Beer and Wine Wholesalers Deliver Themselves Regulatory Privileges

It is counterintuitive, but many businesses actually want to be regulated. Regulation can raise the cost to upstarts entering a particular field and provide businesses with the opportunity to influence — if not write — the actual legislation under which they will operate. A good example of this involves beer and wine wholesaling, which in many states involves a government mandate that forces suppliers of alcohol to grant exclusive territorial monopolies for their products to wholesalers. Recently, wholesalers have expended a great deal of effort to strengthen with federal laws their protected status in the states.

It should not surprise even the most casual observers that special interests of every size and sort often descend on capitols of government in search of favors. To facilitate access to lawmakers, these groups often make large campaign contributions to individual legislator.

Often the favor seekers want special treatment under the tax code, or to see protectionist barriers — such as tariffs — hiked to thwart international competitors. Another arena is that of business regulations. Few have mastered the art of winning regulatory privileges for themselves more than beer and wine wholesalers.

U.S. House of Representatives' Bill 1161 — the Community Alcohol Regulatory and Effectiveness Act — would help ultimately protect the local monopolies for wholesalers by making it harder to challenge state restrictions on competition. Capitol Confidential covered this story last month after noting the legislation was supported by the Michigan Beer and Wine Wholesalers Association.

What makes this story all the more topical today is the release on July 12 of a study detailing some $82 million in state and federal “campaign contributions and federal lobbying” from 2006 through 2010. A press release accompanying the report, which was published by the Specialty Wine Retailers Association, argues that the lobbying effort was coming “in advance of a push to pass federal legislation protecting alcohol wholesaler industry (HR 1161).” It also questions the convenient timing of campaign contributions to lawmakers that came hard on the heels of their public support for the precursor to HR 1161. That was House Resolution 5034, which did not make it out of committee but was later reborn as HR 1161.

According to the study, online political newspaper Politico.com wrote in December 2010: “As beer and wine wholesalers were looking for co-sponsors for their top legislative priority this Congress, they opened their checkbooks wide — giving at least $1.3 million in campaign cash to House lawmakers who signed on to the bill. In all at least 32 House members were given wholesaler contributions within a month of signing on to the legislation — including at least 10 lawmakers who were given contributions within a day of co-sponsoring the bill.”

The study also noted that Michigan’s own Rep. John Conyers received the largest contribution from the group, $66,699, in 2010. Rep. Conyers just happened to be Chairman of the House Judiciary Committee, which took testimony on H.R. 5034. Of the 150 co-sponsors of this 2010 legislation, five were from Michigan, including John Dingell, Dale Kildee, Gary Peters, Candice Miller and possible presidential candidate Thad McCotter.

The effort to federalize monopoly protections by wholesalers and for wholesalers may be a function of fear that state lawmakers will try to dismantle the privileges won for themselves over the years. Right here in Michigan, Gov. Rick Snyder has created an advisory committee on liquor control designed to review existing rules in the hope of making the system more efficient and responsive. That could mean weakening the protected status of existing beer and wine wholesalers, something of which they likely want no part.

The fact is, the very history of alcohol control is a history of aggressive lobbying for special favors by powerful interests, including exclusivity on the sale of popular products. In his paper “Michigan’s Liquor Distribution Systems: An Historical Review and Analysis,” John Taylor, now a Wayne State associate professor of supply chain management, explains that retail pharmacists were allowed to sell medicinal liquor during Prohibition and that this may have given them — through their Michigan Drug Trade group — a lobbying head start after Prohibition ended.

According to Taylor, “state druggists made repeated efforts to promote a plan of exclusive package sales through druggists.” While they did not technically win exclusivity, the first 600 agents designated to distribute liquor for the state were all druggists. It strains credulity to suggest the results of this lobbying were not effective.

The world has changed a lot since the 1930s when the druggists were pushing legislators to grant them exclusive rights. Today, the beer and wine wholesalers are the established and well-heeled interests looking to protect — if not tighten — their rein on exclusive sales territories and other government-granted advantages. The Michigan Beer and Wine Wholesalers themselves report raising $234,230 in 2011 for their Political Action Committee alone, and this comes after their lobbying expenditures doubled from 2009 to 2010, according to the Center for Michigan and the Campaign Finance Network.

All of these lobbying efforts may be perfectly legal, but that doesn’t mean they are beneficial to other businesses or consumers. Indeed, they very likely sap the economic well-being of many businesses and people for the sake of a few. Everyone is economically self-interested to some degree, but not everyone has the money and power to protect themselves from the rigors of a truly competitive marketplace.