Real Corruption

Posted by Tom Wark on Feb 11, 2007

"The essential definition of corruption in a representative democracy is the usurpation of public authority to the advancement of private interests."
HOWARD WOLF

Howard Wolf is the public’s representative on the Texas Sunset Commission, a state body gathered together to examine alcohol regulation in Texas. This is a man with no interest at all in anything having to do with the alcohol industry. When he examines the state of alcohol regulation in Texas he comes to the solid conclusion that it is in place for the advancement of private interests; that it is in a state of corruption.

Howard Wolf wrote what is the most articulate and scathing  critique of the state-mandated alcohol distribution system that I’ve read in years. And if you want to understand  what is at the very heart of that critique, read this line from his "position paper" that he sent to the Sunset Commission, of which he was a part:

"the regulatory structure initially created in 1935 (is) becoming obsolete and mostly irrelevant to the original goal of protecting the interests of the people of the State of Texas."

This is the case across the country in state after state.

For example, in IL there is proposed law, written by the wholesalers there, that would allow wineries in and out of the state to ship directly to Illinois residents, but prohibit retailers from doing the same. This only serves the wholesalers’ interests.

For example, in Texas retailers there may ship wine to Texans, but out of state retailers are prohibited from doing so. This only serves the interests of the wholesalers.

For example, in Virginia, the law prohibits wineries in that state from selling their wine to retailers and restaurants and forces them sell their wine to a wholesaler, who then sells it to retailers and restaurants. This law only benefits the wholesaler.

The examples by which alcohol regulation overwhelming favors the private interest of the wholesales to the detriment of the producer, consumer and retailers are so vast they could take up the content of an entire blog. To put it in Mr. Wolf’s words: "A statute that was designed to promote public health, safety and welfare has, over time, been subverted by the economic interests of the entities it was intended to regulate. Now, the legalized system operates primarily to prevent competition, protect anti-competitive conduct and otherwise thwart the functioning of a free market in the manufacture, distribution and sale of alcohol beverages."

HOW WEIRD HAS IT BECOME?
Imagine a system of distribution of alcohol that has been demonstrated to be the source of nearly all the alcohol that gets into the hands of minors. Imagine that this system is so convenient for minors to get alcohol through that minors do so regularly and it is documented in every state.

Now, imagine a system for alcohol distribution that has had very few examples of minors obtaining alcohol through it.

If you were concerned minors and public health….which system would you seek to shut down?

It turns out that alcohol distribution model #1 is brick and mortar liquor shops and model #2 is direct shipping to the consumers. Yet, it’s the latter that has come under the most pressure to be shut down. What is  here is that model #2, the model that wholesalers and legislators and state alcohol regulators have worked hardest to shut down, is the model from which wholesalers rarely profit.

This is is the kind of thing Mr. Howard Wolf is talking about when he write: "The essential definition of corruption in a representative democracy is the usurpation of public authority to the advancement of private interests."

THE DIFFERENCE BETWEEN 1933 AND 2007
The wholesalers across the country, who have purchased near complete protection for their financial interests in the form of restricted competition, simply do not serve the public good as their tier was originally imagined to do.  They do nothing to assure that counterfeit products don’t end up in consumers hands that could not easily be undertaken by other entities. They have no advantage in assuring that producers don’t own and control retailers and pubs that is more effective than the state and retailers assuring this. They do nothing to assure that minors do not have access to alcohol since they have no dealings with the public. And they are not in any position to more efficiently collect and remit taxes than retailers or producers are.

We do not live in 1933 any more, when the original "three tier system" of alcohol regulation was thought up. We live in 2007, when new technology, new products, new protections, new social concerns and new economic demands define the market for alcoholic beverages. Yet, we see it insisted across the United States that the system developed over 70 years ago is perfectly fit to today’s needs. Amazing!

Yet the system that Mr. Wolf, in his brilliant "position paper", calls corrupt lingers on and is mandated by the states. This state-mandated system, for as long as it will exist, serves to more boldly and financially empower the middeman tier of alcohol distribution. And with this ever increasing protection and financial power wine wholesalers go about fixing the regulatory system even further to their own financial ends.

What’s needed are more Howard Wolfs, more individuals who challenge the system—publicly, more members of the retail and producer tiers that take an interests in challenging and shining a light on a system of alcohol distribution and regulation that serves private rather than the public interest.

A good start would be to read the article about Mr. Wolf then to read the Position Paper Mr. Wolf has written and distributed.