The Corruption in the Wine, Beer & Spirits Trade Was Anticipated

In 1933 a small book, Toward Liquor Control, was written and published. Sponsored by John D Rockefeller and written by Raymond B. Fosdick and Albert L. Scott, the book had a singular goal: to provide guidance to state lawmakers and policy wonks that, in the wake of Repeal, were tasked with creating a new alcohol regulatory system for their states.

The philosophy behind the recommendations in Toward Liquor Control was a real fear that, in the wake of Repeal, America would return to an immoral and intemperate abuse of alcohol egged on by a corrupt liquor trade and politicians. The primary goal of the Control path recommended in the book, and, secondarily, the Licensure path also laid out in the book, was to prevent the return of a destructive “Saloon Culture” along with the abusive actions of the trade and support for abusive policies.

The abuse of alcohol that drove the pre-Prohibition saloon culture was sustained by conditions that no longer exist today and by attitudes toward alcohol that are no longer held by the vast majority of Americans.

However, the liquor trade and the politicians that oversee liquor today have returned to—or at least have developed into—a state of corruption. Today, the goal of the corrupt trade is not so much to influence laws so that individuals will drink more and more, but rather to influence laws to the point that competition is stifled, that choice of product is controlled by a diminishing few, and to impose rent-seeking measures on those that, even in the smallest way, threaten the controlled trade. Lawmakers, being lawmakers, pretend this is a normal state of affairs and keep competition-stifling measures in place at the same time they collect, literally, tens of millions of dollars in campaign contributions from those who come to them calling for measures to protect their profits.

How is it that in most states a brewer or a distiller or a winery are banned from selling their products directly to retailers and restaurants—or at least severely limited in the amount they can sell? But instead are forced to essentially hand over cash to the middlemen for the privilege of bringing their product to market when that producer may have no need at all for the wholesalers’ services?

How is it that consumers in most states are banned from receiving even limited shipments of beer and spirits directly from out-of-state craft brewers and craft distillers?

How is it that in most states consumers are forced only to purchase imported wines that the middlemen give their blessing to and are banned from having those imported wines shipped to them from out-of-state retailers?

The authors of Toward Liquor Control understood perfectly well that laws will not be obeyed if the general populace thinks them unnecessary or too burdensome or unsupported by benefits. In the beginning of Toward Liquor Control, when laying out the task ahead of the states in devising new liquor regulations, the authors remind and warn us:

“In the end intelligent lawmaking rests on the knowledge or estimate of what will be obeyed. Our traditional belief in the efficacy of law as a means of social control resulted in hundreds of liquor statutes which were unenforced and largely unenforceable, either because they did not represent public opinion or because the public opinion they did represent was not sufficiently preponderant in the community.”

Take a poll of America’s distillers, brewers and wineries and ask them if they support the restrictions on them and their customers currently written into the law? Take a poll of American drinkers and ask them if they approve of laws that restrict which products they may buy at local retailers or via direct interstate shipment. You will find that overwhelming they do not.

I think the authors of Toward Liquor Control would recognize today’s liquor control environment being a vindication of their efforts. They would note first that the urge and the urging to overindulge that characterized the pre-Prohibition society has been defeated. But they would also recognize the corruption that remains. And they would recognize that this corruption needs to be dealt with. Writing at the end of Toward Liquor Control, the authors leave us with this:

“We need to be on our guard against any system of control that has outlived its usefulness or that no longer represents the prevalent ideas and attitudes of the community. Our legal prescriptions and formulas must be living conceptions, capable of growing as we grow. For law is itself a social phenomenon and has no meaning apart from the uses and necessities from which it springs.”

Wholesalers and others like to use fear that we will return to the corrupt drinking practices of over 100 years ago if their control of the system is not kept in place. They warn that counterfeiting and tainted alcohol will appear and fewer taxes will be paid if the wholesaler is not in control of the flow of the product. These are lies told by corrupt and powerful rent-seekers that are sustained by lawmakers eager for their share of the lucre of the wholesalers’ profits.

Even more insidious is that lie that the system of liquor control in the United States has in fact evolved with the times and accommodated the needs of the trade and consumers. It’s 2021 and in the vast majority of states, it is illegal for a consumer to have a bottle of Chateau Lafite Rothschild shipped to their home from a retailer not located in their state. Wholesalers are content to respond by saying, “Well too bad.” It’s 2021 and in most states a small craft distiller who wants merely to sell and deliver a case of their product to the bar two blocks over is forced to provide half his profit to the wholesaler to do that when they just as easily could put it on a dolly and walk it to the bar. Wholesalers are content to respond, “Well, too bad.”

The authors of Toward Liquor Control anticipated the control of the industry by nefarious, self serving interests way back in 1933:

“A vested interest is bound to employ aggressive tactics in its own defense. Liquor trade associations, open and disguised, would continuously oppose every restriction of opportunities to sell. Manufacturers, wholesalers and retailers, through their respective associations, would unite in resisting disestablishment of retail selling outlets whenever attempts were made to eliminate a portion of them.”

What the authors got wrong back in 1933 was that a single vested interest, middlemen wholesalers rather than manufacturers and retailers with them, would grow so powerful so as to control the flow of alcohol. The authors of Toward Liquor Control did not anticipate that the source of corruption in the liquor trade would come from interests wanting to severely restrict the distribution of alcohol rather than those wanting to expand distribution.

But you can’t blame the authors for getting this wrong. It was nearly 90 years ago. And it turns out that nowhere in Toward Liquor Control was a state-mandated use of the wholesaler mentioned, let alone a “three-tier system” of alcohol licensing and distribution mentioned.

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