Q&A: The World Bank's quiet evolution on tobacco taxes

A sign posted reads “No Smoking Zone/Area” at a rural health facility in Dhading, Nepal. Photo by: Aisha Faquir / World Bank / CC BY-NC-ND

WASHINGTON — On Wednesday, World Bank President Jim Yong Kim, former New York City Mayor Michael Bloomberg, a group of finance ministers, and a handful of policy experts will meet behind closed doors to discuss a tax measure that has the potential to save millions of lives.

Tobacco taxes — when they are implemented with the express purpose of reducing the number of people who smoke — offer national governments an extremely effective policy tool for tackling negative health outcomes, William Savedoff, a senior fellow at the Center for Global Development who will also be in Wednesday’s meeting, told Devex.

Savedoff has pressed the international financial institutions to take a more proactive stance on tobacco taxes for years, and he is happy to see that the World Bank now seems to be taking that advice to heart. Devex spoke to Savedoff ahead of Wednesday’s meeting, where the bank will present a new paper it has produced, which argues for countries to make better use of this “underutilized” policy tool.

Savedoff described his early sense of awe at seeing the “knock-your-head-with-a-hammer” obvious association between smoking and health risks, and then the potential effectiveness tobacco taxes could have on mitigating those risks — especially among countries’ poorest populations.

Here’s an excerpt from our conversation with Savedoff, edited for clarity and length.

Your post suggests that the bank’s position on tobacco taxes has changed, with a much stronger position being taken now. Can you say a bit more about how that evolution has occurred?

The World Bank sort of made a big push in 1999, 2000, right up through former Director General Gro Brundtland being at the World Health Organization and the signing of the Framework Convention on Tobacco Control. There was technical work being done then as well about which measures were effective, and that all led into the MPOWER stuff that we now have out of WHO. These are seven major areas of work that we know are incredibly effective at reducing smoking, and therefore saving lives.

But then the World Bank went into this slow phase, or low-key phase. There just wasn’t much coming out of it. One of the major people involved, Peter Heller at the IMF, I think he retired, and the IMF stopped working on this. From about 2005 on, there was not a lot of energy coming out of there. In 2010, my colleagues and I at CGD started saying, why isn’t the World Bank doing more on this, especially on tobacco taxes, because it’s the one organization that has both hats — finance ministry and health ministry.

They solved the problem internally of the separation between the health and fiscal policy group. We’ve been goading them to be much stronger about what they’re saying, because there’s all kinds of blowback from the tobacco companies trying to say — on the one hand it’s this, on the one hand it’s that — misleading stuff. Frankly, I’m actually quite thrilled that this year they’ve got a body of work. They’ve done papers on Ukraine, studies in Turkey and other places, and helped the Philippines pass sin tax reform. They’re just doing a lot of good work now technically, and then to see them push at this visible, public level is just fantastic.

You said that they solved an internal problem related to the separation of the health and fiscal policy groups. Can you explain a bit more about what you mean by that?

When I first started talking to people at the World Bank in 2009, 2010 about this, I just couldn’t figure out why it wasn’t going anywhere. My best guess is that it’s an institutional problem. The people in the health sector get rewarded for doing big health sector loans, which deal with health services, treatment, public health programs, infectious diseases. They don’t work a lot with the ministries of finance. So the effort that they would put in to get a tobacco tax implemented — it would be hard for them to do it, and it’s not their normal mode of business. They’re working on health services, and then the fiscal policy people not only weren’t interested in doing tobacco taxes, but tobacco taxes for them — unless you get through to a fiscal policy person and explain the magnitude of the epidemic and the cost effectiveness of tobacco taxes — their prior to any kind of discussion of a tax is, why should we focus just on this? And if we do a tobacco tax, then we’re going to want a specific tax on skydiving or other dangerous things, or we don’t want to introduce distortions — and what about difficulties of administration? I was just astonished at the number of people who raised these kinds of concerns that are quite well known to anybody who’s looked at tobacco taxes, but then I thought, wait a minute, why should they have read this stuff? They’re fiscal policy economists, not health experts.

The other thing they didn’t like is that tobacco taxes are often proposed as an earmarked tax, linking the revenues to some specific thing, such as health insurance in the Philippines, and they tend to dislike hard earmarking. None of that can’t be overcome. When I say there was a sort of division there, it was as much a division of professional approach. It’s not that they were specifically incentivized not to do this stuff. It’s just, that’s their mode.

Then the effort got interrupted by the Ebola crisis, because the person who was in charge of tobacco was also pulled off for that. It got held up by the reorganization. There are just all kinds of things that get in the way of a large organization like this.

But in the last two or three years, in particular Blanca Moreno-Dodson from the fiscal side and Patricio Marquez from the health side have been instructed to work together, which they’re happy to do, and they’re they co-editors of that new volume that came out. They’re overcoming that internal bureaucratic barrier.

My hope is that with Jim Kim’s attention to it now, it will not be just the few fiscal policy people who have learned why this is such a different topic, but it will start becoming an annual part of the fiscal policy dialogues to say to countries, look, you’ve signed the Framework Convention. You’re committed to raising taxes. Let’s make this part of your fiscal policy loan. We’ll help you with tax administration. The things you learn about tobacco tax administration will help you in other forms of tax administration as part of strengthening revenue mobilization. It just fits the whole agenda so well.

Why do you think the issue is suddenly on the table inside the World Bank? What happened to allow the institution to make a more concerted push on tobacco taxes?

I think a couple of things have pulled together here over the last, say, five years. I’ll take some modest credit — we’ve had private roundtables, and been writing, and publicly embarrassing them, and things like that.

Researchers have been doing a really good job of demonstrating that there are empirical ways to refute the tobacco industry, and the World Bank is always more comfortable when it has that kind of analytical work behind it. If you look at the studies that are coming out now, a lot of them are using the techniques that researchers have already applied in different places.

The third thing is Bloomberg and Gates have put in money. Interestingly, Bloomberg’s strategy has not been to work internationally. Their main focus is to help organizations and think tanks and political groups in countries like China, Vietnam, Indonesia. But they made a small grant to the World Bank of about $10 million for a trust fund several years ago. That’s a trust fund that Patricio Marquez manages. It gave him the capacity to offer project managers funds to do studies to prepare things that would deal with tobacco taxes.

The reorganization of the World Bank was really crazy in a lot of ways, but the pitch they made was that it was going to allow cross-sectoral collaboration. It was going to make cross-sectoral collaboration easier, and conversations I had with one of the vice presidents there who cared about this topic a lot said that because of the Global Practice setup, they were able to tackle this now in a way that was easier than before.

I think it’s a mix of some external pressure from different organizations, the technical support, a little bit of international money, and some internal re-jiggering.

Big name money too. When you get Bloomberg, Gates, and now Jim Yong Kim all at the same table. That’s a pretty impressive coalition.

There’s a celebrity dimension to domestic policy. When I was working in Latin America it was clear that a lot of policies would start becoming common, because they would see their peers in other countries were doing it. It became the new worthwhile thing to do. The more people like Jim Kim and Bloomberg invite finance ministers together to show them that they can actually save lives by implementing tobacco taxes, it just changes the tenor of their interest in this kind of thing.

A new report from the World Bank details the potential impact tobacco taxes could have on health outcomes around the world. Photo by: Michael Igoe / Devex

One of the things you’ve suggested is that the bank could help help create cover for countries that are likely to see heavy pushback from tobacco companies. What might that look like?

First of all, they’re not likely to see pushback from the tobacco industry. They are seeing pushback from the tobacco industry. It’s constant. I had a friend who went into a ministry of finance to discuss tobacco taxes. She said she came out after having a reasonable conversation with this finance minister and recognized that the three people who went in after her were tobacco lobbyists. The Framework Convention says they shouldn’t be talking to them in the first place because it’s a conflict of interest.

In the same way that the fiscal policy people look at tobacco and think of it as a small special interest thing until they get confronted with some of the figures about the scale of the epidemic and cost effectiveness of tobacco taxes, I think the same thing happens with finance ministers. They are reasonably in a mode of engaging with industry, because that’s where the economic growth comes from. For someone to say, ‘you can’t meet with these tobacco executives,’ is weird for them. It doesn’t make sense. When you’re implementing a tax on a new product, you actually want collaboration with industry in some way, because they’re the ones that have to put on labels, or they have to provide you with data. There’s a whole series of reasons why he finance ministries consider it a normal mode to be receiving people — and to trust them or to consider their advice to be a positive thing to learn from.

When WHO goes in and says, ‘those guys are misleading you,’ the finance ministers say, who are you? You don’t understand fiscal policy. You don’t understand taxes. But if the World Bank comes in and says, Philip Morris is telling you to increase their taxes slowly, because they want to maintain their market. They want to keep killing people and making money, and yeah you’ll get more revenues, but you’ll completely undermine the purpose of the tax, which is to reduce smoking. So here’s the World Bank coming in. They understand economics. They understand taxes. So I think that having the World Bank clearly stating what it did in this report is a way to both alert finance ministers to the difference here between tobacco industries and the other ones when they approach, and to have the kind of solid economic grounding that they need when they have to make arguments.

What’s the big highlight in this new report? Is it that the World Bank is taking a more aggressive stance in terms of how countries should pursue tobacco taxes?

I wouldn’t use the word aggressive. What I would say is they’re being really forthright and clear. What they’re doing is grounded in a vision. It’s a clear vision that the purpose of a tobacco tax is to reduce consumption. That’s the primary purpose. There may be all kinds of problems with administering it, or the way people will behave or evade or whatever, but it’s clarity on that the purpose is to reduce consumption — and then using everything we know about taxes and human behavior and institutions and law and administration to figure out how to do that. So, I think that they’re being very clear about the purpose.

It helps them be very clear about the ways to raise tobacco taxes that make them effective in this regard — go big, go fast — and then forthright that the tobacco industry is not your friend. The book isn’t quite as strong on that as I would like, but I was pleased to see that at least it explicitly states some of the facts like, the tobacco companies are responsible for smuggling in Canada and EU and U.K., to try to point out that these guys are not the ones who are going to help you reduce illicit trade. They may actually be the ones that encourage it.

Do you anticipate that the bank is going to get a lot of pushback on this?

I don’t think so. I think that they’re going to get a lot of positive support from the wide swath of international community that care about health. And because it’s so well grounded in the economics and the analytical work, I don’t see how there could be pushback. I’m sure the tobacco industry is going to try to poke holes in this, and they’ll probably start claiming that Jim Kim is being manipulated by WHO or other stuff like that. I don’t doubt that they’ll find sinister ways to undercut the message. But I don’t think that they would bother confronting the World Bank on it.

Where the tobacco industry is these days is country by country. If there is work by the World Bank supporting something in a country, they might come out and try to paint it as an international imposition on the country. Why it’s ok for Philip Morris to impose things from outside but not the World Bank is one of those sub-messages that won’t come out in their advertising, but they’re good at it.

Is there anything in particular you’re hoping will come out of these annual meetings, when it comes to the World Bank’s position on tobacco taxes?

My other hope is that the International Monetary Fund comes on board on tobacco taxes, because they’ve been really wishy washy. They put out some technical guidelines earlier this year. My feeling is that would be the next big win — if Jim Kim and IMF Managing Director Christine Lagarde are both on record as saying, ‘finance ministers, this is worth doing, we could save millions of lives.’

Devex reporters Michael Igoe and Sophie Edwards will be on the ground at the World Bank annual meetings. Sign up for our daily morning briefings and follow us on Facebook and Twitter for everything you need to know from the annual meetings.

About the author

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    Michael Igoe

    Michael Igoe is a Senior Reporter with Devex, based in Washington, D.C. He covers U.S. foreign aid, global health, climate change, and development finance. Prior to joining Devex, Michael researched water management and climate change adaptation in post-Soviet Central Asia, where he also wrote for EurasiaNet. Michael earned his bachelor's degree from Bowdoin College, where he majored in Russian, and his master’s degree from the University of Montana, where he studied international conservation and development.