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Other industries observing tobacco firms' treatment

John Hall

Sunday, April 12, 1998

WASHINGTON

So, the battle is joined: Big Government vs. Big Tobacco.

It is hard to think of two native classes held in lower esteem than Washington politicians and tobacco company executives, unless it is the news media, your referee and judges at ringside. Nonetheless, how the cigarette fight plays out here in the coming months could affect a lot

more than the tobacco industry. It could set the scene for what other industries can expect to encounter when government, for one reason or another, is drawn into their affairs.

The day RJR Nabisco's chief executive officer, Steven F. Goldstone, defiantly pulled out of the tobacco settlement, the uniform macho response here from Congress and the White House was: "Here's your hat. We'll settle this ourselves.'' Both Joseph Califano, the liberal anti-tobacco former Health, Education and Welfare secretary, and House Speaker Newt Gingrich sounded the same note, branding the industry as purveyors of an addictive substance to children.

One of the few moderating voices came from Bill McInturff, a Republican pollster who says he has not done any work for the tobacco industry, unlike most of his colleagues.

While conceding that the standing of tobacco companies in public opinion makes it possible for political leaders of both parties to attack the industry "with relative impunity,'' McInturff warns there is a price to be paid for the way Congress and the White House have handled this matter.

Other industries now may be watching the destruction of the tobacco settlement as a sign there is not much future in offering concessions in negotiations with government, McInturff says.

The tobacco industry, for all its faults, went a lot further than anyone had supposed it would in the $368.5 billion settlement worked out with state attorneys general. In exchange

for immunity from litigation and some predictability about their future, the tobacco companies were willing to accept steep cigarette price increases, restrictions on advertising and heavy penalties for failure to reduce underage consumption of cigarettes.

But when the settlement got to Washington, politicians under pressure from public health advocacy groups kept raising the bar. The price of the agreement went up, and the industry's incentive went down.

There is a generic message to industry in all this, McInturff said. "If you try to do something reasonable, they'll just up the ante.''

To be sure, this was a maelstrom of the tobacco industry's own making: Boxes of documents being released under court order in Minnesota are purported to show deliberate marketing of cigarettes to children as well as the manipulation of nicotine content to increase sales.

Nonetheless, Goldstone's point -- that tobacco firms tried to work with Washington and were treated like a Brinks truck overturned on the highway -- is one that may not be lost on other industries who run afoul of public opinion.

Health maintenance organizations, which are in big political trouble because of early hospital discharges and the bottom-lining of medical care, may not be in a mood now to make concessions to get Congress off their backs. Microsoft Corp., which may be facing the biggest antitrust case since the breakup of AT&T, could be more likely to fight to the last window than try to settle amicably with a government that seems interested only in retribution against a predator.

The only people who benefit in these wars are the lawyers. The price that is usually paid is a lot of wasted motion and the violation of basic rules of the marketplace.

But the history of U.S. government and industry has been adversarial for much of this century, reaching a crescendo in the 1960s with President Kennedy's collision with big steel. Since the Reagan administration, regulation of business has been carried out with a lighter hand. It's too light a hand, according to critics, but some economists believe the improved climate in government in the 1980s and 1990s has been a key ingredient in the long period of sustained growth and productivity.

Is this era of government-business cooperation about to come to an end? If the cigarette settlement collapses, or a settlement is imposed by Congress to punish an industry facing ruin, we may have a partial answer.

John Hall's e-mail address is: jhall@media-general.com

©Media General News Service

© 1998, Richmond Newspapers Inc.