Curing a Sclerotic Alcohol Industry With the COVID-19 Pandemic

There is a possibility that one lasting impact of the COVID-19 pandemic will be a significant reformation of the rules that govern the sale and distribution of alcohol in America. If this does happen it will not be due to Americans and American policymakers realizing that bottles and cocktails can be successfully sold from the curbside. It will be due to a new social and economic paradigm dictating our understanding of the purpose of alcohol regulation.

The social and economic paradigm that informs our current system of alcohol sales and distribution (the three-tier system) was meant to address the problems of a world where trollies, horses, and trains were the main sources of transportation; when the lightbulb was a newfangled means of illuminating our streets and homes; and when women still pined for the vote.

The current three-tier system of alcohol regulation was mean to address social problems that plagued people who fought in and survived the Civil War.

And yet, I’m regularly told that this system of alcohol regulation must, at all costs, be preserved lest we re-experience these social problems that plagued folks who were dying off before man stood on the moon.

Whether from ardent supporters of the three-tier system speaking at today’s industry conferences, from the pages of legal briefs defending discriminatory state alcohol laws or from wholesalers defending their privileged and protected position in the middle of the three-tier system, I regularly hear that an alcohol regulatory system built in the early 1930s is the only thing holding back a return to the alcohol-soaked days of the McKinley Administration when drunk riders regularly plowed their horses into saloon patrons.

In fact, If I’m forced one more time to listen to the happy news that an alcohol regulatory system that has been in vogue for the past 85 years continues to successfully battle the alcohol problems prominent in the 1890s, 1900s, and 1910s, I just may be forced to sprint to the top of the highest nearby hill so as to loudly send the word Europe’s way that the Yanks are com ‘in over there to fight the Huns.

So, perhaps it’s not irresponsible to re-evaluate and rejigger the alcohol regulatory system so that it addresses the world we live in today rather than a world that no one currently living can recall. Perhaps it’s time for the current social and economic paradigm to inform our understanding of how alcohol sales and distribution ought to be regulated.

This year is the 100th Anniversary of the onset of National Prohibition, that old brand of alcohol regulation that sought for 13 years to regulate alcohol by removing it from circulation. I was reminded of this anniversary by an editorial published in USA Today recently that had the authors declaring they would be willing to drink to an affirmative answer to the question, “A century after Prohibition, will the coronavirus finally end it?”

One of the authors of the editorial is Teri Quimby. Quimby was a commissioner of the Michigan Liquor Control Commission from 2011 to 2019, so she sat in the belly of the alcohol regulatory beast and knows how it works, how it doesn’t work, as well as the powers that keep it in place. She, along with her co-author, Jarrett Dieterle, a senior fellow at the R Street Institute, identify the crux of the problem with continuing on with an ancient alcohol regulatory system as well as the forces that might lead to a rethinking:

“As these laws ossified over time, protectionist forces resisted any attempts to modernize them. Licensees in one sector of the industry, such as restaurants, were often reluctant to allow other types of licensees to encroach on their territory. Powerful wholesalers continued to resist producers being granted the right to sell directly to the public. Now, a century later, the COVID-19 crisis has triggered — virtually overnight — a mass rethinking of this sclerotic industry. Once the virus hit and government officials were forced to prioritize public health above all else, it became painfully apparent that many of our nation’s alcohol rules were not related to health or safety at all.”

Dieterle and Quimby have accurately identified the social and economic circumstances that may, in fact, lead our lawmakers to finally rethink the utility of the “sclerotic” laws that govern alcohol distribution and sales in America: public health and safety concerns that define the 21st century rather than the 19th century and the economic realization that “alcohol products are not substantially different from many other types of products we regulate in a more modern way.”

Another recent publication provides an explanation of why bringing our alcohol regulatory systems up to date with modern realities may be a difficult task. Pamela Erickson is also a former alcohol regulator. In her case, she was the executive director of the Oregon Liquor Control Commission between 1996 and 2003.

Erickson, through her “Campaign for a Healthy Alcohol Marketplace” initiative and her other various activities in the alcohol regulatory space, represents that contingent of industry players who still believe that only by upholding an alcohol regulatory system built to combat the alcohol problems of the 19th century by restricting access to alcohol can we properly address the alcohol issues of the 21st century.

In Erickson’s most recent communication to the industry, she laments a ballot initiative in Massachusetts that was instigated by Cumberland Farms, a company that operates convenience stores and, and that if approved by voters would allow retailers in Massachusetts to own more than a single alcohol sales outlet. Erickson’s concern is not merely with allowing a single company to operate more than one store, but it is also with the way by which this potential change in Massachusetts’ laws is allowed to occur:

“When contemplating changing alcohol regulation, we need to ask these questions: Should we be allowing single companies to write laws that will increase their profit margin, but cost everyone else? What happens when the funder’s promises are illusory?  Should companies that are not based locally have so much control over local law? Should the convenience of a small number of adults be at the expense of the public at large?”

Something on the order of 90% of all changes in alcohol laws in the 50 states occurs as a result of one sector of the alcohol trade writing legislation, then finding an ally among lawmakers to introduce the bill. Wholesalers introduce bills to benefit their middlemen. Retailers introduce bills to allow broader sales privileges. Wineries, distilleries, and breweries write bills that make their businesses more profitable. The extent to which the general public ever concerns itself with changes in alcohol laws occurs in those very rare instances when public ballot initiative asks if a region should go wet or dry or if large and significant changes to a state’s regulatory system ought to be instituted. These instances are very few and far between.

The point is that Ms. Erickson is not concerned when her allies who approve of the “sclerotic” three-tier system take it upon themselves to bolster it and even when they write state or national laws that would actually thwart attempts to change or modify the three-tier system of alcohol regulation.

Ms. Erickson opposes any effort to bring alcohol laws up-to-date. Over the past many decades as social and economic conditions in the U.S. have radically changed and America’s alcohol laws have become archaic relics of a different world, Ms. Erickson and “protectionist forces resisted any attempts to modernize them,” as Quimby and Dieterle remind us in USA Today.

Erickson and those who benefit from the protections from competition and the anti-consumer and anti-modern elements of the current alcohol regulatory system will spend and spend and spend in order to keep the 19th century an animating force in the justification of today’s alcohol regulatory system.

Ms. Erickson and anti-consumer forces in the alcohol industry will argue that allowing distillers and brewers to sell directly to consumers or to retailers rather than being forced to sell their products at a lower price to wholesalers will kill the system that keeps drunk equestrians from barrelling into saloons. She and wholesalers and even retailers will argue that allowing consumers to receive shipments of wine and other alcohol from licensed retailers in other states will weaken a system designed to prevent eastern European and Italian immigrants from destroying their lives by being coerced into spending all their salary on drinks in saloons during their lunch break, a problem that the designers of the three-tier system 85 years ago could still remember, just as they remembered when women could not vote.

If I appear to exaggerate the absurdity of the foundations of our current alcohol regulatory system it’s only because the true absurdity of those foundations is often obscured by the ridiculous seriousness with which the supporters of the three-tier system discuss them.

Dieterle and Quimby conclude their USA Today editorial this way:

“It’s unfortunate that it has taken an international pandemic to force America to reconsider its outdated and protectionist system of alcohol rules. But for the first time in a century, we may finally be turning the page on our prohibitionist past.”

If we are to turn that page, it will be as a result of a certain number of lawmakers, regulators and industry professionals newly appreciating that a system that must be torn down in order to accommodate solutions and to the COVID-19 pandemic is a system that is incapable of addressing issues of the 21st century and instead looks backward to a social and economic paradigm that was already overcome decades ago.

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