The Morality of Cost-Benefit Analysis

Philip Morris and Cost-Benefit Analysis

In July 2001, the results of a study conducted by Arthur D. Little, commissioned and financed by the cigarette company Philip Morris, was leaked.

The objective of the Arthur D. Little report, “The Public Finance Balance of Smoking in the Czech Republic,”  was “to determine whether costs imposed on public finance by smokers are offset by tobacco-related tax contributions and external positive effects of smoking.”    

The report concluded that “Based on up-to-date, reliable data and consideration of all relevant contributing factors, the effect of smoking on the public finance balance in the Czech Republic in 1999 was positive, estimated at +5,815 mil. CZK.” 

The positive contributions to smoking were calculated as primarily due to tax revenue but also included “savings on housing for elderly and Pension & soc. expenses savings due to early mortality.” In plain language, what the report said was that the Czech government was monetarily better off allowing Philip Morris to sell its cigarettes because early deaths due to cigarette smoking meant, according to the report, better government finances!

The leaked report caused an uproar around the world. The intense pressure forced Philip Morris to change its public pronouncements from an initial defense of the report to an apology for the report’s conclusions. Philip Morris also admitted that it had conducted numerous similar studies in other countries and that it was ending similar ongoing analysis in other Eastern European countries.

U.S. Senator Diane Feinstein said that “by including a cost-benefit analysis of human lives in its calculations, Phillip Morris has stepped well-past the lines of decency and demonstrated, once again, that it conducts business in a manner completely disconnected from any sense of right and wrong.”

Implicit Cost-Benefit analysis

While there can be no support for the actions of Philip Morris, the fact is that we unconsciously and implicitly accept cost-benefit analysis in our daily lives.  

Consider road traffic accidents. According to the World Health Organization, around 1.3 million people (about 16.6 people per 100,000 in India) die due to traffic accidents every year. Between 20 to 50 million people are severely injured each year.

Yet we continue to drive cars and travel by road transportation. The cost-benefit analysis is that while deaths and injuries due to traffic accidents are tragic, we all behave as if we value the use of road travel as more valuable than the 1.3 million deaths worldwide.

The point is that in our personal and business lives, we must become aware of our implicit assumptions. Truly valuing human lives means living with care and thought. We need to be consistent. Criticizing Philip Morris is necessary, but equally important is living a life focussed on not harming others in a range of activities. 

The Buddha taught, “One is not called noble who harms living beings. By not harming living beings one is called noble.”

© Kaikhushru Taraporevala