Thursday, February 17, 2011

Stop Booze Wholesalers Before They Sin Again.

To paraphrase Rick Blaine in Casablanca, “it doesn't take much to see that the problems of drinkers and drink-makers don't amount to a hill of beans in this crazy world.” On the other hand, preventing government mischief before it can occur is good policy under any conditions.

Hence the letter sent yesterday to members of Congress by the trade associations representing America’s 3,500 breweries, wineries, distilleries, and alcohol beverage importers.

Its well-argued plea: don’t co-sponsor the Wholesaler Monopoly Protection Act (also known as the Comprehensive Alcohol Regulatory Effectiveness Act [“CARE Act”]) when it is reintroduced into the 112th Congress as anticipated. (It never came to a vote in the 111th.) I last wrote about it here.

After outlining the contribution the alcohol beverage industry makes to the U.S. economy, yesterday’s letter continues: “Fundamental to our long-term success is a stable regulatory system in which Congress regulates interstate and foreign commerce, and states regulate the distribution and retail sales of alcohol beverages within their borders. This system has evolved and served the public well since the repeal of Prohibition.”

“We do not believe that Congress should spend valuable time wading into an intra-industry squabble and unraveling a successful regulatory structure to the detriment of consumers, the industry, and the federal interest in a fair, competitive, and orderly marketplace for alcohol beverages.”

What the letter doesn’t mention is that in cahoots with the wholesalers are state alcohol regulatory boards, who can’t wait to create larger and more burdensome bureaucracies, not because they care so passionately about alcohol regulation but because they like their jobs and want to make themselves more important.

The wholesalers are only too happy to carry water for the alcohol control bureaucrats because the bureaucrats have no interest in fostering competition at the wholesaler level. When you have the power to grant people very lucrative, low risk business monopolies, they tend to be very cooperative. State legislators are in on it too because booze wholesalers are such generous campaign contributors.

This is only possible because alcohol is already so heavily regulated at the state level, unlike almost any other consumer product. More than 4,000 state alcohol beverage laws are on the books. Every state mandates a so-called 3-tier system, in which consumers may buy alcohol only from state-licensed retailers (bars and stores), and those retailers may buy only from state-licensed wholesalers. Producers (i.e., manufacturers and importers) may not sell directly to consumers nor retailers, only to state-approved wholesalers.

The current system has many flaws, most stemming from the fact that it hasn’t been seriously examined since it was put in place almost 80 years ago. The problem isn’t at the Federal level, it’s out-of-date state laws and regulations.

Nobody disagrees with the public policy goals of state regulation – preventing underage drinking and limiting alcohol abuse – or even with the very high taxes we all pay for the privilege of drinking alcohol. It’s out-of-date rules that accomplish little except maintain the status quo, including inefficient monopolies. Empowering state regulators to cause new mischief will only make the problems worse.

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