Towards Liquor Control: A Critical Analysis

Transcription

1 Towards Liquor Control: A Critical Analysis Marc Sorini Presented at CLE International s Wine, Beer & Spirits Law Conference September 19, Boston Brussels Chicago Düsseldorf Frankfurt Houston London Los Angeles Miami Milan Munich New York Orange County Paris Rome Seoul Silicon Valley Washington, D.C. Strategic alliance with MWE China Law Offices (Shanghai) 2013 McDermott Will & Emery. The following legal entities are collectively referred to as "McDermott Will & Emery," "McDermott" or "the Firm": McDermott Will & Emery LLP, McDermott Will & Emery AARPI, McDermott Will & Emery Belgium LLP, McDermott Will & Emery Rechtsanwälte Steuerberater LLP, McDermott Will & Emery Studio Legale Associato and McDermott Will & Emery UK LLP. These entities coordinate their activities through service agreements. This communication may be considered attorney advertising. Previous results are not a guarantee of future outcome.

2 Overview The book and its authors Summary of findings and conclusions On national, state and local control On open/license versus control systems On beer, wine and distilled spirits On three-tiers and tiedhouses On excise and other taxation On advertising On education On law and behavior

3 The book Toward Liquor Control Many in the industry invoke Toward Liquor Control to support various positions in discussions of current alcohol policy. First published in 1933: Publication after the legalization of non-intoxicating (3.2% alc./wgt.) beer by Congress. Publication before passage of the 21 st Amendment repealing Prohibition, but repeal was imminent. This presentation cites to the 2011 Edition published by The Center for Alcohol Policy, with a citation C7:81 meaning Chapter 7, Page 81 of that Edition.

4 John D. Rockefeller, Jr. Towards Liquor Control was bankrolled by John D. Rockefeller s Rockefeller Foundation: Reflects Rockefeller s long-standing philanthropic interests Rockefeller reportedly a teetotaler The book owes much to the Bureau of Social Hygiene, a Rockefeller-funded think tank founded in the nineteen-teens Intent to focus on the root causes of social ills Early years included a disposition towards eugenics In its later years (i.e., 1930s), the Bureau shifted its focus to criminal studies

5 The authors Fosdick & Scott Raymond V. Fosdick Lawyer Headed the Bureau of Social Hygiene in its early years Preface says a researcher in police and other social problems Later became President of the Rockefeller Foundation Albert L. Scott Engineer Preface says he has devoted much time to the intensive study of social and religious movements

6 Toward Liquor Control Liquor legislation in America presents a bewildering picture of shifting public sentiment and vacillating policies. The pendulum has swung from one extreme to another; reaction from a particular experiment repeatedly has carried succeeding legislation far in the opposite direction. Laws have been hastily and immaturely conceived, and new experiment have been cramped by minute legislative restrictions and handed over to the tender mercies of the spoils system, making success under any circumstances impossible. C1:1 The law was a hodge-podge of enactment and amendment. It was not the expression of a carefully thought-out plan for social control of the liquor problem, but was usually an ill-considered patchwork resulting from the conflict of interest between liquor dealers and reformers. C4:27

7 Summary of Findings (C1:9-11) 1. The criminal elements arising from Prohibition must be stamped out at all costs, even if it means an increase in alcohol consumption. 2. Public opinion will not support policies premised on the idea that all alcohol consumption is bad. Too many in the public believe in moderate consumption. 3. The saloon, with its degradation and crime, must never return.

8 Summary of Findings, cont. 4. The public will not tolerate aggressiveness on the part of brewers, distillers and the liquor trade generally. 5. The public has been gratified by the successful return of 3.2% alc./wgt. beer, but is more apprehensive about the return of spirits. 6. The public is convinced that there is a solution somewhere between bone-dry prohibition and the return to pre-prohibition days. They do not agree on the cure, but think there is one and are willing to be adventurous in searching for solutions.

9 Summary of Conclusions (C1:11-12) 1. Bone-dry prohibition will fail without overwhelming public support, and even then it will bring with it hypocrisy and lawlessness. 2. Light wines and beers do not constitute a serious social problem. 3. The license method of alcohol control contains a fundamental flaw in that it retains the private profit motive[.]

10 Summary of Conclusions, cont. 4. The best approach to the problem of heavier alcoholic beverages is through state control. This means a central authority maintaining an exclusive monopoly over retail sales for off-premises consumption. 5. The primary objective of taxation should be social control, not revenue. 6. Education, not legislative enactment, has the broadest part to play in creating a sober nation.

11 On National v. State Control The authors clearly wanted alcohol regulatory policy returned to the states: [I]t was a mistake to regard the United States as a single community in which a uniform policy of liquor control could be enforced.... [In America] no common rule of conduct in regard to a powerful human appetite could possibly be enforced. C1:6-7 But the authors envisioned a federal role, particularly in the regulation of suppliers and advertising. See C2:13; C4:31 n.8 On taxation, the authors saw the need for national uniformity, with federal and state taxes developed as a unit via cooperation between federal and state governments. C7:72

12 On State v. Local Control The authors felt the wet/dry divide was too great to achieve state-wide consensus, and therefore favored local option on the issue of whether to permit the sale of alcohol. See C1:8; C4:35-36 Optimal unit should not follow political subdivisions, and instead should follow new local option areas. Voters should have more subtle choices than wet v. dry. Local option elections should be binding for several years to reduce political controversy. Wise state monopoly administration could further mitigate local differences through the placement of stores, etc. See C5:54-55

13 On State v. Local Control, cont. But the authors also were suspicious of local politics and the related spoils system. Thus, the monopoly control system (called the Authority in the book) should be administered on a statewide basis, although it should take local sentiment into account. See C5-41 Similarly, any licensing system should be at the state level, allegedly free from politics, although state efforts could be supplemented by local agencies and advisory boards. See C4:28 Local jurisdictions should have no taxing authority. See C7:80

14 On Open/License v. Control System Perhaps the biggest objective of Towards Liquor Control was to make the case that monopoly control by a state Authority was superior to any licensing scheme. Because the state (supposedly) is not interested in profit, Towards Liquor Control presents control as a virtual cure-all. In brief, with the elimination of the private profit motive most of the old difficulties would be removed. C5:54 But beer below 3.2% alcohol by weight (4.0% alcohol by volume) and light wines (those below c % alcohol by volume) would be regulated through a license system. C3:22

15 On Open/License v. Control System, cont. The authors lay out four reasons to choose a control system: 1. Licensing s primary weakness arises from the preservation of the private profit motive. C4:37 2. Licensing systems put liquor control in the political realm; it compels the traffic to be in politics for self-protection. C4:37 3. Licensing makes it more difficult to educate the populace about the dangers of drinking. C4:38 4. Licensing creates vested interests, making the system very difficult to change once established. C4:39

16 Licensing system While arguing in favor of control, the authors take time to outline a best possible licensing system, likely recognizing that universal control was not politically possible. See C4 Towards Liquor Control s best licensing system would have 10 features: 1. A single, state-wide board should administer the system. It can be supplemented by local agencies and advisory boards, but license granting should be at the state level, free from politics. C4:28 2. Every effort should be made to rid the licensing board from political influence. Avoid even a bi-partisan board, as that simply makes the board beholden to both parties. C4:28-29

17 Licensing system, cont. 3. The tied house should be prevented at all costs. C4:29 4. License regulation should focus on the places where liquor is sold to ensure they are not too great in number and to improve the appearance and character of such places. C4:30 5. License schemes should recognize the differences between beer, wine and spirits. C4: Licensee hours of sale should be carefully controlled. C4:32

18 Licensing system, cont. 7. Licenses should run not only to persons, but to premises. C4:32 8. The law should prohibit any practice that would encourage consumption, including all credit sales. C4:32 9. Advertising should be rigidly restricted or forbidden altogether. C4: A licensing system should control prices and profits, such as using the licensing authority to establish minimum and maximum pricing, require uniform bookkeeping by dealers, and capture as an excise all profits in excess of a certain per cent. C4:34

19 On Beer, Wine and Distilled Spirits The authors clearly saw a difference between the types of beverages. Particularly harmless was 3.2 beer : Every consideration of social control suggests the frank acceptance and treatment of beer containing not more than 3.2 per cent of alcohol as a non-intoxicating beverage. C3:21 [The sale of 3.2 beer] should be allowed by grocery stores, drug stores, delicatessen and general stores, and indeed by any merchant who so desires. A vendor s permit should be required, but the cost should be low and there should no restriction on the number of such permits. The sale of such beer by the glass, with or without meals, should be permitted in restaurants, hotels, beer gardens, clubs and, indeed, in any reputable establishment. C3: beer, alone, would face no advertising restrictions. C4:34

20 On Beer, Wine and Distilled Spirits, cont. The authors also viewed light wines (those containing at most 10-12% alcohol by volume) as deserving to stay within a liberal licensing system, but for on-premise consumption limited to service with meals. C3:22 These distinctions were premised on assumptions about alcohol content. A natural and convenient division is between fermented beverages and distilled liquors. The fermented drinks, consisting mainly of beers and wines, have a range in alcoholic content up to 12 percent. Distilled liquors, which include whiskey and gin, usually contain from 30 to 45 per cent of alcohol. C3:20

21 On Beer, Wine and Distilled Spirits, cont. Towards Liquor Control used several distinctions: The simplest distinguished light beverages (3.2 beer and light wines) from heavier alcohol beverages. E.g. C5:41 But several passages hint at a hierarchy between alcohol beverages If light beers and wines were the only alcoholic beverages consumed, the social implications of the liquor trade would present but few difficulties and the task of the legislator would be simple. It is, primarily, the distilled liquors and, secondarily, the heavier beers and wines that create the real problems. C4:24 The hierarchy approach is embraced in the author s proposals for taxation. (More later) The authors also opposed the sale of any heavier alcohol beverages for on-premise consumption. C5:44

22 On the Three-Tier System Notably, Towards Liquor Control says nothing about a three-tier system. While the authors never address three tier (they likely never heard of the concept), they were critical of control systems that only controlled wholesale sales, not retailing. C5:50 The authors saw controlling retail sale of alcohol as they key component to successful regulation. At the present time, we believe, it is neither desirable nor necessary for the state to assume similar management of the manufacturing side of the trade. Virtually all the individual and social evils of the liquor traffic arise from an inadequately regulated and overstimulated retail sale. The supplies that the Authority needs in its stores it can readily purchase direct from the manufacturers. C5:42

23 On Tied-Houses But the same cannot be said for tied-houses, which Towards Liquor Control spends a page condemning. See C4:29 The tied house system had all the vices of absentee ownership. The manufacturer knew nothing and cared nothing about the community. All he wanted was increased sales. He saw none of the abuses, and as a non-resident he was beyond local social influence. C4:29 There are many devices used by brewers and distillers to achieve this same end, such as the furnishing of bars, electric signs, refrigerating equipment, the extension of credit, the payment of rebates, the furnishing of warranty bonds when required to guarantee the fulfillment of license conditions and of bail bonds when the dealer is haled into court. A license law should endeavor to prohibit all such relations between the manufacturer and the retailer, difficult as this may be. C4:29

24 On Direct Shipping The authors saw the ability to direct ship alcohol into dry areas as an effective means to suppress bootlegging and reduce the political rancor over alcohol. Legalized importation by package for personal use has been one of the methods by which some so called prohibition states in the past have secured respect for the law. C2:15 Indeed, the authors wanted to give the state monopoly direct shipping privileges. [M]ention should be made of the importance of permitting a State Authority to ship liquor by mail or express to persons living in dry areas, wherein retail shops are excluded by local option vote. This right to purchase is required primarily as a measure to suppress would-be bootleggers, but it has a secondary significance in that it would satisfy those who otherwise would be uncompromising opponents of the prohibition of liquor selling in their community. C5:56

25 On Taxation Towards Liquor Control was published at a time when new taxes on alcohol were being advertised as a major revenue source. The authors saw this as a danger: The fundamental objective [of alcohol taxes] should be not revenue but rational and effective social control. [W]e believe that liquor taxes should be levied, first of all, because the taxes will help to make the liquor controls more successful, and not because the Treasury needs the funds. C7:69 The authors were equally opposed to earmarks flowing from control mark-ups or alcohol taxes: Temperance education, charities, old-age pensions and any other welfare work should find their support in the general funds of the state in proportion to need and in competition with other demands. The profit policy of the Authority should be determined as a means of progressive liquor control, without regard to the revenue needs of hospitals, old-age pensions or temperance education. Earmarking of revenues is contrary to sound public finance. C5:48; see also C7:83

26 On Taxation, cont. Towards Liquor Control embraced a mix of taxes and suggested the need for taxes in addition to excise (volume) taxes and taxes (fees) for license privileges. The authors accordingly proposed a system of profits taxation imposed on both manufacturers and retailers. C7:76 The authors logic demonstrably false from an economic perspective is that while excise taxes and fees are passed on to consumers and are therefore regressive, taxes on income and profits must be borne solely by the industry member. C7:75-76 Taxes should raise the price of alcohol, but not so far as to make bootlegging profitable. C7:71

27 On Taxation, cont. On excise taxes and fees, the authors favored a nationallyuniform approach of federal and state taxation, with a reasonable rate structure for different beverages set with four factors in mind (C7:76-77): 1. The alcohol content of the beverage. 2. The value and cost of the beverage. 3. The social desirability of consumption with 3.2 beer and light wine favored, and spirits disfavored. 4. The capacity to pay (i.e. ordinary versus luxury consumption) with higher taxes for sparkling wines, fortified wines and liqueurs.

28 On Taxation (chart at C7:81), cont. Bev. Alc. Range (in ABV) Prop. Alc. Content Prop. Prod. Cost Disc ge Consumption Luxury Consumption Total Tax per Gallon Beer None None None $.10 Strong 4 to 8.20 None $.30 Beer Wine 6 to None.05 $.40 Spark g 7 to $3.00 Wine Fortified 14 to $1.00 Wine Liqueur Appx $3.00 Whiskey Appx $3.00

29 On Advertising In an age before the Supreme Court recognized protections for commercial speech, Towards Liquor Control advocated an almost complete ban on advertisements of all alcohol except 3.2 beer. C4:33-34 On the question of whether advertising increases consumption, the authors had no doubts: Advertising artificially stimulates the demand for alcoholic beverages. [Advertising thus] is inconsistent with any idea of restricting the sale of liquor to an unstimulated demand. C5:52 Moreover, the authors wanted state control of advertising to extend beyond the industry and reach the media itself. C4:34

30 On Advertising, cont. The book laid down six principles of advertising regulation: 1. Print advertising should contain nothing except the name, address and date of incorporation of the dealer, a trademark, and a very simple description. 2. All other advertising matter, like slogans, should be prohibited without the approval of the state licensing board. 3. All outdoor advertising, except at the place of production, should be prohibited. 4. All advertising matter on vehicles of producers, distributors and dealers should be regulated like print advertising. 5. Advertising through consumer advertising specialties, free samples, cut rate sales and the like should be prohibited. 6. Radio advertising should be subject to the same rules as print advertising.

31 On Education Towards Liquor Control placed great faith in the ability to phase-out alcohol consumption by education. See C4:38; C8:85 The authors also warned against over-reliance on the schools to accomplish this task. Success would come from changing social and family attitudes towards alcohol. C8:87-88 As with every other problem that relates to conduct, temperance in the long run will come, not by summary process or legislative decree, nor by formal instruction in the school, but only as our entire American culture becomes civilized and the level of social standards and desires is raised. C8:88

32 On Education, cont. The authors pleaded for science-based education, not the emotion-laden education that marked the Prohibition era. Authorities are quoted by both [wet and dry] circles, and each bases its case on an appeal to science. Indeed, one of the discouraging aspects of the liquor debate of the last decade has been the use of scientific and pseudo-scientific terminology as a weapon of war. All the branches of learning from physiology to aesthetics and from sociology to ethics have been conscripted for service, not in a detached and disinterested search for truth, but as a means of propaganda. C8:90 The authors also advocated additional research into alcohol consumption, something they believed repeal would help foster. See C8:91

33 On the Law and Behavior Toward Liquor Control s most durable message appears at the start and end of the book that the law cannot be the instrument for society-wide changes in behavior. Ironically, in a book brimming with New Deal optimism about the power of rational social policy, Toward Liquor Control rests on this fundamentally conservative notion. In the end intelligent lawmaking rests on the knowledge or estimate of what will be obeyed.... Certainly the only standard which the law has any hope of enforcing is the standard prevailing in the community as a whole and not that which prevails in a single group, no matter how enlightened it may be. C1:5

34 On the Law and Behavior, cont. The authors often make naïve assumptions about the motives and corruptibility of government officials and processes. For example, the authors discount the possibility that state monopoly systems would seek to increase consumption to generate revenue. See e.g. C5:54-55 Yet the book could also take a very practical (almost cynical) view: It is not a question of the kind of world we might prefer; it is a question of what we can achieve in the kind of world we have. It is a question of human tastes and appetites which, as we have discovered, cannot be eliminated by statute. C3:23

35 On the Law and Behavior, cont. Returning to the theme that law must reflect what the public will support, Towards Liquor Control ends with a frank acknowledgment that it is a document of its day. No recommendations which we or anyone else could make carry with them an element of finality. The only service that law can render is to give effect to the necessities and ideals of a given time and place, and necessities and ideals cannot escape the process of change. We need to be on our guard against any system of control that has outlived its usefulness o[r] that no longer represents the prevalent ideas and attitudes of the community. Our legal prescriptions and forms must be living conceptions, capable of growing as we grow. For the law is itself a social phenomenon and has no meaning apart from the uses and necessities from which it springs. C9:98

36 Thank you for your time and attention Marc Sorini McDermott Will & Emery LLP Boston Brussels Chicago Düsseldorf Frankfurt Houston London Los Angeles Miami Milan Munich New York Orange County Paris Rome Seoul Silicon Valley Washington, D.C. Strategic alliance with MWE China Law Offices (Shanghai) 2013 McDermott Will & Emery. The following legal entities are collectively referred to as "McDermott Will & Emery," "McDermott" or "the Firm": McDermott Will & Emery LLP, McDermott Will & Emery AARPI, McDermott Will & Emery Belgium LLP, McDermott Will & Emery Rechtsanwälte Steuerberater LLP, McDermott Will & Emery Studio Legale Associato and McDermott Will & Emery UK LLP. These entities coordinate their activities through service agreements. This communication may be considered attorney advertising. Previous results are not a guarantee of future outcome.