Tobacco industry Summary

  • Last updated on November 10, 2022

The industry that evolved around leafy tobacco, more than any other cash crop indigenous to the Americas, provides a study in the dynamics of successful capitalism. The industry’s historic record of phenomenal international economic success, however, must be measured against the nearly century-long process of government investigations, scientific research, and extensive litigation designed to make consumers aware of the substantive health risks from tobacco products.

Cultural anthropologists suggest that tobacco was grown by indigenous Americans as a cure-all and painkiller and to be used as part of religious rituals more than six thousand years before the arrival of Europeans on the continent. Although Spanish explorers during the sixteenth century introduced tobacco to Europe as a medicine (smoking was initially a way to administer daily dosages), settlers in the Virginia Tidewater region during the early seventeenth century realized the potential of tobacco crops for popular consumption–making tobacco the first cash crop grown in the New World.Tobacco industry

Early Growth

The industry quickly grew in the colonies (particularly into Maryland and the Carolinas), as upper-class British developed a taste for snuff and pipe tobacco and rural and working classes for chewing tobacco. Although religious groups in England and in the colonies maintained moral objections against its use, tobacco dominated southern economic development. By the time of the American Revolution, the tobacco industry accounted for more than 100 million pounds of exported leaf annually (the colonial government used the tobacco export revenue as collateral with the French to finance the independence effort). After the Revolution, because tobacco required backbreaking labor and meticulous care from planting to curing, the southern economy came to rely on the slave trade to maintain what had become its dominant cash crop.

U.S. Civil War, U.S.;tobacco industryCivil War soldiers introduced widespread interest in cigarettes over chewing tobacco–rolling cigarettes was cheap and simple. When, after the war, communities began to legislate against public spitting, industry interest in producing rolled cigarettes grew. From an industry standpoint, rolled cigarettes promised much revenue: The process used cut bits of the plants that were usually discarded. The rolling process was painfully slow at first, but in 1881, James Bonsack revolutionized the industry by introducing a cigarette-rolling machine that enabled factory workers to produce tens of thousands of cigarettes per day. In turn, the tobacco industry began an aggressive (and in many ways innovative) campaign to market cigarettes to the growing northeastern urban centers and to markets in Europe. Economists estimate that more than one-third of the internal revenues collected by the American government during the Gilded Age came from the excise taxes from the tobacco industry alone.

A Boost in Popularity

Despite zealous reformers who sought to curb smoking, by the early twentieth century more than 3 billion cigarettes were being consumed worldwide. Companies such as Phillip Morris, R. J. Reynolds, and the American Tobacco Company thrived. Their market reach was greatly enhanced by World War I, as battle-weary soldiers were drawn to the simplicity of a smoke and to the calming effect of nicotine. The resulting cultural cachet was in turn enhanced during the Jazz Age, when smoking (especially cigars) became a significant element of chic American culture. By then, the industry was targeting women; Marlboro and Lucky Strikes were among the first so-called gentler cigarettes aimed at that demographic.

A tobacco market in Louisville, Kentucky, in the early 1900’s.

(Library of Congress)

The tobacco industry reached its greatest success after World War II[World War 02];tobacco industryWorld War II, when millions of soldiers, whose C-rations had routinely included cigarettes donated to the war effort by the tobacco industry, returned home addicted to the product. In the postwar economic boom, tobacco companies launched an unprecedented Advertising industry;tobaccoadvertising campaign, employing clever sloganeering, captivating jingles, and celebrity spokespeople, and using the power and reach of the new media, television and radio.

Cigarettes seemed to be everywhere–television and motion picture stars, politicians, entertainers, and athletes smoked. By the mid-1960’s, cigarettes were the most advertised American consumer product in the world; soft drinks were a distant second. Remarkably, during the 1950’s, cigarettes became an integral part of two apparently opposing demographics–the conservative suburban lifestyle and the burgeoning counterculture movement, which regarded smoking as part of being cool and rebellious. As the production process became nearly entirely automated, moreover, the industry maximized production levels with a minimum workforce.

Health Risks

In 1826, nicotine was first isolated and defined as a poison. Safety, consumer;tobacco industryA substantive element of the medical community had investigated the health risks of smoking ever since, but the tobacco industry had successfully outmaneuvered the attempts by the Food and Drug Administration to enact sumptuary regulations against cigarettes by promoting smoking as a kind of wide-ranging therapy, able to both soothe and energize its consumers. As smoking became a national phenomena (during the mid-1950’s, nearly 60 percent of American men and nearly 30 percent of women smoked), scientists, tracking the health of veterans from both world wars, raised increasingly strident cautions about the links between smoking and a variety of respiratory conditions, most prominently lung cancer. The tobacco industry, however, maintained that nicotine was neither addictive nor carcinogenic.

It was the bombshell report made public on January 11, 1964, by the Office of the Surgeon General (the first of a decade’s worth of increasingly alarming reports) that first brought national attention to the risks smoking presented, including cancer, emphysema, heart disease, and chronic bronchitis. Indeed, within two years, tobacco companies were required to add a printed health warning on every cigarette pack–but because of high pressure from the tobacco industry, the warning was kept vague and would not state explicitly that smoking endangered health until 1970. The industry, in turn, responded with much-publicized alterations to their products, most notably lower-tar and filter-tipped cigarettes that were said to lower health risks.

Increasingly scrutinized by investigative reporters, crusading lawyers, and consumer advocate groups, the tobacco industry followed a clear and consistent line of response. It questioned the validity of any medical data that suggested definitive causal links between smoking and health risks, insisted on the intrinsic economic value of the tobacco industry to the American economy, and maintained a vocal lobby that mitigated any proposed legislation geared at prohibiting the sale and distribution of the industry’s products. After the Federal Communications Commission (FCC) ruled that promoting smoking without adequate indications of the risks was misleading and irresponsible–and despite enormous pressure from the tobacco lobby and stubborn resistance by the southern bloc in both the Senate and the House–a sweeping legislative package in 1970 effectively prohibited advertising cigarettes on television and radio. Print media would follow. Celebrities now appeared in public service advertisements, sponsored by the American Cancer Society, encouraging smokers to kick the habit.

As early as 1974, nonsmokers’ rights groups campaigned to restrict smoking in public areas, becoming more aggressive after several landmark 1980’s studies detailed the effects of secondhand smoke. In 1979, the Office of the Surgeon General made public disturbing data that suggested the deleterious effects of smoking on pregnancies, most notably a rise in stillbirths and premature births. New alarms were raised about the health risks of smokeless tobacco. In 1993, the Environmental Protection Agency(EPA) classified cigarette smoke as a Class-A carcinogen. An increased effort was made to restrict marketing strategies by the tobacco industry in print media that targeted teenagers (most notably the long legal campaign during the late 1990’s directed against R. J. Reynolds’ cartoon advertising mascot Joe Camel). Although the tobacco industry countered with their own data that suggested quite opposite conclusions, by the early 1990’s, the big tobacco companies and their representatives were widely demonized as duplicitous, ruthless, and mercenary.

By the mid-1990’s, although less than 30 percent of Americans now smoked, smoking-related diseases had become the leading preventable cause of death; state governments assessed progressively higher taxes on cigarettes to deal with the mounting catastrophic health care costs. The most prominent tobacco companies began to diversify their product lines to adjust to what was becoming an increasingly strained economic environment. Philip Morris and R. J. Reynolds, for instance, acquired dozens of food product lines during the 1990’s; Liggett & Myers expanded into computers and the lucrative trading card industry; American Tobacco acquired numerous prestige liquors; and Lorillard Tobacco branched into international shipping and resort hotel management.

Litigation and Its Aftermath

It was in this charged atmosphere that the tobacco industry began to face a wave of litigation from states that accused it of withholding internal studies that suggested long before the 1964 report that their product was both addictive and carcinogenic. Although the industry had fended off such litigation for decades, revelations from leaked internal memos and a succession of industry whistle-blowers indicated that the industry executives had been aware for decades of nicotine’s harmful effects. In 1994, enormous pressure from such revelations led Liggett & Myers to settle a lawsuit filed by twenty-two states, effectively admitting that cigarette smoking caused health problems and, far more problematic, that their marketing strategies had targeted teenagers.

The impact of that settlement was an unprecedented number of legal actions brought against the tobacco industry by nearly all the states. The result was the landmark 1998 settlement known as the Tobacco Master Settlement Agreement (1998)Tobacco Master Settlement Agreement. At the petition of forty-six state attorneys general, the four major tobacco companies–R. J. Reynolds, Brown & Williamson, Lorillard Tobacco, and Philip Morris USA (later joined by close to forty other tobacco companies)–agreed to pay an estimated $206 billion over twenty-five years to those forty-six states to help meet skyrocketing smoking-related Medicaid costs. Florida, Minnesota, Texas, and Mississippi had previously reached separate agreements with the industry.

An additional $6 billion was set aside to support tobacco growers put at economic risk by the settlement. In addition, the tobacco companies agreed to restrict advertising and marketing of all tobacco products. Lastly, monies collected from the settlement would be used to establish the American Legacy Foundation, an advocacy group that would maintain high-profile advertising campaigns targeted at discouraging teenagers from starting to smoke.

That such a settlement–the largest civil settlement in the history of American jurisprudence–did not effectively cripple the industry points to its resourcefulness. That an industry that kills one-fourth of the consumers who use its products continues to thrive and does so without sustained advertising or deep marketing is one of the most persistent paradoxes in American business. There were immediate ramifications to the settlement: massive layoffs, a precipitous price increase, and the relocation of processing plants to developing nations, where production costs would be considerably cheaper.

As opponents of the tobacco industry quickly pointed out, however, the settlement missed the opportunity to end tobacco product manufacturing once and for all. Further, the settlement did not reflect the urgency of substantive medical data and the long-term possibilities of additional health risks from continued consumption of such products. Indeed, even as tobacco consumption declined in developed Western countries, long before the 1998 landmark settlement, the tobacco industry had already turned its attention overseas to less restricted markets in nonindustrial countries. It had particularly explored newly opened markets in the former Soviet Union, Asia (most prominently the massive markets of rural China), and the underdeveloped interior of Africa. These markets promised billions of dollars in unregulated sales.

Indeed, industry data during the early twenty-first century indicated that more than 5.5 trillion cigarettes were still being smoked worldwide annually by upward of 700 million smokers; thus, the diversified American tobacco companies still compose one of the most profitable and recession-proof industries, although courts are still assessing dozens of civil suits brought by individuals in the wake of the Master Settlement. Despite the steady decline in the number of smokers in the United States and despite overseas growers, most notably China and Brazil, that have eclipsed the United States in leaf tobacco production, the American tobacco industry has survived. In the wake of the full disclosure of the health risks of its products, it offers those same tobacco products to domestic consumers as lifestyle choices and an assertion of individual rights.

Further Reading
  • Gately, Iain. Tobacco: A Cultural History of How an Exotic Plant Seduced Civilization. New York: Grove, 2002. Definitive account of the evolution of the tobacco industry that suggests how cultures shift between attraction and repulsion. Includes the economic impact as well as the influence of tobacco on American politics, culture, and religion.
  • Kluger, Richard. Ashes to Ashes: America’s Hundred-Year Cigarette War, the Public Health, and the Unabashed Triumph of Philip Morris. New York: Knopf, 1997. Pulitzer Prize-winning study of the industry from its roots, particularly focused on its long campaign to subvert public investigations into the health risks of tobacco. A strong anti-industry bias.
  • Mollenkamp, Carrick, Joseph Karl Menn, Joseph Menn, and Adam Levy. The People vs. Big Tobacco: How the States Took on the Cigarette Giants. New York: Bloomberg, 1998. Essential reading on the 1998 settlement and the long investigation leading up to the suit, provides clear account of the rise of the tobacco industry after World War Two.
  • Parker-Pope, Tara. Cigarettes: Anatomy of an Industry from Seed to Smoke. New York: Norton, 2001. Historical (and generally unbiased) account of the rise of the tobacco industry and its impact on the economic evelopment of the South.
  • Zegart, Dan. Civil Warriors: The Legal Siege on the Tobacco Industry. New York: Delacorte Press, 2001. Behind-the-scenes look at the legal challenge to the industry during the 1990’s leading up to the landmark settlement case. Effective look at the psychology of whistle-blowing.

Advertising industry



U.S. Department of Agriculture

Colonial economic systems

Farm labor

Food and Drug Administration

Plantation agriculture


Slave era

U.S. Department of the Treasury

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