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Thirteen is the number of sticks that the average smoker lights in a day. This number doesn’t change much whether you’re rich or poor. So regardless of how much money one makes, every smoker will spend about the same amount of money in cigarette taxes. Granted, the rich smoke more expensive brands but a disproportionate number of smokers are low income earners, so it all balances out.

This makes the tax on cigarettes a regressive tax: The less money you make, the more you pay in taxes as a percentage of your income. The financial, physical, social and moral costs of smoking weigh heavily on those who can least afford it — the young, the poor, the uneducated.

The evils of smoking are clear: its health effects on nonsmokers, cost on our public health system, cause of premature deaths and how it eats into family finances that could have otherwise been used to feed and educate children.

But if things were that simple, why are cigarettes still around? Perhaps the reality is a little more complicated.

The tobacco industry happens to be the second largest employer after the government. For some cities it makes up for more than 90 percent of the local economy. For millions of employees, closing down factories is a life sentence of unemployment. Cigarette tax revenue is a large contributor to the government’s already stretched budget. Finally, regardless of what you think of cigarettes, shutting down the operations of tobacco companies would lead to an injustice as they operate with legal licenses and with the acknowledgment of the government and thus can expect that their contracts are respected.

So while the moral, health and fairness arguments against smoking are compelling, there are equally legitimate practical considerations that have led some to conclude that a smoke-free Indonesia will never amount to anything more than a smoke-filled dream.

Current Shortcomings

As we observe the World Health Organization’s “World No Tobacco Day” on Sunday, it would be appropriate for us to re-evaluate Indonesia’s approach to fighting its war on tobacco.

Given the practical dilemmas alluded to above, Indonesia’s struggle in fighting the evils of smoking is understandable. It has increased taxes, established mandatory health disclosures, enacted stricter laws regulating the advertising of cigarettes and, most recently, began enforcing a 2005 law that prohibits smoking in public places.

These measures, however, are short for two reasons. Firstly, they are too focused on the demand for, and not enough on the supply of, cigarettes; and secondly, these initiatives are merely part of a piecemeal approach that does not have an end goal of putting a complete stop to the sale of cigarettes.

What we need is a solution that addresses these two challenges: instead of suppressing the demand for cigarettes, a cheaper and more efficient solution would be to focus on the supply side by limiting the production of cigarettes. Also, this solution must allow Indonesia to attain the ultimate long-term objective of putting a complete end to the sale of cigarettes, but at the same time mitigate many of the short-term side effects and, by gradually and systematically phasing out the industry, allow employees, investors and the government to adjust to the changes.

A Possible Solution

One possible solution is a “cap-and-trade” system. This is a system widely used in the field of environmental regulation, where factories are issued and are allowed to trade licenses to emit air pollutants. Cigarettes can be addressed in the same way.

The idea is simple: First, the government will set a limit on the total number of cigarettes equal to this year’s annual production; this limit is the “cap” in cap-and-trade. The government will then issue licenses that correspond to the “cap” amount — these are essentially licenses to manufacture cigarettes. Next, these licenses will then be allocated to each cigarette manufacturer according to their respective market shares. Companies may not produce more than they have licenses for and the importation of cigarettes is prohibited. Finally, each year the government will decrease the number of licenses by a certain percentage, in such a way that after 15 years there will be zero licenses. In the course of these 15 years, these licenses are tradeable, meaning that one company can sell their licenses to another; this is the “trade” in “cap-and-trade.”

Under this system, the government’s role is simplified to one of ensuring that companies do not exceed their production limits and making sure that there are no underground cigarette markets — whether in the form of imports or underground factories.

This approach has several advantages: It will lead to a severe shortage in the supply of cigarettes, causing prices to shoot up and the most vulnerable people in our society to be priced out of the market. While those with money can pay for their own chemotherapy, when a poor person has cancer as a result of smoking, he is either left untreated, or the rest of society chips in. While this outcome is not what we ultimately desire, it at least mitigates the cost of smoking on our public health system.

By increasing the tax rate over the 15 years and by taxing both the trading of permits and the sale of cigarettes, the government will collect tax revenues. These revenues will be set aside to fund the retraining and temporary unemployment benefits of workers who get laid off.

The tradeability of these permits would also provide companies a more reasonable mechanism with which to exit the market.

And finally, by having a definite time frame, this will allow both the government and tobacco companies to implement an orderly readjustment plan. The government will need to find alternate sources to fund its budget and companies will need to reorient their investments.

This approach has been criticized for being too slow. My view, however, is that while I continue to maintain that smoking is a socially destructive activity, there are real world complexities that require compromise. Insisting on an overnight smoke-free society is impossible. Such a systematic plan, on the other hand, is a legitimate one that the government can more credibly impose on tobacco companies and has a chance of being implemented — albeit with companies kicking and screaming.

Such a large unprecedented undertaking depends on the government’s determination and will surely face dogged opposition. We should note, however, that our problem with cigarettes is a critical one and can only be solved with an equally drastic solution.

Then and Now

Indonesia’s approach toward tobacco, while well intended, is neither effective nor comprehensive. Its piecemeal approach to such a deeply rooted problem will all but fail, except to serve as a Mickey Mouse victory that the government can present as a facade of success.

Our past efforts are too narrowly focused on the demand side and do not have an end goal of putting a stop to the sale of cigarettes. The problem is, when it comes to addictive products, consumer demand is elastic. Hence, we need to complement our existing measures by addressing the supply side.

I believe in the virtues of individual choice and free markets, so it may be unusual that I am proposing such a system that is seemingly contradictory to these principles. I believe, however, that there are instances where certain activities are so inherently harmful to our society that the government is justified in its intervention. This is the case with heroin, cocaine and driving at 300 kilometers per hour.

The cap-and-trade system is neither perfect nor is it the only solution but I hope that this will contribute toward a discussion that will lead us to a comprehensive, practical and rational solution. With the right approach, a smoke-free Indonesia is not an impossible dream.

John Riady is editor at large at GlobeAsia magazine. He can be reached at john@globeasia.com.