| Craft's Lessons For The Economy by Bob Alacqua In the early 20th century, alcohol producers owned or subsidized many bars and saloons. These establishments were known as “tied houses,” since the bars were “tied” to the brewers and distillers. Tied houses were mortal enemies of the temperance movement. They were vertical monopolies that pushed down prices, got patrons drunk on cheap booze, and upsold them on gambling, prostitution, and other vices. At the end of Prohibition, lawmakers felt that smashing these vertical monopolies was critical to promoting safe drinking. After the passage of the 21st Amendment, citizens in all states voted to abolish tied houses by separating the producers, like brewers, from the retailers, like bars. This led to a “three-tier system” in which producers (tier one) sold to independent middlemen that were wholesalers or distributors (tier two), who then sold to retailers (tier three). By dividing the liquor business into three distinct groups, these state-by-state rules made the alcohol industry deliberately inefficient and hard to monopolize. “The great effervescence in America’s beer industry is largely the product of a market structure designed to ensure moral balances, one that relies on independent middlemen to limit the reach and power of the giants, It was effective. Until it wasn’t. After Ronald Reagan’s election, the Justice Department relaxed its enforcement of antitrust laws. This kicked off a period of consolidation in various sectors across the economy, including the beer industry. Through a cavalcade of mergers in the last 30 years, 48 major brewers joined to form two super-brewer behemoths—Anheuser-Busch InBev and MillerCoors. Thus, an old system set up to avoid concentration became characterized by extreme consolidation. But even as federal antitrust enforcement in the last 30 years has shifted to favor conglomerates, a groundswell has created the perfect conditions for the craft-beer revolution—or, more accurately, several distinct craft-beer revolutions. In the early 1980s, a smaller beer boomlet, featuring then-new breweries like Sierra Nevada and Samuel Adams, foreshadowed today’s larger craft craze. More recently, many states have made exceptions for small craft breweries to sell beer directly to consumers in taprooms. These self-distribution laws are controversial. Technically, they create an exception to the cherished three-tier system in a way that advantages smaller breweries. But economists and beer fans alike often defend these rules, since they can help small firms establish a fanbase and then phase out when a brewer makes it big. So, what are the lessons of craft beer’s triumph for the rest of the economy? First, just as research shows that gargantuan companies are bad for innovation and job creation, the craft-beer boom shows that the burgeoning of small firms stimulates both product variety and employment. Second, sometimes consumers have their own reasons to turn against monopolies—particularly in taste-driven industries. hird, even in an economy obsessed with efficiency, sometimes it is just as wise to design for inefficiency. Alcohol regulations have long discouraged vertical consolidation, encouraged retailers to leave room for new brands, and more recently made it easier for individuals to introduce their own batch of beer to the market. Those are the aims the country should adopt at the national level, both to make it easier for small firms to grow and to make it harder for large firms to relax. (based on an article from Quartz.com) |
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