Industry giants are threatening to swallow up America's carefully regulated alcohol industry, and remake America in the image of booze-soaked Britain.
England has a drinking problem. Since 1990, teenage alcohol consumption has doubled. Since World War II, alcohol intake for the population as a whole has doubled, with a third of that increase occurring since just 1995. The United Kingdom has very high rates of binge and heavy drinking, with the average Brit consuming the equivalent of nearly ten liters of pure ethanol per year.
It’s apparent in their hospitals, where since the 1970s rates of cirrhosis and other liver diseases among the middle-aged have increased by eightfold for men and sevenfold for women. And it’s apparent in their streets, where the carousing, violent “lager lout” is as much a symbol of modern Britain as Adele, Andy Murray, and the London Eye. Busting a bottle across someone’s face in a bar is a bona fide cultural phenomenon—so notorious that it has its own slang term, “glassing,” and so common that at one point the Manchester police called for bottles and beer mugs to be replaced with more shatter-resistant material. In every detail but the style of dress, the alleys of London on a typical Saturday night look like the scenes in William Hogarth’s famous pro-temperance print Gin Lane. It was released in 1751.
The United States, although no stranger to alcohol abuse problems, is in comparatively better shape. A third of the country does not drink, and teenage drinking is at a historic low. The rate of alcohol use among seniors in high school has fallen 25 percentage points since 1980. Glassing is something that happens in movies, not at the corner bar.
Why has the United States, so similar to Great Britain in everything from language to pop culture trends, managed to avoid the huge spike of alcohol abuse that has gripped the UK? The reasons are many, but one stands out above all: the market in Great Britain is rigged to foster excessive alcohol consumption in ways it is not in the United States—at least not yet.
Monopolistic enterprises control the flow of drink in England at every step—starting with the breweries and distilleries where it’s produced and down the channels through which it reaches consumers in pubs and supermarkets. These vertically integrated monopolies are very “efficient” in the economist’s sense, in that they do a very good job of minimizing the price and thereby maximizing the consumption of alcohol.
The United States, too, has seen vast consolidation of its alcohol industry, but as of yet, not the kind of complete vertical integration seen in the UK. One big reason is a little-known legacy of our experience with Prohibition. From civics class, you may remember that the 21st Amendment to the Constitution formally ended Prohibition in 1933. But while the amendment made it once again legal to sell and produce alcohol, it also contained a measure designed to ensure that America would never again have the horrible drinking problem it had before, which led to the passage of Prohibition in the first place.
Specifically, the 21st Amendment grants state and local governments express power to regulate liquor sales within their own borders. Thus, the existence of dry counties and blue laws; of states where liquor is only retailed in government-run stores, as in New Hampshire; and of states like Arkansas where you can buy booze in drive-through liquor marts. More significantly, state and local regulation also extends to the wholesale distribution of liquor, creating a further barrier to the kind of vertical monopolies that dominated the United States before Prohibition and are now wreaking havoc in Britain.
Since the repeal of Prohibition, such constraints on vertical integration in the liquor business have also been backed by federal law, which, as it’s interpreted by most states, requires that the alcohol industry be organized according to the so-called three-tier system. The idea is that brewers and distillers, the first tier, have to distribute their product through independent wholesalers, the second tier. And wholesalers, in turn, have to sell only to retailers, the third tier, and not directly to the public. By deliberately hindering economies of scale and protecting middlemen in the booze business, America’s system of regulation was designed to be willfully inefficient, thereby making the cost of producing, distributing, and retailing alcohol higher than it would otherwise be and checking the political power of the industry.
When these laws were passed, America was a century closer to its English roots, and lawmakers remembered very clearly the effects that a vertically integrated alcohol industry had on pre-Prohibition America (and that it still has in the UK today). In the 1920s, Americans had learned the hard way that flat out banning drinking empowered the likes of Al Capone and was, on balance, unworkable. But it made no sense either to go back to the world of pre-Prohibition America, in which big, politically powerful liquor producers owned their own saloons and were therefore free to pour cheap booze into communities coast to coast, sweetening the doses with enticements ranging from rebates on drinks to cash loans, and frequently tolerating in-bar gambling and prostitution.
And so, for eighty years, the kind of vertical integration seen in pre-Prohibition America has not existed in the U.S. But now, that’s beginning to change. The careful balance that has governed liquor laws in the U.S. since the repeal of Prohibition is under assault in ways few Americans are remotely aware of. Over the last few years, two giant companies—Anheuser-Busch InBev and MillerCoors, which together control 80 percent of beer sales in the United States—have been working, along with giant retailers, led by Costco, to undermine the existing system in the name of efficiency and low prices. If they succeed, America’s alcohol market will begin to look a lot more like England’s: a vertically integrated pipeline for cheap drink, flooding the gutters of our own Gin Lane.
A moment’s thought makes it obvious that alcohol is different from, say, apples. Apples don’t form addicts. Apples don’t foster disease. Society doesn’t bear the cost of excessive apple consumption. Society does bear the cost of alcoholism, drink-related illness, and drunken violence and crime. The fact that alcohol is habit forming and life threatening among a substantial share of those who use it (and kills or damages the lives of many who don’t) means that a market for it inevitably imposes steep costs on society.
It was the recognition of this plain truth that led post-Prohibition America to regulate the alcohol market as a rancher might fetter a horse—letting it roam freely within certain confines, neither as far nor as fast as it might choose.
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