Some Details Leak Out

What's in the secret treaty? An economist writes:
Companies can sue governments for full compensation for any reduction in their future expected profits resulting from regulatory changes.

This is not just a theoretical possibility. Philip Morris is suing Uruguay and Australia for requiring warning labels on cigarettes. Admittedly, both countries went a little further than the US, mandating the inclusion of graphic images showing the consequences of cigarette smoking.

The labeling is working. It is discouraging smoking. So now Philip Morris is demanding to be compensated for lost profits....

The proceedings are so expensive that Uruguay has had to turn to Michael Bloomberg and other wealthy Americans committed to health to defend itself against Philip Morris. And, though corporations can bring suit, others cannot. If there is a violation of other commitments - on labor and environmental standards, for example - citizens, unions, and civil-society groups have no recourse.
I can't see why we'd want to further mortgage our democratic institutions to major corporations. Don't they exercise enough control over our form of government already, without granting them a unique right to sue us for any new laws that interfere with their "expected" profits?

13 comments:

Texan99 said...

I'm trying to think of a claim for damages in a commercial case that wouldn't be stated in terms of expected profits. If the profits had been realized, there wouldn't be damage. If the profits weren't reasonably expected, the damages wouldn't be cognizable.

It seems to me that the issue here isn't whether "expected profits" is the right measure of harm. The issue is whether a company has suffered cognizable harm when its expected profits are reduced as a result of the public having been warned that its product is deadly. (That's what I take to be the "democratic process" in play here.) There's an additional question whether the right way to get out the message about the deadliness of the product is to require the company itself to pay for the publicity. We have an odd attitude toward some "deadly" products: don't take them off the market, but try to drive the company out of business indirectly by forcing it to engage in increasingly suicidal economic behavior. (Can you imagine letting a company sell salmonella-contaminated food as long as its cans included pictures of people puking?) In the U.S., we've made it even weirder by entering into settlements with tobacco manufacturers under which the state begins to depend on profits from sales, and therefore can't decide whether to encourage or discourage smoking. Thus all sin taxes.

I guess the other way to look at sin taxes is as a kind of forced retirement plan: go ahead and drink to excess, but we're going to make you save up ahead of time to pay for the people you'll kill while driving drunk, or the liver transplant you'll try to stick the public with when you're sick and broke.

Grim said...

Granted that America handles tobacco very oddly. However, I'm doubtful of the remedy. "Your elected government interfered with my profiting from poisoning the population that elected it, so you owe me damages" is not very convincing.

Texan99 said...

Agreed, which is why I say that the weird thing here is not stating damages in terms of "expected profits," but a company trying to claim that it was harmed by a requirement that it disclose the deadliness of its product.

Grim said...

I think what bothers me about the phrase "expected profits" is that it sounds like the kind of artificial sheltering from market reality that we normally expect you to undertake via purchasing insurance or other instruments. The claim that you expected to make X, and are therefore entitled to X in spite of the market's performance, is the sort of claim the government ought not normally to honor from a private interest.

Texan99 said...

A chance association of word connotations. Would "projected" be better?

Grim said...

It certainly would be. I don't like the mechanism that allows them to punish democracies for objecting to damaging products through democratic action (we agree about that, it appears). I also don't like the connotation that they are entitled to receive what they expect to receive if you 'damage' them via ordinary democratic self-government.

Were we talking about nationalizing their factory, i.e., theft, I'd be of a different mind.

Texan99 said...

Isn't nationalizing their factory a process of ordinary democratic self-government? It's not democratic principles that prevents that kind of confiscation; it's Constitutional due-process limitations on the power of government.

It strikes me that, if a factory is producing a dangerous nuisance, it should get the salmonella treatment: shut it down. If it's not producing a dangerous nuisance, we should leave it alone. I don't understand these half-measures: nationalizing it, taxing it to ruination, regulating it deliberately to death, or taking a share in its profits as a way of retaliating for some level of danger that's just enough to justify looting but not enough to justify shutting it down.

Grim said...

It's hardly self-government to steal from someone else. It is, on the other hand, entirely proper to say, "We as a people want warning labels on things that produce higher rates of disease, so we can make an informed decision." Or, as is as likely, "Though in the past we've allowed factories to dispose of X amount of pollutants via smokestacks into our community's air, we've decided due to increasing smog that we will only allow X minus Y going forward."

Texan99 said...

A lot of people, and in fact basically the entire Democratic party, would disagree with your first statement.

Grim said...

I don't know if that's accurate, but I was giving my own argument, not anyone else's. I generally offer my own principles unless I identify them as belonging to someone else (e.g., 'Aristotle argues...').

Communities operating through democratic means ought to be able to set many ordinary standards for themselves. Due process is important, of course, but persuasion and agreement aren't purely market phenomena. Indeed, in this case, the one-sided nature of the proposed courts seems to be aimed more at coercion than persuasion.

Grim said...

Indeed, the coercive aspect is quite large. If even the legal costs of contesting the settlement are too large for Uruguay, think what the settlement would be. If the corporate court imposed such a settlement on a poorer nation, and some effective means of requiring payment exists, a corporation could effectively reduce the populations of whole nations to a condition close to serfdom. A serf was not free to leave the land, and had to work a certain number of days a year for his lord rather than his family. A 'citizen' is not free to leave his country without obtaining special visas and permissions from the country he might visit, and would have to work a certain number of days a year to pay the taxes that would be delivered up to the corporation each year until the debt was paid.

Quite a penalty for exercising democracy.

MikeD said...

We have an odd attitude toward some "deadly" products: don't take them off the market, but try to drive the company out of business indirectly by forcing it to engage in increasingly suicidal economic behavior. (Can you imagine letting a company sell salmonella-contaminated food as long as its cans included pictures of people puking?)

The issue with this is "who controls your body"? Are you in control and able to decide what you do or do not put into your body, or is the government in control and authorized to forbid you from using a "deadly" product or service? And if the latter (as we sometimes do), where is the line drawn? Are you allowed to consume red meat? Alcohol? Butter? Fugu? If the objection "it is bad for you and increases the likelihood of your death in years to come" is sufficient to ban a product, then what product shall escape banning? If red meats and transfats were all banned in the US, there still would be heart disease, so finding and banning the causes would continue.

And what of risky behaviors? Surely it is more dangerous to ride a motorcycle than a car. Should that be banned? What about skydiving? Or rock climbing? Or any number of other very risky physical activities? If you start down the path of "protecting" people from dangers they choose (tobacco), then where is the logical conclusion? Where does our right to decide what is an unacceptable danger to ourselves even begin?

I am against banning products. Warning labels are fine, insofar as they lay out specific risks, and are actually meaningful (if I see one more "organic" label... ALL fruits, vegetables, meats and anything which comes from an organism are "organic"), but banning a product as "too dangerous" implies that adults are too stupid to make choices for themselves, and must be protected from making the "wrong" choices.

Grim said...

I think warning labels can be great precisely in order to enable self-government and free choice of consumers. The more I am able to know about the contents of the food, for example, the freer I am to elect what food to eat.

All products are dangerous to some degree, so you can't easily have a binary where you permit safe products and ban dangerous ones. Yet as we learn more, sometimes a risk that had heretofore been unknown becomes known. You might well want new labels describing those risks. If that costs a company money because it was selling a product that turns out to be worse for you than we thought, I don't see that it should be on the community to pay the company's loss. It doesn't seem to me that the community should be required to try to remain ignorant and keep buying the product, either. It seems to me that sometimes you make a product -- buggy whips are the canonical example -- that ceases to be interesting to the market for some reason. That's a business risk, not something you should be able to sue over.