NEW YORK -- The anti-smoking movement in the United States met with unprecedented success in the decade just past.
Smoking has been declared a passive health hazard by the U.S. Environmental Protection Agency. The American Medical Association has assailed the export of U.S. cigarettes. Smoking is banned on nearly all domestic flights, in two out of five offices and in most public places. Smoking is even being banned in a growing number of jails in the United States.
Domestic consumption continues to decline, dropping another 4 percent in 1989, and smoking, once considered socially acceptable and sophisticated, is viewed by a majority of Americans as a stupid, filthy habit dangerous to everyone.
The tobacco industry is on the run, right?
Wrong. Although the fact infuriates anti-smoking forces, the tobacco industry prospered in the 1980s.
"Despite long-term concerns about cigarette consumption trends, excise tax increases and litigation developments, cigarette stocks since 1981 have outperformed the Standard & Poor's 500-stock index in every year but one," 1985, said Dean Witter Reynolds Inc. analyst Lawrence Adelman.
U.S. tobacco exports grew dramatically in the mid-1980s. They leaped 25 percent last year and are up again, to $1.8 billion in the first five months of 1990. Even in Japan, a difficult market, U.S. tobacco products have 14 percent of the market, up from 3 percent three years ago.
If this kind of performance were turned in by any other industry, it would be hailed as a sterling example of American efficiency, marketing brilliance and superior quality.
But tobacco carries with it the health-hazard baggage. Since the U.S. surgeon general's first report on the dangers of smoking in 1964, the industry has been portrayed as a detriment to good health. And so an industry that serves 49 million people, employs more than 700,000, generated a positive trade balance of $3.7 billion and paid nearly $10 billion in federal, state and local excise taxes in 1988 is under attack on all fronts.
If making and selling cigarettes weren't so profitable, companies such as Philip Morris Cos., RJR Nabisco Inc., Loews Corp., American Brands Inc., UST Inc. and Liggett Group Inc. probably would determine that the regulatory hassle, constant litigation and negative image aren't worth it.
But few manufactured products are as profitable as cigarettes, which make a lot of money for their companies. Operating profit margins for tobacco products range from 40 percent to 50 percent, said Kurt Feuerman, tobacco analyst with Morgan Stanley & Co.
Tobacco is the second most capital-intensive industry in the nation behind petroleum, said Farrell Delman, president of the Tobacco Merchants Association of the U.S. Inc. Machines can make 10,000 cigarettes a minute, he added.
And they are sold 20 to a pack at increasingly high prices, an average $1.60 in the United States. Consumer prices for tobacco products in the United States have risen 6 percent to 19 percent every year since 1980.
Philip Morris is the acknowledged "pricing leader" of the tobacco pack, said Feuerman. He projects Philip Morris' annual earnings growth at 20 to 25 percent for the next decade.
"The only way to stop the Philip Morris machine is to ban smoking, and Washington gave up prohibition in the 1920s," said Prudential-Bache Securities Inc. analyst John McMillin.
These days, anti-smoking efforts range from banning or restricting smoking, to increasing the "sin tax" on tobacco products, to restricting advertising and sales outlets such as vending machines, to persuading institutional investors to divest tobacco stocks, as Southern Illinois University, Harvard University and the City University of New York have done.
About 425 cities nationwide have adopted ordinances restricting smoking in public, said Kevin Goebel, manager of legislative projects for the Berkeley, Calif.-based Americans for Non-Smokers Rights.
"Our goal as an institution is that the country should be smoke-free in public," he said. "We don't preach to the smokers. We're trying to protect people from the smoke, not the smokers."
The Administrative Management Society, based in Trevose, Pa., has tracked smoking policies in corporate America for a decade. Survey consultant Joseph McKendrick said the first survey on the topic in 1980 showed 16 percent of companies had a smoking policy. By this year, that had risen to 68 percent.
Last year, McKendrick added, one of four companies banned smoking. This year, that rose to 38 percent. Eighty-one percent of managers surveyed said smoking should be banned in the office, McKendrick said, though many realize it hurts productivity because people then must leave their work areas to smoke.
The tobacco companies raise cigarette prices every year, and Congress is proposing that federal excise taxes, last raised in 1983, be doubled to 32 cents a pack.
Smokers are outcasts, and they're going to have to pay more.
"The tobacco industry views smokers as a market. The anti-smoking people view smokers as the enemy. Both views exploit smokers," said Bob Rosner, of the Seattle-based Smoking Policy Institute.
The anti-smoking movement contends that 400,000 Americans die every year from smoking-related illnesses, and it has unsuccessfully tried to make the cigarette companies legally liable for years.
The industry has been assessed damages in only one case, the Cippolone case in New Jersey in 1988, and even that $400,000 verdict against Liggett was recently overturned by the U.S. Court of Appeals in Philadelphia.
Even before the verdict was overturned, Feuerman said, "the number of new cases dropped and the tobacco stocks doubled." Litigation peaked at 170 cases three years ago, and the number of cases outstanding is 60.
In a case that seems sure to be appealed to the U.S. Supreme Court, the New Jersey Supreme Court ruled last month in Dewey vs. Brown & Williamson, American Brands and R.J. Reynolds that warnings don't protect cigarette manufacturers from liability suits.
The energy and resources tobacco companies spend addressing liability problems is at least matched by increased exporting work.
International growth for U.S. tobacco companies is strong, said Feuerman, because "American cigarettes are perceived as higher quality, the U.S. companies have a size advantage in marketing and trade barriers are dropping, especially in the Far East."
Without U.S. exports, per-capita consumption of tobacco still would be rising in some parts of the world, the Tobacco Merchants' Delman said. And people have been smoking for hundreds of years. It is a habit unlikely to disappear.
And as long as it remains so profitable, U.S. companies are unlikely to relinquish their leadership position, though the "increasingly hostile environment" for tobacco has become a "way of life" for the industry, said Feuerman.