Tuesday, September 21, 2010

Bucking the Beer Cartel

The Economist has a good, succinct definition of the term "rent-seeking":


Cutting yourself a bigger slice of the cake rather than making the cake bigger. Trying to make more money without producing more for customers. Classic examples of rent-seeking, a phrase coined by an economist, Gordon Tullock, include:

• a protection racket, in which the gang takes a cut from the shopkeeper’s profit.

• a cartel of firms agreeing to raise prices;

• a union demanding higher wages without offering any increase in productivity;

• lobbying the government for tax, spending or regulatory policies that benefit the lobbyists at the expense of taxpayers or consumers or some other rivals.

Whether legal or illegal, as they do not create any value, rent-seeking activities can impose large costs on an economy."

But how does rent-seeking work in the real world? This news story, from last week's Idaho Statesman, offers a near-perfect example of renk-seeking in action.

It tells of how big beer wholesalers, backed by an army of lobbyists, are turning to Congress for help in eliminating competition from small wine and beer shops that can sell directly to the public, minus the middle man, thanks to the Internet. Instead of meeting the upstarts head-on, the big boys want Washington to help them squash the little boys, through the passage of a renk-seeking measure.

"The bill is backed largely by the National Beer Wholesalers Association, which wants to see it passed in response to a 2005 Supreme Court decision that found some bans on direct shipments of alcohol unconstitutional. That ruling helped open the door to more direct shipments to consumers, especially from wineries. The law would allow states to block direct sales of wine and beer.

The beer wholesalers say the bill will give states more certainty in deciding who can sell alcohol to their residents.

"The net result is that states are unsure about whether or not they can regulate alcohol effectively," said Mike Johnson, the association's executive vice president and chief advocacy officer.

Many winemakers and retailers believe the beer wholesalers back the bill because they view the direct sale of alcohol as a threat to their business. Online sales - now about 1 percent of the market - are growing."

Big Beer has found a sympathetic ear among those who fear that direct sales, via the Internet, will lead to a loss of revenue, and regulatory control, for states. And the campaign donations don't hurt, either:

"The beer wholesalers have proved to be effective advocates. The Washington Post reported that the National Beer Wholesalers Association this year poured nearly $300,000 into the campaign accounts of about 100 lawmakers who co-sponsored the bill."

This case thus falls into the fourth definition of "rent-seeking" offered by The Economist: "lobbying the government for tax, spending or regulatory policies that benefit the lobbyists at the expense of taxpayers or consumers or some other rivals." Keep a lookout and you'll see other examples of it, virtually everywhere, given that we live in an era of increasing coziness between big government and big business.

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