Alcohol regulations show that bipartisanship can cost the public

Listening to the national political conversation, you might think that the division between Republicans and Democrats is behind all policy disputes. And while, certainly, politicians in different parties want different things, too often, Republicans and Democrats agree to policies that enrich a few people at the public’s expense. 

Consider state alcohol regulation. There can be public benefits when the government regulates a dangerous product. Drunk drivers can kill people, and we rightly prohibit drunk driving and punish the offenders. But other pieces of alcohol policy offer few benefits to the public. States do things such as grant exclusive regional monopolies to wholesalers and distributors. The Brewer’s Association says that 43 states do this for beer. This does nothing to protect public health, but it does a lot to give wholesalers and distributors monopoly profits.

There is a public rationale to this, but it is weak. Back when it was first enacted after Prohibition, some lawmakers were afraid that alcohol manufacturing, distribution and retailing would become a monopoly, so they mandated that these functions be performed separately. Then they foolishly required that all businesses be licensed, and they limited the number of licenses to a few businesses to serve as middlemen, creating the regional monopolies that exist today.

This continues to exist for public and political reasons. The policy is tolerable to a public that is generally sympathetic to the idea that alcohol should cost more. It’s a struggle to show them that the additional costs benefit the monopolists and not the public. 

Another reason is the simple problem of concentrated benefits and diffused costs. Alcohol monopolists gain a lot from current policy, while the costs are spread over the population. They can defend their advantages while few of the people paying for them have a strong reason to fight back. 

Both Republicans and Democrats are friends of the status quo, even when it increases costs and delivers cash to the people with legal monopolies. There is a lot of “go along to get along,” and the monopolists are a regular source of campaign funds for both Republicans and Democrats. 

Current lawmakers also don’t feel much moral pressure to change things. It wasn’t their decision to set up the monopolies. These policies go back to re-legalization of alcohol after the end of Prohibition. Lawmakers are encouraged to let it be: There’s no major problem here that needs to be solved; pay no attention to the cash the monopolists reap. 

It is a bipartisan affair, but it is also against the public interest. It would be better to increase taxes on alcohol than to create monopolies, if it is in the public’s interest to raise the price of alcohol. There are plenty of businesses that provide wholesaling and distribution services, and they likely can do a better job without state-sanctioned monopolies. 

In other words, public policy should generate benefits to the public. It is unfortunate when it gets captured by private interests who use public policy to get private benefits at the public’s expense.

Such things used to be unconstitutional. In late 19th century America, voters made sure their state constitutions prohibited laws aimed at benefiting private interests, and courts followed up with the public benefits principle. Simply stated, it’s the idea that public policy has to benefit the public rather than private interests. As Michigan Supreme Court Chief Justice Thomas Cooley put it in his decision on the subject, “The State can have no favorites. Its business is to protect the industry of all, and to give all the benefit of equal laws.” These liquor laws that protect and enrich select businesses are a clear example of favoritism.

Lawmakers ought to be held to a higher standard. Public policy is being abused to deliver private benefits at the public’s expense. This ought to offend people, regardless of political party. Partisan bickering shouldn’t blind people to the fact that public policy is engaged in unhelpful favoritism. 

If this area receives enough attention, then maybe lawmakers will end the monopolies that harm the public.

James M. Hohman is the director of fiscal policy at the Mackinac Center for Public Policy, a research and educational institute in Midland, Mich. Follow him on Twitter @JamesHohman.