TCS Daily

Let the People Decide

By Sascha Tamm - April 7, 2005 12:00 AM

Advertisement bans have been popular with politicians in Europe, though their end may be drawing near. The Financial Times reported last month that EU Enterprise Commissioner Günther Verheugen is moving ahead with plans to end the continent's draconian ban on pharmaceutical companies marketing their medicines to the public.

This would be a milestone and a welcome move. Whenever the media and public opinion create a new "problem" connected to the consumption of certain products, one of the easiest and cheapest proposals is to prohibit advertising of these products. Tobacco and direct-to-consumer-advertisements for prescription drugs are only two of the best-known examples.

Two arguments are usually offered to justify advertisement bans.

First, politicians and pressure groups pretend to know better than average citizens what is good for them. They want to protect people from the negative consequences of using various substances and products. Only recently, the German minister for consumer protection suggested banning advertisement for fast-food franchises like McDonald's. This, it was claimed, would prevent German teenagers from becoming fatter and fatter and from increasing the burden on the health care system. Many other European countries and the European Commission are on the same track. In the UK, government agencies push to ban of various types of advertisement for cars (especially fast cars).

Second, authorities argue that some problems are very sophisticated and people are unable to make good decisions about them. Only experts (in many cases this translates as "government experts") have the proper qualifications. DTCA (direct-to-consumer advertising) for different types of drugs is a striking example. Germany only recently lifted advertisement bans for lawyers or physicists.

The role of the Commission regarding advertisement bans is contradictory. It considers lifting the ban on advertising some types of drugs. At the same time Commissioners are very strict when it comes to alcohol and tobacco (the cultivation of which is heavily subsidized by the EU).

What are the consequences for decision-makers and consumers in reality? Politicians get the opportunity to present themselves as determined advocates of the alleged interests of their voters. The bans are based on a prima facie assumption: If there is less advertisement, there must be less consumption. They will never be blamed for the long-term consequences of their decisions.

So they are unimpressed that all empirical evidence shows advertisement bans do not reduce consumption. If something is really dangerous, the better solution would be to prohibit the product and not the advertisement. Besides, I doubt there are more then very few cases where this kind of prohibition can be justified.

However, the consequences for customers and producers are disastrous. Advertisement bans weaken competition in any market. They result in higher prices and less innovation. For newcomers it becomes almost impossible to enter the market.

Different industries suffer serious harm: Advertising agencies lose markets, newspapers, TV and radio stations lose advertising revenue. Consumers lose a source of information. They have to trust only doctors when it comes to drugs.

An even more dangerous effect for society is the veiling of the real relation between incentives and decisions made by people. It may be irresponsible to smoke or to drink too much alcohol or to eat only fatty foods. This behavior may cause tremendous costs for others. But this behavior is not caused by advertisement. It is caused by the incentives produced by a health insurance system which encourages free riding and living at the cost of others. If people have to pay the price of their own decisions, they will act in a responsible way. They will do so without instructions from bureaucrats and experts.

There are advertisement campaigns in Germany and elsewhere which are really dangerous. The German government spends a lot of money propagandizing in favor of so called "social insurances" or senseless environmental policies. These policies are really harmful in the long run, and everybody will have to pay for the consequences.

However, from a freedom of expression and free market perspective it may not be a good idea to prohibit any advertisement campaign, even if it is organized by the government and paid by the taxpayers. We should trust in the ability of most people to unmask fraud and cheat -- in the long run.


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