Present Day Prohibition
The distinction between the past, present and future is only a stubbornly persistent illusion.
If you’ve ever seen a Ken Burns documentary, you’re familiar with their use of faded photos, archival video and interviews with renowned historians. Films like “The Civil War,” “Thomas Jefferson” and “Lewis & Clark” bring the past to life despite the decades of distance between the subject matter and the viewers. No doubt, his newest documentary, “Prohibition,” which premieres Sunday at 8 p.m. PBS, promises to offer a thorough historical examination of American life during the period around the 18th Amendment’s rise and fall. The three-part series focusing on Prohibition’s past, however, may lead the viewers to believe that every aspect of it ended a long time ago. Unfortunately, that is not the case.
The documentary notes, “[P]rohibition turned law-abiding citizens into criminals, and criminals into kings,” “It made a mockery of the justice system, caused illicit drinking to seem glamorous and fun, encouraged neighborhood gangs to become national crime syndicates, permitted government officials to bend and sometimes even break the law…” Unfortunately that is still the case today. The regulatory scheme enacted to “safely reintroduce” alcohol into society following Prohibition’s repeal has grown into a labyrinth of state-based rules, resulting in a number of negative consequences — many similar to those of Prohibition.
Many readers may balk at that, and ask “Sure, we’ve got some blue laws here and there, but how bad could it be?” Examining the regulations on the sale of just one type of alcoholic beverage, beer, makes it clear that significant remnants of Prohibition and even the temperance movement are still with us today —strangling small businesses, protecting cartels and making criminals out of honest citizens.
The strongest remnant of Prohibition that has endured beyond the repeal of a federal ban on the manufacture and sale of alcohol is the symbiotic relationship between moralizing teetotalers and business cartels — a phenomenon economist Bruce Yandle dubbed “Bootleggers and Baptists,” whereby two dissimilar groups with conflicting ideologies share the same policy goals. Baptists and other religious groups wished to ban the sale of alcohol in order to help people live what they considered pious lives. Bootleggers, on the other hand, wanted a ban because they knew demand for alcohol would remain and they would be able to supply that alcohol at an increased price and with little competition.
The cast of characters has changed in the ensuing years, but the symbiotic relationship between Bootleggers and Baptists persists, as there are still two major groups that, despite differing principles, have the same goal of restricting alcohol markets. There is a third party though, one that always loses out in this drama: consumers and entrepreneurs, who pay for all this in higher prices and loss of freedom.
Utah and Modern day Baptists
Prior to the 18th Amendment’s ratification, one of the most powerful temperance group was the Anti-Saloon League (ASL). Comprised primarily of Methodists and Baptists, the ASL was extremely adept at leveraging its congregation-based grassroots in national political campaigns. They threw their support behind “dry” candidates in elections and crushed the efforts of “wet” lawmakers. Eventually, the ASL even supported regulators in their efforts to enact a personal income tax. In return, those pro-tax politicians, such as Andrew J. Volstead, became powerful allies of the temperance movement. In modern Utah, it is the non-drinking Mormon population that lawmakers court.
In 2008, Mormons made up around 60 percent of Utah’s population. Utah politicians try to appeal to them as the largest voting group in the state. Most lawmakers have learned a lesson or two from Prohibition and have found ways to support the temperance cause without immediately alienating their imbibing constituents. Rather than try to ban alcohol, modern “dry” lawmakers promote policies restricting the sale, consumption or manufacturing of alcohol under the guise of “public safety” or “public health.” Usually, they claim regulations such as the state-owned liquor store system, or the ban on sales of beer with an alcohol content greater than 3.2 percent alcohol by weight in non-liquor stores, reduce crime and the number of traffic fatalities. Rules like the “Zion curtain,” a requirement that all mixed drinks be prepared out of view of diners in restaurants (even for restaurants that exclusively serve 3.2 beer), are defended as a way to prevent minors from accessing alcohol, despite the lack of evidence such policies have any effect.
Regardless of the rhetoric, most residents of Utah realize that such policies are meant to please the state’s Mormon majority. Utah State Sen. John Valentine, R-Orem, recently acknowledged as much during a radio interview, in which he strayed from his usual protection-of-minors argument. “Sure, the law protects the minority, but it also protects the majority,” he said. “If religious people are in the majority, shouldn’t you reflect that religious value?” He has gone so far to claim that under the 21st Amendment, the majority has a right to enact a total ban on the sale of alcohol, but that it is willing to accommodate the non-Mormon minority.
Utah’s anti-alcohol laws have had a negative economic impact on the state. Even though Utah draws in many tourists for its skiing and festivals, national chain restaurants have habitually avoided moving into the state. Additionally, while the rest of the country has seen a boom in the number of new small breweries, Utah lags behind, with only 16 breweries in the entire state as of 2010. This isn’t surprising, considering that beer with more than a 3.2-percent alcohol by weight content can only be purchased in select bars, restaurants, or one of the 144 state-owned liquor stores.
Beer Distributors, the new “Bootleggers”
Perhaps the worst effect of Prohibition was the crime and corruption resulting from mob warfare in the underground market for selling booze. Because demand was not squelched with the ban on alcohol, criminals were able to amass great wealth by successfully shipping and selling alcohol at high prices to the drinking masses. Successful bootleggers were those who could bribe or blackmail police and politicians into looking the other way as they conducted their business. While the days of the beer baron may be over, there is still plenty of deal making going on behind the scenes. The difference is that now the buying and selling of political favors is legal. Most of the wheeling and dealing revolves around who gets the government’s official allowance to sell alcohol. Unsurprisingly, the group with the most cash and political clout usually wins. For the last 70 years, that group has been the alcohol wholesalers — the “middlemen” — who owe their dominant market position to the mandatory three-tier system that was put in place after Prohibition.
The “three-tier system” legally separates brewers from distributors and retailers. That means that a brewer is required to sell his or her product to a distributor or wholesaler who may then sell to bars, restaurants and stores. It was meant as a way to get the mob, which had controlled beer distribution during Prohibition, out of the industry. It was also intended to prevent brewers from encouraging irresponsible levels of drinking and “monopolistic behavior,” as some lawmakers feared, by not allowing them to operate their own pubs and retail outlets. Many believed that if brewers owned their own pubs or shops they would only sell their own beer and encourage patrons to drink irresponsible amounts to increase their profits. Unfortunately, it just created a different kind of gang, and did nothing to enhance public safety.
The ban on alcohol manufacturers selling their product directly to consumers or retailers made producers fully reliant on wholesalers to get their product on the market — giving those wholesalers massive amounts of power over the industry. If a wholesaler chooses not to distribute a brewer’s products or does a bad job of it, the brewer could be put out of business. This mandate has transformed the distributors into one of the nation’s most powerful and wealthy lobbying groups. In the 80 years since the end of Prohibition, the makeup of the American brewing industry has changed dramatically, from a handful of large breweries during the 1940s to thousands of small brewers across the nation today. Yet, the power held by the distributors lobby has allowed them to maintain the requirement that brewers only sell to distributors, hamstringing brewers’ ability to expand their market despite their willingness to grow and an increase in consumer demand.
Particularly in the last few years, as craft breweries have grown, some states have looked for ways to make it easier for brewers to get their products to market. Some states have begun to allow small brewers to self-distribute, skipping the middle tier and selling directly to bars and retailers. This has been a boon to many small brewers, cutting their costs and making the prospects of starting a brewery a little less risky. Yet, the distributors have used their political power to maintain control over how beer is bought and sold by blocking many of those efforts.
For example, in Michigan distributors have thrown millions of dollars toward maintaining their monopoly, blocking brewers’ ability to sell directly to consumers. Unfortunately, their efforts have been successful. Michigan, like some other states, maintains “franchise laws” that virtually lock a brewer into a contract with a distributor, regardless of whether that distributor does a good job of selling the producer’s beer or not. Sometimes brewers can be locked into contracts for years or decades without any way out.
In Texas, beer lovers have tried for years to change the antiquated laws that ban brewpubs from bottling and selling beer to retail stores. Texas also bans breweries from selling their beer on site. The state’s distributor’s lobby has spent countless dollars and hours to maintain its hold on beer distribution.
As a result of current mandated distribution laws, a remnant of Prohibition, most small brewers are forced to limit the sales of their beer to one or two states. Furthermore, consumers have fewer choices at higher prices and those beer hounds who want to purchase a beer that isn’t distributed in their state have to break the law by either crossing the border into another state and transporting it home, or by having the beer shipped to them.
Mississippi & Alabama Brewers and Beer Aficionados, Hung out to Dry
A popular myth about Prohibition is that it imposed a total federal ban on the production, sale and transportation of alcohol. The Volstead act actually included a number of exemptions. For example, individuals could still make homemade wine and hard cider in large quantities. Also, priests and rabbis were allowed to distribute sacramental wine to congregants and drugstores were allowed to sell liquor for medicinal purposes. In addition to these legal outlets, there was much creation of bathtub gin, basement beer and moonshine. This meant that Americans living under official Prohibition could still get their mitts on alcohol, but the cost and risk were considerably higher. Not much has changed in Mississippi and Alabama.
In Mississippi, which technically only repealed prohibition in 1966, half of the counties remain dry, and all beer in the state must be under 6 percent alcohol by volume. Of Alabama’s 67 counties, 27 are still dry.
Home brewing of beer is illegal in both states. For beer lovers in these states, many Prohibition-era ways of acquiring alcohol are a mainstay of life today. Mississippi beer enthusiasts compile maps that highlight the best shops just over the state line where they can purchase higher-alcohol and craft beers. Others have it shipped in from out of state. Home brewing continues to be practiced despite the law. In 2008, one Alabama home-brewer learned the hard way that his state was still enforcing the home brewing ban. After being interviewed about his brewing activities by The Los Angeles Times, Scott Oberman was visited by Alabama liquor control board agents, who warned him that his activities could earn him a $2,000 fine or up to a year in jail, and that he could even lose custody of his daughter and his job security clearance if the state decided to prosecute him for the simple act of brewing his award-winning homemade beer.
With such laws, it should come as no surprise that Alabama and Mississippi are the two bottom states when it comes to breweries per-capita. However, there are forces for change, like Raise Your Pints Mississippi and Free the Hops in Alabama, two grassroots activist groups that are pushing hard to bring the laws of their states into the 21st century.
If you are like me and eagerly awaiting the premier of Ken Burns’s documentary you’re probably looking forward to an insightful examination of the philosophies that led to Prohibition and the terrible consequences of government restrictions on a product consumers want. When the end credits role, however, I encourage you to examine the current regulations regarding alcohol in your area of the country to take the lessons of the Bootleggers and Baptists from the 1930’s and compare them to modern day anti-alcohol activists and distributors. (For an entertaining history of Prohibition’s aftermath, check out Garrett Peck’s The Prohibition Hangover.) You’ll notice that while their rhetoric may have changed, their motivation remains the same as it was 80 years ago. And, just as during Prohibition, it is consumers and entrepreneurs who lose out.
Unless we reject the antiquated idea that alcohol is a “different kind of product,” or an evil from which we need the government to protect us, we will never truly put Prohibition behind us. It is time to end the mandatory three-tier system, to allow producers to have control over the distribution of their products and to give consumers the freedom to make their own decisions about where, when and for how much they purchase their alcoholic beverages. It is time to truly bring Prohibition to an end.
Michelle Minton is director of Insurance Studies at the Competitive Enterprise Institute. The Mackinac Center for Public Policy is a research and educational institute headquartered in Midland, Mich. Permission to reprint in whole or in part is hereby granted, provided that the author and the Center are properly cited.
Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.