Report on the Social Costs Of Alcohol Abuse Workshop:

Université de Neuchâtel, Suisse, October 24-25th, 2003.

Keywords: Health;

The conference was centred around the launching of a study commissioned by the Swiss Federal Office of Public Health to assess the costs in Switzerland of alcohol misuse, prepared by a team from the Economics Department of the Université de Neuchâtel, led by Professor Claude Jeanrenaud. Additionally, a number of international experts were invited to give papers on broader issues. The report International Guidelines for Estimating the Costs of Substance Abuse (2ed), written by some of these experts and just published by the World Health Organisation was, in effect, also launched. This report highlights and reflects upon some of the papers presented at the conference.

Leaving aside a large amount of interesting institutional material about Switzerland (including that criminal activity is very low – its taxation framework will be mentioned below), the Swiss study is particularly valuable because it has paid considerable to the issues of measurement of the intangibles than most, and progressed the measurement of intangibles. Particularly valuable has been attempts to measure reductions in the quality of life by surveying individuals’ (contingent) valuations. This belongs to the willingness-to-pay approach which I and The Guidelines favour, but advances the method. There is no doubt that the third edition of The Guidelines (the revision is likely to begin in 2005) will pay considerable attention to this work. (Other papers from the Neuchâtel team collected other useful data for social costs studies, such as on employment, although the precise magnitudes may not be internationally transferrable.)

I do not propose to report upon the overall study estimates. Claude Jeanrenaud attempted to compare them with other studies in other countries. It is evident that there is still considerable variation in the application of the Guidelines which continue to make international comparisons difficult. My impression is the costs of alcohol misuse in Switzerland are in the middle of other Western Countries for which data is available. The study has to be seen in a context of the Swiss turning their attention to the misuse, them being at an earlier stage of developing a strategy than New Zealand.

Two groups of papers(there were 18 altogether) grabbed my attention. Developments in Australia are particularly important to New Zealand. Helen Lapsley and David Collins reported on their work estimating of the costs of attributable crime to alcohol misuse. This represents a major development over the last decade, for earlier the task was though impracticable. Even now criminology does not have the sophisticated ‘attributable fractions’ that epidemiology currently provides, and Lapsley and Collins were involved in a tedious process of working with criminologists to derive workable estimates. It turns out that while there is some ambiguity (as when there is co-dependance between alcohol and illicit drugs) it is clear that the social costs of alcohol attributable crime are significant – amounting to about .2 percent of Australian GDP. Applying that to New Zealand we should add perhaps a further $200m to my annual costs of alcohol misuse in New Zealand.

The other Collins and Lapsley paper drew attention to their low – almost zero – estimates of net costs to the health system of alcohol use, and a correspondingly low reduction in human capital in Australia. These differ significantly from my estimates for New Zealand, arising from different counterfactual assumptions. My counterfactual assumed that there was no alcohol misuse, whereas the Australian study assumes there is no alcohol consumption at all. Since modest levels of alcohol consumption have been found to be beneficial to health and longevity, their zero consumption assumption eliminates these benefits. The low net costs to health and human capital are not consequence of any economics, but of the epidemiological research, with the economics hilighting its finding. The conclusion emphasises the tension which alcohol policy has faced for some decades, when it was recognised that all alcohol consumption need not be detrimental (although in the past the assumption it had been assumed that modest consumption was generally neutral to health, whereas more recently epidemiologists have identified a mild net benefit).

What constitutes ‘modest’ consumption depends on circumstances. In the case of pregnant women modest consumption levels are thought to be zero. A telling paper by Ric Harwood evaluated the costs of a case of Fetal Alcohol Syndrome (FAS) – arguably the most common (known) non-genetic cause of mental retardation. Harwood, one of the most cautious in the team which developed the Guidelines, estimated the lifetime costs of a child suffering FAS as around $US750,000 in the United States. The figure would not be as high for New Zealand, but it suggests that, say, a $250,000 prevention program which stopped but one case of Fetal Alcohol Syndrome would be economically justified. (Rates for FAS are usually though to be about 1 per 1000 live births, but the figure is subject to a large margin of error. This might suggest there are about 50 cases of FAS a year in New Zealand, plus further children who suffer some other (milder) fetal alcohol effects.)

A second paper by Donald Kenkel and Tsui-Fang Lin also examined FAS and looked at the impact of pregnancy and taxes on women’s alcohol use. It found that pregnant women reduced their alcohol consumption (on average by half), an effect reinforced by higher excise duties. Since it is not practical to raise duties only on pregnant women, the research’s policy conclusion might be that pregnant women are receptive to the notion they can improve their babies’ health by lowering – and eliminating altogether – their alcohol consumption during pregnancy.

My presented paper, The Economic Regulation of Alcohol Consumption in New Zealand ended the conference, nicely balancing the opening paper which was a plea from the Swiss Federal Office for Public Health, for more assistance to the development of public policy to reduce alcohol misuse and its consequences. Alas, Swiss constitutional arrangements preclude the use of excise duty in a manner similar to that in New Zealand. (I can also report that there was some amazement – even envy – that the policy recommendations in a scholarly work like my report Taxing Harm could be implemented within six months. I explained that treasuries with the constitutional power like to deal with tax loopholes quickly.)

In the dinner of the international experts after the conference, considerable interest and support was expressed for the principle of using excise duties on alcohol primarily for the purpose of minimizing harm. This has been stated as a policy position in New Zealand cabinet papers (with the caveat there is also a revenue raising role to cover the social costs of alcohol misuse) although, as my paper argues, it is yet to be integrated into officials’ policy thinking. In the general discussion which followed, the experts urged that this approach be pursued and bedded in, and at least one remarked that New Zealand led the world. They hoped our leadership would enable their countries to adopt a similar policy framework.

Conclusions and Directions

(1) The growing evidence of mild health benefits from modest levels of alcohol consumption supports the New Zealand policy approach on the focussing of minimizing harm (including drinking which causes harm) rather than attempting to reduce aggregate alcohol consumption.

(2) There was a general agreement with the New Zealand approach of using excise duties on alcohol primarily for the purpose of minimizing harm together with a revenue raising role to cover the social costs of alcohol misuse.

(3) Priority areas in the development of estimation of the social costs of substance abuse appear to be
– improved application of common principles for international comparisons;
– better estimates of the willingness to pay for valuing intangible costs;
– more work on, and the incorporation into aggregates, of the costs of alcohol attributable crime;
– and, of course, more data.

(4) Preventing cases of Foetal Alcohol Syndrome (and the other, albeit lesser damaging, foetal alcohol effects) would appear to give a very high return on social investment.

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Attendence at the conference was made possible by grants from the Economics Department of the Université de Neuchâtel and the Alcohol Advisory Council of New Zealand: Te Kaunihera Whakatupato Waipiro o Aotearoa. I am most grateful to both institutions and to the host Claude Jeanrenaud and his support team. It is planned to publish the proceedings of the conference.