Govt Regulation Benefits the Large, Established, Powerful and Rich

I used to own Altria, the tobacco company that makes Marlboro cigarettes.

Since 1978 Altria is up 12,000% while the S&P 500 is up 2,000%.  It also pays a 3.4% dividend.  I figured it was selling a legal addictive substance and therefore should make a lot of money.

I lost my nerve when I kept reading about new regulations prohibiting smoking. When I read about no smoking outdoors in parks or no smoking in your own apartment if it was a connected apartment complex, I sold. The business press was assuring me that Phillip Morris International which was all the cigarette business outside of the USA, was a better growth prospect. It did seem to me that the Japanese and the Chinese enjoyed their smoking and had less regulation of tobacco. I owned that for awhile but it lagged Altria by a large margin so I sold that.

One of the things that scared me was the FDA (Food and Drug Administration) decided it could regulate tobacco as a drug. I pictured having to go to your doctor to buy a carton of Marlboro.  I should have considered my own advice that government regulation favors the large, the strong, the established and the rich, always.

Now I hear that Altria is going gangbusters. It is quite possible that Altria (Phillip Morris) is benefiting from regulation.


Philip Morris stands to benefit from this regulation in many ways. First, all regulation adds to overhead, and thus falls more heavily on smaller firms. Second, restrictions on advertising help Philip Morris’ Marlboro, a brand everyone already knows, by keeping lesser-known brands in the shadows. (Existing restrictions on advertising have already helped Philip Morris in this regard, with an added benefit spelled out in Altria’s annual report: “Marketing and selling expenses were lower, reflecting regulatory restrictions on advertising and promotion activities. … ”)

Finally, if the bill passes and the FDA gets added control over the industry, Philip Morris, more than any of its competitors, will have access to those bureaucrats and agency heads making the decisions. For all these reasons, RJ Reynolds and other tobacco companies oppose the bills Kennedy and Waxman are pushing.