Unintended Consequences

Prohibition Works Out Well for Criminal Gangs

It is universally acknowledged that Prohibition was a failure in the United States in the 1920's.  Not only did it fail in preventing access to alcohol, it proved a boon for criminal gangs which were able to prosper significantly manufacturing and selling contraband alcohol.  But, as we are well aware, those who do not learn history's lessons are condemned to repeat them.  Consequently, we find many voices clamouring for prohibitions of various kinds in our day.  Dumb and dumber.

As with the Prohibition movement early last century, there are always plenty of social evils to garnish the argument for prohibiting whatever the evil substance du jour  might be.  Tobacco is the biggie at the moment.  New Zealand has a diverse bunch of wowsers who have publicly committed to making New Zealand "smoke free" by 2025.
  There are lots of incremental steps which are being proposed along the way to get us closer to prohibition heaven: steeply rising excise taxes upon tobacco; banning all smoking in all public places, in cars, on beaches, in places of work; ghastly photographs on cigarette packages accompanying the health warnings; growing restrictions upon advertising; and plain packaging.

In these matters we are following along after Australia. As we lemming along in its wake it is starting to become clear that the unintended perverse effects of Prohibition in the United States are very much alive in Australia more than a century later.  Funny that.  Criminal gangs are flourishing off the (now) illicit cigarette trade, which means that they are able to fund and facilitate expansion into other "business lines" (exactly as occurred in the United States).  Smoking is starting to rise, since contraband has a coolness and an allure which is more attractive than legal products.  And the punitive excise rates upon tobacco which are designed to price it off the market have simply opened up enormous profitable arbitrage opportunities for smugglers.

KPMG has produced an analysis of the unintended (but inevitable) effects of Australia's "war" on tobacco.  No doubt the wowsers feel more self-righteous, but their folly and ignorance is going to end up doing great harm.  Some people will never learn.  This from the Herald Sun:

ILLEGAL tobacco is booming across Australia, funding international criminal gangs, and costing taxpayers more than $1 billion each year.  And the introduction of plain packaging for legal cigarettes has failed, according to a report released this morning.  That report states that ­tobacco consumption in Australia will rise this year for the first time since 2003.  Demand for cheap counterfeit and contraband cigarettes is accelerating, driven by excise increases on legitimate tobacco.  And shops dispensing ­illegal tobacco do so with ­apparent impunity, despite a fine of up to $340,000 for selling a single packet.

The Tobacco Plain Packaging Act, passed in 2011, made Australia the first country to remove all logos, colour and design from cigarette packets.  But a report compiled by the international auditing firm, KPMG, and released exclusively to the Herald Sun, shows that while sales of legal cigarettes and tobacco have slipped slightly in the past 12 months, surging demand for counterfeit and contraband cigarettes and chop chop tobacco has more than made up that shortfall.

The KPMG report was commissioned by big players in the legal tobacco industry. . . .

Despite the bust last month of one illegal tobacco importation ring and the discovery of a huge haul of illegal tobacco in 16 shipping containers at Melbourne's docks, that is the tip of the iceberg, according to KPMG.   In that raid, Victorian police arrested 10 people and seized 71 tonnes of tobacco along with 81 million cigarettes.The haul would have avoided $67 million in excises. Tellingly, guns and other weapons were also found.

But KPMG estimates that 1433 tonnes of illegal tobacco has entered Australia in the last 12 months, an increase of 154 per cent.  It calculates that illicit tobacco is 13.3 per cent of total Australian sales and getting towards a market share enjoyed here by the world's biggest manufacturer, Imperial Tobacco.  Contributing to the problem is that Australians are paying not much short of $20 for a packet of cigarettes, while the same or equivalent brands in our region might be as low as $1.08 in countries such as Vietnam, Cambodia, the Philippines, Indonesia or South Korea, a common source of our illicit tobacco.

The upshot is that NZ wowsers are as stupid as Australian wowsers.  No surprises there.  Australians are dumb.  Yet we New Zealanders are dumber still.  We get to pursue our wowsering even whilst the bad consequences of Australia's folly are emerging as we speak.  Now what does that tell us about ourselves?