail trade.
Table 3: Types of taxation
The tobacco sector in Pakistan has two types of government levies, i.e. direct and indirect taxes. Government taxes are levied on both domestically produced and imported cigarette, comprising of Federal Excise Duty and Sales Tax. However a significant portion of the domestic production falls under the tax evaded category.
It is estimated that the government has lost approximately Rs. 5.5 Billion in 2006-2007 due to tax evasion. Tax evasion takes place through undeclared manufacturing and smuggling of cigarettes. The tax relief to non-tobacco products and the availability of tax-evaded and smuggled cigarettes cause substantial competitive disadvantage for tax-paying cigarette manufacturers.
Federal Excise Duty (FED) is charged and collected on the cigarettes that are manufactured locally and also imported ones on the basis of retail price. For locally manufactured cigarettes, a 3-tier Federal Excise Duty structure exists which is based on retail price. It is combination of fixed and ad-valorem levy. For imported cigarettes, FED is applied at the rate of 63% of the retail price.
In Pakistan about 100,000 people die annually from diseases caused by use of tobacco (Pakistan Health Education Survey, 2000). An estimated amount of smokers in the country is 22 million. 55% of the households have at least one individual who smokes tobacco (Pakistan Health Education Survey, 2005). It is very dangerous for the non smokers to breathe the second-hand tobacco smoke. It can cause a number serious diseases like cancer, cardio vascular problems in children as well as adults, often leading to death.
There have association between tobacco usage and cancer been observed in Pakistan. The demonstration of significant causal associations in the native Pakistani setting makes a very strong case for addressing tobacco as a risk factor at all levels of prevention within the country.
There is no data available to measure the healthcare cost for the treatment of diseases caused by tobacco in Pakistan, but the statistics depict that the cost of treatment is always higher than the revenue generated by the tobacco products. For example, annual cost, both on purchase and healthcare, in Guatemala is $800 million, in Costa Rica $534 million and in India $8 billion. Taking the relative term with India, where approximately 8,00,000 adults die every year due to smoking, the cost in Pakistan would be more than $1 billion, while the total revenue generated by tobacco was $1 billion in 2006. It shows that the cost of tobacco is more than the revenue it produces in Pakistan.
Farmers curing tobacco burn wood to use it as a fuel for the process, which can be upto 30% of the total input costs. This wood is obtained from the market or from the hill slopes, both of which contribute towards deforestation. To give an estimate of the situation, roughly 4,500 kilns for curing tobacco are found in the village Suwarhi, in district of Buner. Every kiln burns roughly 1.4 tons of wood over a over a time span of 7-10 days. And eventually one cycle of tobacco curing for the whole tobacco farming region burns roughly 6,300 tons of wood. And multiplying this amount of wood consumed by the total number of different tobacco producing and curing areas across Pakistan, one can estimate the rate of deforestation situation. A combined informal government pressure and self-assessed corporate social responsibility has encouraged Tobacco companies to launch an impressive afforestation program. Since 1981, PTC has overseen the plantation of 25 million trees at the rate of above 4 million trees per annum.
The main plant species planted are poplar, robinia, eucalyptus, and ailanthus. Poplar is preferred by farmers and also eucalyptus because these grow faster and chances of their survival are high (Shaheen et al, 2006).
According to PTC, the farmers have achieved fuel wood self-sufficiency of 135%. In other words, the plantations more than meet their fuel wood needs.
The inadvertent environmental benefits are more. The plantations have been done extensively and villagers concede temperatures have lowered because of the canopy cover formed by these trees. Both these species also consume a lot of salt and water hence making marshy and salty lands usable.
According to Unpublished source (2008) total Virginia tobacco production in Pakistan is 65 million kg/year. Wood fuel consumption in the curing process is 1:4.5 i.e. for curing 1kg of Virginia tobacco 4.5kg of wood is utilized.
These forest losses are often not analyzed in the cost benefit analysis of the growing of tobacco even it should have been. An official at the World Bank wrote in the middle of 80s "for every 300 cigarettes made in the developing world, one tree is burned" (Ross Hammond, 1997).
The government is losing substantial revenue in billions from the cigarette smuggling inside the country. Aslam Khaliq, an official at Pakistan Tobacco Company blames that the high taxes are the only single and important reason for cigarette smuggling.
Pakistan's government has reported losing Rs. 13.5 billion in terms of tax revenue due to the illegal cigarette manufacturing going on throughout the country.
In order to compute cost benefit analysis two considerations are necessary i.e. the choice of a time horizon and the choice of a discount rate Where the time horizon is concerned though the activities of the industry and the related costs and benefits become apparent by the end of a fiscal year but to see the trends five years have been chosen to see the study impact. The study did not find a need to forecast the future results in the absence of updated data regarding mortality, health hazards and deforestation that are seen to be the biggest cost of the working of tobacco industry.
When all is said and done, some rate must be chosen. It is also clear that there is no full satisfactory rationale can be assigned to any particular choice. People in favor of government investment will demand lower rates and those people who favor it less will demand higher rates. The direction provided for governmental decision making by OMB is a 7 % rate and conducting sensitivity analysis using 5 and 9 percent rates. So the study found it appropriate to adopt this option.
Discussion on the Results:
It cannot be denied that tobacco industry is a major employer of people. However a more relevant question can be that what these people would be doing if they were farming something other than tobacco. In addition, I think it is important to be noted that in most of the countries the small farmers are not the ones to benefit from this crop but the middlemen and, obviously, the big tobacco companies.
Appendix 1 contains the tables summarizing the contribution of various tobacco companies to the Government in the form of Taxes. The data of Imports and exports is also present in the same annexure. The data regarding the income generated by farming sector has been obtained by subtracting the wages of the farmers from the total amount paid on tobacco production. The resultant amount includes the profit margin of the farmers.
Afforestation table has been developed by the help of data provided by the PTC office. By personal communication with Mr. Azhar Ali it was known that the plantation done by the industry i.e. 40 million saplings per year contained 80% poplar and remaining 20% comprise of Eucalyptus, Robinia, Mulberry and Ailanthus. Their per mound (40 Kg) price from PTC helped calculating the total worth of the plants respectively.
Coming to the Appendix 2 with the analysis of the study we can see that the total benefits of the working of tobacco industry in Pakistan surpass the working costs with a greater degree of magnitude. This is due to inappropriate calculation of mortality and deforestation. World Bank has stopped giving aids to the tobacco companies in developed countries because the health impact has become quite significant in those countries due to tobacco use.
The future target market for those companies are the developing countries whose policies and knowledge bank are not yet ready to fight the coming disaster and not even will they be able to till many years. The Developing countries and in case of this study Pakistan should start working on making policies against tobacco use and dependency of the revenues and farming on tobacco. In the coming years government of Pakistan would be facing more cost on anti smoking campaigns and health education regarding tobacco use. Deforestation would become an unavoidable problem unless proper compensation program is designed at the moment.
Sensitivity tests are done to view the results using different discount rate. Though they show no significance variations from the base case.
The study indicates that the working of Tobacco Industry in Pakistan can be termed ethical under Utilitarian School of thought. As for this Ethical theory sees something as ethical if its benefits exceed the costs and if the more are to be benefited and less to be harmed by the action. It is apparent from the statistics that tobacco industry till date generates quite a handsome amount of revenue for the Government of Pakistan and employees a million people that must be supporting millions more. However the cost in terms of deforestation could not be met by the respective afforestation program. A huge difference can be seen between both the values. This could be an additional lethal weapon for the Tobacco Industry in the coming years unless they plan to compensate the environmental loss.
Summary and Conclusion
Ethics is mostly known as the study of decision making that while doing this considers the widely accepted moral standards. One of the ethical questions however is the ethical dilemma, in which an issue has two conflicting but arguably valid sides. A classical ethical dilemma example can be of the debate on allowing the tobacco companies to advertise. If allowed to do so then that means encouragement of an unhealthy practice but on the other hand if they are not allowed to advertise then it is clear discrimination between rights.
The study indicates that the working of Tobacco Industry in Pakistan can be termed ethical under Utilitarian School of thought. As for this Ethical theory sees something as ethical if its benefits exceed the costs and if the more are to be benefited and less to be harmed by the action. It is apparent from the statistics that tobacco industry till date generates quite a handsome amount of revenue for the Government of Pakistan and employees a million people that must be supporting millions more. However the cost in terms of deforestation could not be met by the respective afforestation program. A huge difference can be seen between both the values. This could be an additional lethal weapon for the Tobacco Industry in the coming years unless they plan to compensate the environmental loss.
Though this conclusion satisfies the study objective but with the passing years and by keeping the right track of the costs that in time are not sufficient would change the results significantly. The following section provides the revision of the thesis with a further elaboration of the paradox this thesis creates from the Islamic perspective.
Business ethics is a form of applied ethics that identifies and solves the ethical and moral issues in the business environment. Business ethics has to decide on ethical issues by looking through the lens of the employee, the enterprise or the society as a whole.
It is the situation in which an issue has two conflicting but arguably valid sides. However it is important to note that like the problem the methods for resolving this problem are also not absolute and agreed upon. Even the best models rarely lead to a single answer that is absolutely right, just or fair, but they do point the way to answers that seem more right, more just, or more fair than others Hosmer (1988 a).
Theories for resolving Ethical dilemmas
Several ethical dilemma theories are summarized as follows. Deontology depends on the intentions of a person making the decision or performing the act. Theories of justice explain ethical decisions on the basis of fairness and impartiality. Theories of rights as from the name indicate that the most ethical decision will be based on protecting peoples' right that might potentially be affected by the decision. Social contract theories hold that when individuals become a part of a bigger community such as an organization of a local community then they agree to share the values of that group and also agrees to the means of reaching the agreed upon goals. Utilitarian theories support the idea that ethical behavior results in the greatest good for the greatest number.
The Utilitarian theory was chosen among all others because of two reasons. Firstly it is the closest theory to business practices unlike the rest of the abstract concepts, secondly it is the only theory that takes into account and tells ways to measure some harm done by any object.
Tobacco Industry: An Ethical dilemma case
Tobacco Companies cannot be treated like rest of the companies as all their practices and products are not like other companies. Tobacco industry produces the products that are not only legal but at the same time they are also deadly for their consumers.
There is a need for the research to investigate what ethics do the tobacco industry practice and can they be termed ethical under Utilitarian school of thought. This thesis is one such step on the path. This study as indicated before relies mostly on the secondary.
It cannot be denied that tobacco industry is a major employer of people. However a more relevant question can be that what these people would be doing if they were farming something other than tobacco.
Tobacco in Europe
Christopher Columbus was gifted dried tobacco leaves by the American Indians. As it was brought to Europe it started to be grown all over the Europe. Europeans grew it against a misinformation that tobacco has a healing tendency and that it can cure all the diseases no matter how big or small. In the American Revolutionary War It acted as a security against the loans America borrowed from France.
Tobacco in Middle East
Quite similar to the situation in Europe Tobacco use started by physicians and started to gain popularity through medical manuals and journals in the Middle East. There were not any segments of Middle Eastern society that did not contribute to this constantly increasing demand. Tobacco manufacture in subcontinent started in Akbar's reign. But by 1617 its use had become so widespread that Akbar's successor Jahangir (1605-1627) issued a verdict forbidding the smoking of tobacco.
Tobacco industry in Pakistan
Smoking can be proved as dangerous for people's health but for the economies such as of Pakistan and other such nations, it is the good news that they will always want to hear. The only crop of Pakistan whose yield exceeds the world average is also tobacco i.e. it's per hectare yield equals that of the US and several other developed countries that makes approximately nineteen hundred kilograms.
Need for Policy change
The future target market for the tobacco companies are the developing countries whose policies and knowledge bank are not yet ready to fight the coming disaster and not even will they be able to till many years. The Developing countries and in case of this study Pakistan should start working on making policies against tobacco use and dependency of the revenues and farming on tobacco. In the coming years government of Pakistan would be facing more cost on anti smoking campaigns and health education regarding tobacco use. Deforestation would become an unavoidable problem unless proper compensation program is designed at the moment.
This thesis results in proving the working of tobacco industry as ethical in Pakistan according to Utilitarian school of thought however this creates a paradox from the Islamic teachings. As a Muslim student I need to confess that the only reason for this result is the lack of reliable data of the heath sector, neither was any estimation for the future for the tobacco related diseases. One widely accepted methodology was to win a debate for proving tobacco as an intoxicant and that it has the same affect on the body as wine therefore strictly forbidden by Islamic law as resourced in Quran and Hadith. One example that clarifies the proposition of Islam on tobacco consumption is that Tobacco manufacture in subcontinent started in Akbar's reign. But by 1617 its use had become so widespread that Akbar's successor Jahangir (1605-1627) issued a verdict forbidding the smoking of tobacco Gokhale (2009).
The mathematical approach use to study natural sciences cannot be used to study organizations (Burnes, 2005) and same applies to the organizations from philosophical point of view. Therefore the moral duty of the Author is to clarify the context of the thesis that was purely business oriented and relied heavily on the business theories and some available date. Therefore it is necessary to acknowledge the fact that if the thesis would have been written from the perspective of Islamic dogma, the results would have been all reverse. Therefore it is highly recommended to revise the current thesis from the Islamic doctrine as well.
Future Research Areas
The conducted study can form the base case for many other studies. Firstly it has revealed the importance of conducting the research on dilemma situations so as to find a unified answer for them. Secondly the study lead to many other directions that need to be explored further. Some of the further research suggestions are as follows:
- Tobacco Industry should be studied under other ethical schools of thought e.g. deontology, theory of rights, theory of justice etc so that its dilemma must be resolved and also to see if the various ethical schools of thought contradict in their opinion or not.
- The various aspects of the study unanimously stress upon the need of an integrated approach among the Ministry of Health, World health Organization, medical professionals and community to curb the menace of tobacco use if we want to save the future generations of the country. A census for estimating the tobacco prevalence, morbidity and mortalities due to tobacco use should be done so as to support the tobacco related studies in various fields.
- Studies must be conducted for proposing alternate business solutions to the working of the billion dollar industry in Pakistan i.e. tobacco industry.
- The same study must be conducted for various other developing countries and see what could be done jointly to avoid future consequences if not favorable without compromising on the rights of people to do business.
- Another study could be based on the finding that is Business Ethics just about earning profits or the field has more meaning to it.
There is a need of critical thinking for the survival in the future. More research studies should focus on strategic aspects of the business aspects rather than making short term profits as the base for them. Global thinking must also be a part of all business education research.
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