The cobra effect

This story begins in India in the days of the British Raj.

In Delhi, so goes the story, people were dying because of cobra bites. There was a huge snake population and the venomous serpents were wreaking havoc on the capital.

The British Empire, wanting to save unsuspecting imperialists from the deadly cobras, offered a bounty to the locals.

For every dead cobra, the citizens would be rewarded.

The result? Lots of dead cobras. And soon there were no more cobras to kill.

But this created a problem even worse than what it intended to solve.

The Indians, known to be very enterprising, started breeding cobras so they could get more bounty.

When the British realized this, they scrapped the bounty.

Without any incentive anymore, the locals released their now worthless cobras back into the city, leading to a higher snake population.

Clearly, the British Empire’s solution worsened the original problem.

That interesting anecdote from the 1800s has long been forgotten, but its lessons reverberate even to this day.

In fact, the late German economist Horst Siebert coined the term “the cobra effect” to describe a situation wherein an attempted solution to a problem makes the problem worse.

There is no lack of situations around the world that are clear examples of the cobra effect. I received an essay circulating in the web about some examples and I thought of how our country is also experiencing this.

Two things related to death and taxes came to my mind.

Sin taxes

Let’s look at higher sin taxes on cigarettes for instance.

There are now pending proposals to raise sin taxes.

The measure filed by Sen. Manny Pacquiao to increase excise taxes on tobacco products to P60 per pack is one. It is projected to bring down cigarette consumption by 16.8 percent and encourage some three million adults to quit smoking.

Now who wouldn’t want that? But let’s look at the cobra effect.

According to a presentation made by Japan Tobacco Inc. Philippines president and general manager Manos Koukourakis during a recent Senate hearing, around eight million smokers in the country have indeed quit smoking over the past six years.

But, unfortunately, during the same period, the illicit trade of cigarettes also flourished.

This is not surprising because logic dictates that if prices of legitimate products go up, their smuggled counterparts will flood the market.

And because this is the Philippines, smuggling is very rampant.

Manos, a no-nonsense guy who knows his stuff very well, cited the case of Malaysia which experienced the same thing.

In his presentation, Manos said that at present, out of 16.4 billion sticks in the Malaysian market, nine billion sticks are illicit. Imagine that!

In the Philippines, around 15 percent of cigarettes in the market is smuggled.

So for sure, smoking will increase because smuggled cigarettes are way cheaper – one third of the price of the legitimate products.

Smokers will simply turn to the smuggled versions because they are cheaper.

Against this backdrop, it’s clear that this proposed solution to raise sin taxes – at such high levels – to encourage people to quit smoking and raise revenues for the government may not work.

What’s needed is to find that sweet spot that can work instead of just pushing for exorbitant rates.

Soda tax

I’m not imagining this. The same happened nearly two years ago in Philadelphia in the US.

According to a Jan. 12 article on marketwatch.com, Philadelphia imposed a controversial soda tax two years ago.

The tax was meant to raise revenues and to make people healthier.

However, the article noted that the tax, justified as a kind of “sin tax” in the national war on obesity, did nothing for people’s health.

“Philadelphians didn’t cut calories as a result of the tax on sweetened drinks, nor did they shift toward drinking anything healthier. Instead, most of them just drove outside the city to buy the same old sodas from stores where they didn’t have to pay the tax,” the article said.

The article cited the study by researchers Stephan Seiler from Stanford University, Anna Tuchman from Northwestern and Song Yao from the University of Minnesota.

War on drugs

Another example that is clearly suffering from the cobra effect, I believe, is the government’s war on drugs.

The all-out war against illegal drugs appears to have encouraged violations of the law through extra-judicial killings.

The policemen, either too pressured to perform or – if rumors are to be believed – were given rewards, became abusive. Their only objective became the reward itself or the need to produce drug suspects instead of really putting a stop to the illegal drug trade.

The entry of illegal drugs in the country has not stopped. Just recently, P1.1 billion worth of shabu were seized in Alabang.

This, in reality, is what happened because of the drug war. It resulted in thousands of deaths. And yet, the drug menace is still wreaking havoc on our lives.

So the next time we think of solutions, let us remember how to deal with cobras. They bite, and yes, they’re deadly.

Iris Gonzales’ email address is [email protected]. Follow her on Twitter @eyesgonzales.