America Should End Its Socialist Liquor System Now

 

Karl liked his brewski as much as the next guy.

According to etymologists, the word 'socialism' has its root in the Latin sociare, which means to combine or to share. To many on the political right, 'socialism' is a word they use to scare people, conjuring up the worse abuses of Soviet Russia, Castro's Cuba, or 'Red' China.

In the supposedly free United States of America, we have one very socialistic system, the way the government regulates the production, distribution, and sale of alcohol. The liquor business is struggling at present. That makes this the perfect time to free it from its socialist overlords, the 50 state liquor control boards and the distribution monopolies they enable.

The trouble began with the 21st Amendment, ratified in 1933, which ended National Prohibition. It is short and simple. The first section repeals the 18th Amendment. The third section gives states seven years to ratify (they took less than one).

The second section, necessary to obtain that ratification, is where the trouble lies. It says, "the transportation or importation into any State, Territory, or possession of the United States for delivery or use therein of intoxicating liquors, in violation of the laws thereof, is hereby prohibited."

That means individual states may regulate alcohol as they see fit, regardless of any burden on interstate commerce that would normally run afoul of the Constitution's Commerce Clause. They can't ban it altogether, but they can say what can be sold, and where and when it can be sold. They can set prices and, of course, tax the hell out of it.

Furthermore, if you take alcohol into any state in violation of that state's laws, you commit a federal offense too.

Most states have used this authority to create a mandatory three-tier system for the distribution of alcoholic beverages. The three tiers are producers, distributors and retailers. The mandatory part means no tier may be bypassed by anyone, including consumers who may only legally buy from state-licensed retailers. In most cases, these laws prevent cross-ownership too. Producers may not own interests in distributors or retailers, and so on.

If that isn't socialism, I don't know what is.

Everything said about these state laws will be "in most cases" because the 50 states each regulate alcohol differently, which all by itself is a significant burden on interstate commerce. We don't have one socialist liquor system; we have 50 of them.

Here is how it works. Imagine that instead of buying L. L. Bean clothes directly from L. L. Bean in Maine and having them delivered to your home you were required by law to buy them from a retailer with no connection to L. L. Bean, who bought them from a distributor who also has no connection to L. L. Bean but has an exclusive franchise from your state government to be the state's only legal source for L. L. Bean clothing.

Under this system, retailers who want to carry L. L. Bean clothing must buy their L. L. Bean merchandise from the sole distributor in the state who carries it, whose monopoly is enforced by state law. 

The state government, as well as the independent distributor and independent retailer, all have something to say about which L. L. Bean clothes are available to you and how much they cost. Will they offer every garment in every color and size that L. L. Bean makes? Maybe, but probably not. While you probably will have a choice of several retailers who may offer different selections, the monopolist distributor will control absolutely which L. L. Bean products are available to those retailers and thus to you. Unless a state border is nearby, you're out of luck.

And even if it is you may still be out of luck because that same distributor may have obtained the monopoly in the adjacent state too. If you find something there you like, you may be breaking the law by purchasing it there and taking it home.

Now imagine that on an out-of-state trip you have discovered a clothing manufacturer that is similar to L. L. Bean but a bit more suited to your taste. You return home only to discover that none of the state-franchised wholesalers choose to carry that line. Remember, you are only allowed to buy clothes at state-licensed clothing stores. You cannot legally buy clothing online or over the phone. Once again you are stuck. Damn socialists!

Although you may travel to where that other clothing brand is sold to buy it, that may at least technically violate state and federal law.

Let's assume for purposes of our example that clothing is not burdened with excessive taxes the way alcohol is. Even so, the lack of competition inherent in this state-run system makes its products more expensive than they otherwise would be. Maybe instead of a L. L. Bean polo costing $30 it costs $50. You'll get used to it.

Free markets, baby!

Alcohol consumers, to the extent they understand it, generally hate this socialist system. So, too, do most alcohol producers and retailers. You know who loves it? Distributors. 

The three-tier system of which America’s beverage alcohol distributors are so fond imagines them as relatively small, in-state entities, and therefore easily reachable by state courts and state regulators, which might have more difficulty getting the attention of a giant multinational corporate producer. In reality, distributors have undermined this purpose by using various corporate organizational schemes to become large, multi-state operations themselves, bigger than many producers. Although they comply with the letter of the law, most now operate across state lines. Some are large and powerful national businesses. They also have found clever ways around the laws intended to prevent them from owning alcoholic beverage producers and vice versa.

Despite their advantaged position, distributors feel threatened by the desire of alcohol consumers to legally acquire beverage alcohol products monopolist distributors refuse to make reasonably available to them in their states.

In particular, distributors want to strangle the direct-to-consumer movement in its crib. They fret about the Supreme Court’s ruling in Granholm v. Heald (2005), which said that the 21st amendment does not give states the right to discriminate in favor of in-state producers in violation of the Commerce Clause. That decision has not “opened the floodgates” of underage drinking and tax avoidance that was predicted by the president of the Wine and Spirits Wholesalers of America at the time. But since distributors still fear their privileges are at risk, they have repeatedly proposed legislation to strengthen their socialistic monopoly.

As the Court held in Granholm: “The aim of the Twenty-first Amendment was to allow States to maintain an effective and uniform system for controlling liquor by regulating its transportation, importation, and use. The Amendment did not give States the authority to pass nonuniform laws in order to discriminate against out-of-state goods, a privilege they had not enjoyed at any earlier time.”

America should end its socialist liquor system now.