British American Tobacco - Coursework Example

?British American Tobacco British American Tobacco was ‘born’ international over 100 years ago and is one of the world’s most international tobacco group. They have 50 cigarette factories in over 41 countries and their subsidiaries produce around 724 billion cigarettes. They employ over 55,000 people and are the second largest stock market listed tobacco group in the world (British American Tobacco). According to their official website British American Tobacco mainly deal in products that utilize tobacco as their key ingredient. Primarily they concentrate on the production of cigarettes however they also produce cigarillos, roll your own or pipe tobacco and smokeless snus. The production of tobacco results in a lot of unintended outcomes of production also known as externalities. A lot of these resulting externalities are negative. According to N. Gregory Mankiw- A, a negative externality is an action of a product on consumers due to which negative side effects on a third party result. British American Tobacco produces several negative externalities. Some of these are significant damage to the environment, reduction in economic productivity, pollution, a contribution to world hunger and a exorbitant health care costs that society and not the tobacco industry pays as a result of their products (Babere K. C.) Tobacco leafs that are plucked at tobacco farms, that British American Tobacco owns throughout the world, basically constitutes to the first step in the production process. A huge amount of manual labor is required for this process. Tobacco farms in Milawi, where British American Tobacco dominates the market alone has over 78,000 laborers most of which are children. This constitutes to a negative externality for BAT in terms of child labor. As an effect of handling this tobacco leafs these children, according to The Learning Economist, suffer from symptoms of green tobacco sickness or nicotine poisoning. Deforestation resulting from clearing space for tobacco plantations is another negative externality. Also water used in growing the tobacco has a high level of pesticide applied to it which affects water supplies adversely contributing to a adverse environment implication. Tobacco is stored in giant silos after it is cut before starting the process of manufacturing. These silos occupy a large amount of space. This in terms results in a negative externality as they replace prime land from food production and hence contributing to world hunger. John Madley notes that tobaccos minor use of land in Hong Kong alone control denies 10 to 12 million people of food leaving the government to bear the cost of food imports. When processed tobacco lea arrives at factories it is blended with other ingredients such as flavorings or expanded tobacco. The blended tobacco is treated with the right amount of steam and water to make it supple before it can be cut into cigarettes (Fondez, Web). Although much of the cigarette making is now undertaken by machines as plants are heading towards being more automated however if laborers are over exposed to this part of the production process it can result in symptoms such as severe headaches, abdominal pain, coughing and breathlessness contributing to additional health care costs. The excess use of machinery also leads to the negative externality in shape of excessive electricity used for the purpose of running the manufacturing silos. Once produced these packing machines wrap these cigarettes after which they are moved to a holding silo’s before being shipped off to the distribution channels. Wood in shape of paper is also a natural resource which is depleted due to the cigarette manufacturing process with one unit requiring 4 miles of paper being consumed in an hour for rolling and packaging cigarettes. Furthermore the chemical wastes dumped into the soil which damages the fertility levels of the dumping area (Ygoy, Web). According to N. G. Mankiw-B, the government’s primary response to externalities can be categorized into two ways; the first of these aims to tackle externalities by adopting a direct approach, that is, through command-and-control policies. Regulation a key component of this policy which aims to remedy a externality by making certain behaviors either required or forbidden. For example dumping chemical waste into water supply is forbidden and hence a crime. However there are certain externalities that are complicated in nature and hence dealing with them require a cost benefit analysis to weigh the impact they have on society. An example would be pollution produced as a by product of transporting vehicles. Since transportation cannot be banned policies will have to be formed that develop and enforce regulations aimed at protecting the environment. In United States this task is the responsibility of the Environment Protection Agency (EPA). The second approach to externalities that the government undertakes is that of Market-based policies which provides incentives so that private decision makers will chose to solve these problems on their own. This the government does through imposing taxes that deal with the effects of negative externalities. These taxes are known as corrective taxes or Pigovian taxes. Companies prefer corrective taxes to regulations as a way to deal with pollution as it enables them to deal with pollution at a lesser cost to society. A sub component of this approach is that which encompasses tradable pollution permits. This is a voluntary transfer of the rights to pollute from one firm to another. It does not have any additional effects since the total amount of pollution remains the same. A benefit of this approach is the creation of a market controlled by the government to trade these permits. Furthermore this market will governed by the forces of demand and supply. These policies that are adopted by the government in order to tackle externalities are although comprehensive and effective in most cases but there are highly dependant on one critical standpoint; this is how effectively the implementation of these well thought out policies is enforced. This leads us towards other ways that these externalities can be controlled. Another option is to develop private solutions to tackle this problem head on. These private solutions propose moral codes and social sanctions. The coase theorem suggests the effectiveness of private solutions in terms of dealing with externalities as it proposes that private parties can bargain without cost over the allocation of resources (N.G Mankiw).For example people refrain from littering not because it is against the law but because they know that it is the wrong thing to do. Other private solutions are those in shape of charities, many of which are formed to deal with externalities. For example the Sierra Club, a non government funded private organization which aims to protect the environment from pollution. This alternative benefits the society at large because it formulates a basic pattern of social behavior without the need for the government spending time and money to vigorously impose laws. References Babera Kerata Chacha. From Pastoralists to Tobacco Peasants: The British American Tobacco (B.A.T) and Socio-ecological Change 1969-1999. Egerton University, Njoro, Keny. John Madeley, Big Business Poor Peoples; The Impact of Transnational Corporations on the World’s Poor, (Zed Books, 1999) pp. 53, 57 Fondez. Cigarette Manufacturing Process. Retrieved from: http://discountcigarettes24.com/cigarette-manufacturing-process.html N. Gregory Mankiw-A. The Economics of Public Sector. Principles of Microeconomics. Cengage Learning. 2009. Pg.204 N. Gregory Mankiw-B. The Economics of Public Sector. Principles of Microeconomics. Cengage Learning. 2009. 209-211 British American Tobacco Official webpage. Retrieved from: http://www.bat.com/groupfs/sites/dir_6ykjmv.nsf/vwPagesWebLive/DO6YUBG6?opendocument&SKN=1 Samuel Sajjaaka. From Seed to Leaf: British American Tobacco and Supplier Relations in Uganda. Retrieved from: http://www.cpa.ug/Herman_061.pdf Ygoy. Effects the Environment. Retrieved from: http://smoking.ygoy.com/smoking-and-the-environment/ Read More