Below is today’s column on the continued use of state controls over alcohol in the United States. With the decision this month of Washington state to embrace the free market system and drop controls, citizens in other states are rightfully asking why officials keep this form of central planning, including officials in conservative states that purportedly favor free enterprise over government regulations.
If current political rhetoric is to be believed, we are on the brink of either a Communist or Socialist takeover. Republican leaders and pundits have repeatedly denounced Obama administration programs from health care to bailouts as part of a creeping “socialist agenda,” which appears to mean any centralized control of a market.
What is fascinating is that the warnings over state monopolies omit one of the longest-standing institutions of central planning and control in the U.S.: state liquor boards.
Seventeen states continue to exercise control over liquor as absurd relics from the 1930s. Ironically, there is no better example of the failures of central planning than the “ABC stores” around the country from Alabama to Pennsylvania. Indeed, if Karl Marx were alive and trying to buy Schnapps today, he might reconsider aspects of Das Kapital after dealing with our central alcohol planners.
This month, many people were enthralled with a controversy in Idaho where the State Liquor Division had barred the sale of Five Wives Vodka. The division refused to allow Idahoans to buy the popular vodka because it might be offensive to the Mormon population in the state.
I represented the distiller of the vodka, Ogden’s Own Distillery of Utah, in raising a host of constitutional objections to the enforcement of such religious mores. The state recently agreed to rescind its bar on sales, but the controversy should not pass without some discussion of continued existence of these state monopolies on alcohol sales.
Out with prohibition
Almost 80 years ago, the country repealed the prohibition of alcohol with the 21st Amendment. Many states emerged from prohibition with strict state control boards, but the majority dispensed with this inefficient system years ago. However, millions of Americans continue to live in states that control where and what they can buy in terms of liquor. Beer sales are generally not subject to such controls.
Indeed, the Idaho Division blocked Five Wives Vodka despite the fact that bars in the state serve Polygamy Porter. However, when it comes to liquor, these states stand between the consumer and companies with an army of bureaucrats who add costs and delays for the public.
In the case of Idaho, the division’s director, Jeff Anderson, noted that his staff tasted the vodka and preferred the pricing and quality of other products. Imagine those enlightened folks you meet at the post office and think of them passing judgment on the relative value of different types of alcohol — literally of thousands of products sought by citizens. These alcohol apparatchiks in states such as Idaho sit around and debate whether citizens should be allowed to buy a particular liquor of their choice.
Anderson said they concluded that this vodka was not “something we want to have on our shelf, sitting next to Absolut vodka.” Putting aside the perceived need to protect this Swedish vodka from being seen near Utah vodka, there remains a question of the function and power of these bureaucrats. Like Anderson’s vodka of choice, the bureaucrats consider their power over consumers as absolute.
Most states have gotten rid of these boards and fared well in relying on the market and conventional regulations to protect consumers. Just last month, Washington state embraced the free market and got rid of its state control. Thirty-three states rely on what Adam Smith called the “invisible hand” of the market where consumers choose among products — and the law of supply and demand handles the rest. However, eleven of the seventeen control states — Alabama, Idaho, Maine, New Hampshire, Vermont, Oregon, North Carolina, Ohio, Pennsylvania, Virginia and Utah — exercise direct control over the retail sale and price of liquor, sometimes even owning the ABC stores where it is sold.
Out with the boards
Because I live in Virginia, I have to drive to an ABC store to buy liquor — a store that is insulated from competition, and it shows. Like many government-run enterprises, the place is run with all of the care and concern of your local DMV.
States differ on the rationale for these boards. The Utah Department of Alcoholic Beverage Control, for example, uses its authority “not to promote the sale of liquor” but to “promote moderation and to enforce existing liquor laws.” The heavily Mormon state is famous for imposing arbitrary limits on the sale of alcohol from formerly banning of bars (in favor of “clubs”) to the required use of “Zion curtains” to prevent bartenders from being seen pouring alcohol.
These and other laws seem based on the belief that “for the bureaucrat, the world is a mere object to be manipulated by him.” The man who said that was Marx, a great believer in central control. These states have allowed a fixed bureaucracy to take hold of a market — a self-perpetuating and inefficient middleman in the market.
Ironically, alcohol board heads often defend their decision to bar particular brands because of the limited space that they have at warehouses and stores — ignoring the obvious point that there would be no limitations if they were removed as a chokepoint in the system. Anderson noted that he and his staff have to decide between hundreds of vodkas in choosing what will be made available to consumers while in most states this is the function of the market and consumer choice.
Unlike Marx’s vision, free enterprise is the touchstone of our society. With such free enterprise comes free choice — not simply the freedom to choose between the options approved by the government. Smith in The Wealth of Nations stressed that “it is not from the benevolence of the butcher, the brewer, or the baker, that we can expect our dinner, but from their regard to their own interest.”
Smith could just as well have added that it should also not be from the benevolence of the bureaucrat any more than the brewer — at least in deciding our drink of choice.
Jonathan Turley, the Shapiro Professor of Public Interest Law at George Washington University, is a member of USA TODAY’s Board of Contributors.
June 18, 2012
“Which outer banks? Carolina? Heard of Ocean City? Niece was invited for a sail on large catamaran there over the weekend. Too much wind. 27 knots registered, if it is to be believed.”
Idealist, yeah, NC.
And yeah, it’s hard not to hear of OC if you live in MD. Too many people for me, though. But 27 knots is a lot for windspeed, even, in OC.
TonyC,
You’re so good, I think folks think I am the planted questioner at a Romney “shirt meets folks” meeting. The ones he thanks for the question.
While I did not ask it, that was a good point about oil money not being used in significant amount to support social welfare. I know too little about our Nordic neighbors.
But I was referring to that the oil money is
being actively invested as a measure against future uncertainties.
I should check the tax rates (Norway vs Sweden) to see who’s most effective. We got cheaper meat and alcohol, but our nurses get better paid there.
So in summary, it is big business that is the problem. Well, can see that Joe’s garage does not have much pull.
So that leaves my favorite bad guys: Monsanto and Dow.
Tony C.,
I am late to the game, but that is some good stuff. Nothing wrong with regulated capitalism.
Define regulate.
“Keep fishing. I ain’t biting.”
Believe it or not, the only thing I’m trying to catch is a discussion about the goals and effectiveness of various approaches to regulating the sale ofalcohol. You know, the topic of JTs post.
How effective is the market at regulating the quality and price of products. Can consumers stop companies from polluting our water and air by filing lawsuits. Can we boycot companies that kill whales or send donations to Sea Shepards to help them with the fight.
@Idealist: How does an honest capitalist keep “clean” and compete with the crooks?
Sometimes, by offering something the crooks cannot beat (like features or capability in a product, accuracy, etc), or are unwilling to beat (like a guarantee, price, on site service within three hours, etc). I have done all of those things.
Besides that, crooks are crooks, they rip people off by definition, and that makes people embrace alternatives even if they know nothing about the alternatives.
Sometimes, you cannot beat the crook. Ask any of the many thousands of small town shops put out of business by Walmart. So: Pick your battles, the point is to earn a profit, not make a moral point.
How come business has shown itself to quite openly violate your principles.
It hasn’t, only big business has done that, and the reason for that is there is a LOT of money in big business, and large piles of money attract sociopaths like flies, and the sociopaths rise to the top of the heap and act lilke sociopaths. Big Business also demonstrates a real psychological effect in humans; that the more layers of command there are, the more effectively sociopathic the leaders of an organization become. When you do not have to see the suffering your decisions cause, it becomes easier to make a decision to cause suffering. Especially if you are then praised for making a “tough decision.”
In other words, why are they so few like you?
There aren’t that few, I don’t think, we just aren’t newsworthy. You aren’t going to see any headlines like, “Bobby’s Bistro Keeps a Spotlessly Food Safe Kitchen! Waiters Love Bobby’s College-Friendly Work Scheduling!”
Great stats about Norway, but they have oodles of oil money, and are mandated to invest it.
Norway was socialist before the oil, and their social programs are supported by payroll and wealth taxes. The oil money is invested, and none of that capital is allowed to be used for social programs. I believe the law in Norway is that only the interest can be used, after an allowance for inflation, on the grounds that this is sustainable even after the oil is gone. I read something a year or two ago that said 90% of the social programs were supported by taxes, only 10% of the program was being supported by interest on the sovereign wealth fund (oil money).
People that mistakenly think Norway’s oil wealth is what permits its socialist programs have missed the point, they still have the mindset that these programs are a “cost” and not an “investment,” which is what they really are.
Most countries are founded around some sort of natural resource, but if a country has nothing else it has people that can work and add value to something. The social safety net systems are an investment, not a cost, they minimize desperation and maximize personal freedom, ambition, and potential. In the USA, we would probably have twice as many doctors as we currently have if every child that wanted to BE a doctor knew that money was not an issue in that quest and would not be. Or an engineer, or computer scientist, or chemist, professor, teacher, cellist or chef.
Maximizing human potential leads to people living lives that satisfy them, instead of cubicle drudgery at 30% of their potential productivity. The social programs also minimize poverty, desperation and life dissatisfaction, the primary drivers of crime and destructive drug abuse.
I believe in regulated capitalism with a social safety net supported by taxes. I also believe in socialization (to reduce costs and eliminate profit-driven safety risks) of roads, water, sewage, and garbage collection and disposal. Also food and drug inspection, product safety inspection, building inspection, etc.
Corporatism or Crony Capitalism, as people are calling the economic and social results of fascism on business is a very complex issue, starting with everything from the fiat currency and central banking system we use to the legal benefits of incorporation. There is an economy of scale issue that allows multinationals to out compete small business in a fascist environment. It not quite as simple as you are suggesting Tony.
Keep fishing. I ain’t biting.
Everyone else,
Grappa’s a bit like fly fishing, because the people who love it LOVE it, and everyone else sort of scratches their head.
Idealist,
“You’re the challenger. I named no specifics, and won’t now. ”
So I’m trying to figure things out here.
I mean, you start off by making vague statements about how not having state run liquor stores will lead to things like human sacrifice, cats and dogs living together, and mass hysteria. Just that, vague statements. Then when I dare to challenge you you complain that I need statistics or my point isn’t valid. Which is a reasonable criticism. Or rather WOULD be a reasonable criticism if you had offered anything but vague and dark prophecy accompanied by lots of hand waving and stage banter. Since you didn’t, it just smells like a way for you to try and dismiss contrary opinions without giving them consideration.
So, let’s try this again:
Do you think the state should run liquor stores? If so why?
Tony,
You talk a great game.
Questions:
How does an honest capitalist keep “clean” and compete with the crooks?
How come business has shown itself to quite openly violate your principles.
In other words, why are they so few like you?
Now we go from the particular to the general. And it is the general that effects most of us.
Great stats about Norway, but they have oodles of oil money, and are mandated to invest it. Not save it.
Any idea where they do it? Not in fishing whales for meat.
Not very tasty I thought.
Thanks anyway, you know from earlier you have my support.
Blouise,
Thanks for correcting my memory. Right spot also for
Calabria or Basilicata origin. Great price. Pay double here. Thankful for the name. We can self-import here. Was if very rich in taste?
While I largely agree with your column and thank you for writing it, the difficulties of getting privatization right are often glossed over. I wrote a response to your article here that you may find interesting:
http://www.jacobgrier.com/blog/archives/5447.html
@Matt: But business won’t play fairly.
Hence the need to regulation of business, to make playing fairly its best option in its own self interest.
And it isn’t like asking a fish not to swim. I and many others already do it entirely voluntarily. We have lost competitions and won them, but on the whole come out ahead without regrets.
Businesses serve customers, in a sense they are employed by customers. Saying it is impossible for a business to play fairly is like saying it is impossible for an employee to work for somebody without stealing from them.
It isn’t true. The vast majority of us work our entire lives without stealing anything from our employers, customers, employees, or anybody else, without deceiving people, and also without exploiting someone’s ignorance, gullibility, misfortune, pain, fear or desperation for personal gain. To me those are the elements of fairness. You may define the word differently.
“….the happiest citizens in the world are citizens of socialist countries with top income taxes over 50%, and even most of the people earning over a million a year in those societies, when surveyed, claim they support socialism and it HELPS their business.”
Another factor in their happiness is the relatively small income gap between the worker and the boss. The differences in taxes are small because the differences in income are small. There is still a 1% vs 99% but the gap is far less than here where the gap is staggering.
That is a very untrue statement. People in Cuba are not happy. The so-called happiness Index noted that the wealthier countries were happiest. Socialism has noting to do with it. Poorer countries not so happy. Countries are in many ways quite different and comparing apples to oranges creates an obvious poor result. Socialism has destroyed every society over time and by generally the same reasons, bankrupcy or civil unrest or both. Just wait to see what’s next in this country. What till the $USD collapses and tell me how well fascism is really working. Most countries are not really that socialistic, generally more fascist which is defined as the use of taxation and regulation to control the means of production.
Tony C,
Very well done!
Tony C,
I agree with everything you say. But business won’t play fairly. I’m sorry, but that’s like asking a fish not to swim.
The situation will resolve itself when it does. You have the best intentions. But some of your earlier postings are absolutely correct.
Define play fairly so I can understand more specificcally as to what you are trying to say.
id707,
I bet you’re talking about Aglianico del Vulture wines (grape) which I tried last month and thoroughly enjoyed … only $13 a bottle. I have the winery written down but the list is in my truck which is in the shop for an oil change.
I think the region is down by the Boot … Mt. Vulture.
Tony,
An excellent clarification of the fact that one can believe in a social safety net and still function as a capitalist. The oft-repeated notion that it is one or the other is ridiculous.
Gene, At what level does it turn from being a social safety net to full blown fascism or totalitarianism. We’re seeing just over the last 40 years how much more aggressive government is getting both in taxation and regulation, which is causing business to either leave of fold. There a jobs probelm because they’re a business problem.
Tony,
You’re on fire.
@Bron: Seeing as how you are an admitted vulture er venture capitalist,
I am a capitalist. In the business finance world, my roles have been “entrepreneur,” “partner,” and “startup financier,” the last means I have contributed financially to raw startups, without any commitment to work the business myself (but a significant share of the company and firm financial control).
Venture (or vulture) capitalist is a term generally reserved for those that come in well after the startup phase, when products are already being sold and a plausible plan exists for moving forward. Unlike my five figure investments, VC will pony up six and seven figure investments, typically for 40% to 60% of the company; including the same controls I use (board membership, votes, vetoes, strict financial controls, etc).
I do not go that route because (a) I cannot afford to do that alone, and (b) although I could put money into a fund run by VC, that requires giving up personal control and I do not enjoy the back seat, even if I could make more money by sitting there.
You don’t have to be a sociopath to recognize a business opportunity and pursue it. In fact, I think the best generalized view of business is that the business handles somebody’s “problem” for pay, whether the problem is efficiently chopping vegetables with a hand tool, or generating enough green electricity to serve 100,000 homes in a town.
Business, done without deception, helps people by solving their problems, relieving their worry, accomplishing their goals, and sometimes averting disaster. I was successful in business personally and in my investments because I focus on reaching those endpoints for people at a fair profit.
employees, suppliers, investors and the community (slash environment). The business has the responsibility, in my view, of playing fairly with all five of those constituencies, and the responsibility of fair play with investors means doing all that while earning a profit.
That is not sociopathy, that is common sense and fairness. Sociopathy is a blatant disregard for the welfare, feelings, or success of other people. I think business has to play fair with the employees, the suppliers, the investors, and the community or environment it relies on for services. That is five constituencies to satisfy, and that isn’t easy. Business is a risk. A company that cannot fairly satisfy all five should shut down before it resorts to underhandedness, fraud, or exploitation of any of them.
That, in turn, is reason for socializing the life support functions, the social safety net that ensures food, shelter, education, unemployment benefits, health care and retirement income is not threatened: By socializing those, and ONLY those, we give people a way to try capitalism and fail honorably, and although it might be an economic setback for them, it won’t be a life ending catastrophe for them, their employees or their investors. As Norway shows us, with the highest socialism and highest entrepreneurial rate in the world, when risks are mitigated by the social safety net people will take more of them, and succeed more often, and ultimately that is better for the economy, production, and profits.
Our disagreement is not over capitalism, competition, and profits, Bron.