Back Toward Liquor Control

"The following is an excellent blog post authored by wine blogger Tom Wark in June about the re-release of 'Toward Liquor Control.' Given tonight’s conclusion of the new Ken Burns film 'Prohibition,' and the work of Gov. Rick Snyder’s liquor advisory committee, we thought our readers might enjoy this timely essay." -- Michael LaFaive, director of the Morey Fiscal Policy Initiative.

A Wine Industry Roadmap to Irrelevancy

by Tom Wark

A damned interesting event occurred recently that has nearly slipped under the radar. "Damned interesting" may seem hyperbole to most of you but to those who gravitate toward the historical, political and regulatorial (that's not really a word), this event is pretty interesting.

Not long ago, the good people at the Center for Alcohol Policy (a National Beer Wholesaler of America creation) took it upon themselves to see to the re-printing and re-release of what might be the most influential book on alcohol ever written in United States: "Toward Liquor Control".

Written in 1933 and underwritten by John D. Rockefeller, the book was offered as a guide for state policymakers on how create a regulatory system for newly legalized alcohol after Prohibition was fully repealed. Daniel Okrent, author of the best-selling “Last Call: The Rise and Fall of Prohibition" said of Toward Liquor Control: “As Prohibition was coming to an end, Toward Liquor Control was one of the key documents influencing how the nation would deal with alcoholic beverages going forward.”

The folks that wrote this book were fairly laser-focused on solving some very specific problems as they devised their recommended state regulatory schemes for a 1930s, post-Prohibition world:

1. Prevent society (by law) from endorsing or cultivating the culture of the Saloon and Speakeasy that led to so many alcohol related problems prior to and during Prohibition;

2. Assure that producers of alcohol (specifically brewers) could no longer tie bars, restaurants or retailers to them through coercion that in turn would lead to irresponsible marketing;

3. Promote Temperance

4. Promote Respect for the Law.

Put another way, "Toward Liquor Control" is a fascinating document that gives us a window into the minds of men who believed alcohol consumption was generally a bad thing and who had been significantly influenced by witnessing the alcohol market in the first third of the 20th Century. Or, put another way: “Toward Liquor Control” has absolutely no relevance in today's world.

But I don't think this is the point that the National Beer Wholesalers Association wanted to make in doing us the favor (and I mean that) of re-releasing the book. The blurbs they published with the book include the same Daniel Okrent saying, “It’s as relevant today as it was then.” 

Another blurb about the book from James Sgueo, President and CEO, National Alcohol Beverage Control Administration (an association of regulators from "Control States") said this: "Toward Liquor Control is a study just as important today as when it was written in 1933. With the failed federal experience of Prohibition, Fosdick and Scott [the authors] recognized the benefits of the states having the ability to enact alcohol policies most suitable for their respective jurisdictions and demographics.”

Ridiculous. Saying that a book on how to re-regulate alcohol after years of Prohibition written almost 80 years is relevant to an age when there is no longer any memory of Prohibition, new attitudes toward alcohol that never existed in 1933 and a commercial market for the product that could not even be imagined in 1933 is like saying Ptolemaic Astronomical theory is as relevant today as it was 1000 years ago.

What we have here in the release of “Toward Liquor Control” by the beer wholesalers is a continuation of their desire to assure slavish fidelity to a system of alcohol control that benefits wholesalers but is also a system that is so archaic that it can't be justified today on commercial or social grounds.

But, I am really pleased that the beer wholesalers sponsored the republishing of this book. It really is a fascinating historical read. The authors had a very specific view of what alcohol regulation ought to accomplish. Their preferred way to achieve their goals was to cut out the profit motive altogether and see a state control system set up where it was the state that sold and distributed all liquor.

However, they knew that many states would not take this route and take out the profit motive that they believed would lead to problems.

What's really amazing is just how accurate the authors of “Toward Liquor Control” were in predicting the results of instituting a Licensed Based System of alcohol control that allowed for profit. They realized it would be corrupted by profit-motivated interests who would work to game the system toward their interests.

They wrote: “For the establishment of a licensed-liquor trade means the deep entrenchment of a far-flung proprietary interest. This interest would have a large capital investment to be protected at all costs. Buildings, leases, fixtures, inventories, stocks and bonds—representing millions of dollars—would require defense against those who in the public interest might threaten curb or reduction...

“Moreover, such 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....

“As proposals to dismember any part of the liquor selling business becomes more threatening, the entire trade combines more solidly to protect itself. In brief, a licensed liquor trade, once established, cannot be easily dislodged."

Color me cynical, but this sounds like a pretty close description of what has become of the Wholesale tier of the alcohol industry. Wholesalers have made significant investments in a system that benefits them and they do defend that system against "curb or reduction" and any reform. They have organized behind "liquor trade associations to oppose "restrictions" on their opportunities to sell under the current system that benefits them. And the entire wholesale trade has "combined more solidly to protect themselves" and they are most definitely not "easily dislodged" from their current dominant position that allows them to control so many aspects of the alcohol beverage trade.

The authors of “Toward Liquor Control” did not advocate a state-mandated use of the wholesaler that now exists in nearly every state that regulates alcohol by issuing licenses to producers, wholesalers and retailers. So, they could never predict it would be wholesalers that took over the position that brewers held prior to Prohibition as the corruptors of the system that lawmakers later knew needed controls after Repeal was passed.

The point is that the 1933 authors of “Toward Liquor Control” were devising a system of alcohol regulation for 1933 and they could not begin to devise a system that would be effective in 2011. And yet, few if any fundamental reforms have occurred despite the Wholesalers frequent but sublimely absurd claim that the system is threatened by deregulation.

I highly recommend reading “Toward Liquor Control” to anyone who enjoys the exploration of history.