History of the Public Smoking Ban

The emergence of public smoking ban can be backdated to 1590 when Pope Urban VII threatened to excommunicate anyone who took any form of tobacco inside a church. Afterwards other European cities enacted smoking bans. Modern, countrywide tobacco ban was imposed in Germany during the rein of Adolf Hitler. In the sunset years of the 20th century, second-hand health related risks of tobacco smoking became more publicized. Coupled with restrictions on cigarette advertising and fear of revenue losses, the tobacco industry embarked on campaigns aimed at “tolerance and courtesy” to reduce the heightened tension between smoker and non-smokers, whilst eluding issues related smoking ban.

Over the years, laws implementing bans on outdoor smoking have been enacted by many countries in various ways. The Irish government became the first country to do so. In one form or another, is also has been enacted in countries such as USA, Norway, Netherlands, Romania, Sweden, South Africa, United Kingdom and Australia. The World Health Organization (1997) survey on tobacco control policies reported that a vast majority of countries numbering to 134 now have some form of restriction on smoking in public places.

The underlying explanations cited for smoking bans in public places has often been safeguarding of the society from the its detrimental effects, which include increased risks of cancer, heart disease, and other acute and chronic diseases. The implementers have often put forward scientific evidence showing that tobacco smoking is harmful to the smokers and to those inhaling second-hand smoke. Air quality has often been advocated by the public one of the advantages of smoking ban.

For this reason, the basis for smoking ban rationale relates to normative economics. Normative economics entails value judgements about “what the economy ought to be like” or what particular policy measures ought to be undertaken to achieve a desirable objective. Since normative economics looks into the appropriateness of particular aspects of the economy, it advocates for economic policies. In this case, the value desirable goal aims at reducing health care costs and improve productivity and create job opportunities, reduced risk of fire, cleanliness in places where food are handled, potential cutback on energy (decreased ventilation needs), reduced quantities of litter, make it easier for smokers to quit, and to promote healthier environments.

Although restrictions attributed to smoking ban are primarily intended to reduce exposure to second hand smoke, it is most likely that there will be a reduction in smoker’s opportunity to indulge. This may lead to significant reductions in cigarettes smoked and consequently the “cost of smoking” Chaloupka and Warner (2000). In particular will be the smokers working or mostly spend most of the time within the Central Business District (CBD) of Nairobi where the smoking ban law is stringent as compared to the suburban. In Ireland, for example, it is said that approximately 7,000 smokers are thought to have quit in the first six months after imposition.

What does this imply? First of all it is essential to acknowledge that cigarettes as products have inelastic demand. Tobacco is the raw product for cigarettes and contains nicotine an addictive substance that has no close substitutes. According to Curbing the Epidemic (The World Bank, 1999), elasticity of cigarette ranges on an average of (-0.4) though it varies from region to region, and from study to study. With this simple observation, it therefore implies that the total quantities of cigarettes consumed by each individual ‘continuing’ smoker will decline, ceteris paribas. This means, that there was an inward shift in demand for cigarettes after the implementation of the ban. Figure 2 demonstrates this implication of shift in demand. Before the enactment of the smoking ban, the consumer’s demand curve was D₁ and the amount spent totaled to Kshs. 100.00 as depicted by the shaded area (OABF). After the enactment, the demand shifted to D₂, hence the consumer total expenditure was Kshs. 50.00 as shown by the area (OACE). Economists have often referred to this phenomenon as non-price measures to reduce demand on cigarette.

The imposition of smoking ban in the proximity of Kenya’s county councils and municipalities includes all workplaces (private and public), businesses and public places (indoor and outdoor) with the exception of restaurants which have been obliged to designate special smoking zones. In the Nairobi for example, there are only three spots in the Central Business District (CBD) allocated smoking zones which do not sufficiently address the needs of all smokers. This ban comes in at the time when the tobacco manufacturing industry BAT Kenya Ltd. has been pushed to a threshold level as a result of tough regulation on advertisement campaign.

What will the consumer do with the rest of the money saved? Since the consumer will be saving Kshs. 50.00, daily it will sum up to Kshs. 1,500.00 per month. This would definitely affect the cigarette position on the consumer’s budget line, assuming the income remains the same. In the Neoclassical economics, the goal of consumer behavior is utility maximization (consistent with maximization of net benefits). This means that the marginal utility of the last Shilling spent on the last cigarette will be equal to the marginal utility of the last Shilling spent on any ‘other’ good (equimargin principle). To get a better picture of this situation, let assume the following:

Table 1: Cigarette smoker’s budget before and after ban

Figure 2 shows the smoker’s (consumer) budget line. Since the consumer is constrained by it the budget line, the new law will results into an outward movement along the budget line of the expenditure dedicated to smoking relative to what is spent on others.

The implication is that the extra money derived from the reduction of smoking will be substituted and spent on others. This may at times result into some level of decrease in demand for inferior goods. Maybe the smoker will buy a gift for his wife or girlfriend, some items for himself, indulge in other activities such as beer drinking to divert from the affects of the smoking ban. In an interesting scenario would be where the consumer will be end up spending on expensive cigarettes since the consumer may want to maximize on utility.

The smoking ban carries along with it requirements that the hospitality sector (hotels, casinos, bars and restaurants) has to designate regions for smokers and non-smokers. In addition it would be a not be a surprise to observe “no-smoking” and “smoking” related signs in these places. This will have a twofold effect which can also be viewed from the point of opportunity cost of smoking on businesses (due to the fact that the new decree is at times not adhered and may be up to the business to decide despite them knowing of the legal risks involved). One will be on the businesses that will follow the decree. These businesses may benefit from the fact that they may not lose on some non-smoking clientele base, but lose on some smokers who may avoid these places due to the pinching effect of the ban. The second would be businesses that would not completely adhere to the decree and may loose on clientele that may not appreciate the fact that they are not being acknowledged, but gain from smokers who may feel that they are not being restricted. In general, economic loss will be experience in varying businesses in the hospitality sector. These include:

The imposing of smoking ban will reduce pollution causing activities since the polluters, that is, smokers will be affected. This will result into increased levels of purified or cleanliness of the air. Unfortunately this does not come free. In economics any improvement linked to the environment has both benefits and costs to the society. There exists a trade-off between how much improvement is gained and how much money is used. This can be demonstrated by bringing together marginal benefits and marginal costs into one figure to provide some indication of the exchange and determine how socially efficient is the environmental improvement. What economists term as the “socially efficient quantity of pollution” means that social benefits will be maximized when pollution is reduced to a certain point. Unfortunately, too much pollution reduction is too costly for us to undertake. In the case of smoking ban in Kenya, net social benefits can be determined by the difference between total benefit (TB) and total cost (TC):

Why? For example in the demand and supply curve, consumer surplus is can be determined by the area above the market price (equilibrium) and below the demand curve, which is similar to our case above. The implications would be that there will be a positive social benefit as results of smoking ban and clean air due to movement from MC₁ to MC₂

This law will entail some long term implication in that it will prevent the youth from smoking at an early stage, as there will be lesser number of people exposed to the perils of smoking. Hence this will greatly benefit the society in terms of reduced levels of current and mostly essentially, the future generation. Furthermore, restrictions on smoking may change the perceived norms related to smoking by changing attitudes concerning the social acceptability of smoking (U.S. Department of Health and Human Services, 1994).

Evidence has shown that hospital admissions related to heart attacks the cases of dropped due to enactment of the ban. For example, after the smoking ban was imposed 2003 in Pueblo, Colorado USA heart attacked cases dropped by 27% while neighbouring towns where the ban was not introduced showed no change. Also a survey conducted in Scotland showed that smoking ban has some positive impact on health. The research revealed that massive health gain as a result of smoking ban. So not only will individual Kenyan smokers benefit in terms of better health (since some would quit while the continuing smokers will reduce indulging) but also potential second hand smokers (such as bar workers and those who spend considerable time with the smokers).

Net social benefit (NB) = Total Benefit (TB) – Total Cost (TC)

NB = TB – TC

In economics, “net benefits are maximized where marginal benefit equals marginal cost (MB = MC)”. The same applies for socially efficient point that occurs where MB = MC and the point where they interact (MB and MC), maximum net social benefits is realized. This is demonstrated in figure 3 where as a result of the imposition of smoking ban MC₁ shifts to MC₂, causing the equilibrium to change from E₁ to E₂.

Since smoking ban results to E₂, then net social benefits is computed as:

NSB = A + B + C – C

NSB = A + B

• Loss of revenue

• Loss of actual employment

• A decline in wages and salary payments

Besides the cigarette manufacturers, the impact of a ban is expected to trickle down the industry chain. This includes the tobacco farmers. In Kenya, there are 300,000 farmers involved in growing of tobacco leaves, which means that there would likely be a reduction in revenue on their side. This will result into some of them halting the growing the tobacco leaves and looking for other substitution to their farming. The fear of being phased out is another determining factor on the future volumes (tobacco leaves) produced unless the tobacco industries takes alternative measures to increase it foreign exports and counter local market situation, hence ensure no decline in local quantities of tobacco leaves demand.

It is obvious that the reduction of health risks will result into less expenditure that the government will spend of health care in the long run. This ensures improved productivity which will boost the production possibility frontier (PPT). Others benefits to the government include gains in terms of less energy used for ventilation needs and possibilities of increased investment.

One would expect that the government revenue would be reduced from the drop in taxes gained from the manufacturing industries, tobacco farmers and the hospitality. Unfortunately this does not seem to be the case. In June 2007, a month before the enactment of the ban, the Kenyan government increased the “Sin-Taxes”. It seems that the government had counter measures of reducing any chances of future loss of revenue in anticipation of the ban in Junly 2007. For this reason, then it appears that the stakeholders (smokers and related industries) took the overall burden. However, the government will need to create more job opportunities for loss in employment. In addition, government will have to give subsidies to tobacco farmers since the new law will reduce their income and discourage them to continue farming.

Since cigarettes contain the addictive substance called nicotine, some smokers may not be able to eventually quit. This may prompt the government to initiate surrogate smoking programs such “smoking cessation”.

One would expect that the new law will impact on the valuation of the tobacco industries. This is definitely true since there was an initial drop in the stock price of BAT stock in the NSE immediately after the ban was enacted. According to The East African, it is estimated that the BAT stocks in the NSE lost Ksh3.5 billion ($48.6 million) in a period of one year. BAT share prices dropped from Kshs. 200 per share to Kshs. 165.00, the lowest during that trading period. In spite of this, today, the stock price has stabilized. This can be owed to the fact that the short run production was affected which led to market speculations of the uncertainty of the BAT in the long run. However, BAT did take counter measures of expanding its foreign market hence giving assurance of long run. Currently, according to Business Daily, so far the BAT shares at the NSE have been stable despite further series of smoking bans by other local authorities. This is consistent with economics of production where all the fixed factors of production are variable in the long run hence ensuring some level of return to scale just as BAT has done to ensure it stays in production. Contrarily, in the short run, a firm is only able to change the variable factors and not fixed factors just as the stock prices of BAT reflect in short run versus long run.