Bottleneckers

Gaming the Government for Power and Private Profit

William Mellor, Dick M. Carpenter II

• Publisher: Encounter Books
• Year: 2016
• ISBN:
  9781594039089
• Topic: Business
• Subtopic: Government & Business
• Index: Business

Bottlenecker ( n ): a person who advocates for the creation or perpetuation of government regulation, particularly an occupational license, to restrict entry into his or her occupation, thereby accruing an economic advantage without providing a benefit to consumers.The Left, Right, and Center all hate them: powerful special interests that use government power for their own private benefit. In an era when the Left hates "fat cats” and the Right despises "crony capitalists,” now there is an artful and memorable one-word pejorative they can both get behind: bottleneckers.A "bottlenecker” is anyone who uses government power to limit competition and thereby reap monopoly profits and other benefits. Bottleneckers work with politicians to constrict competition, entrepreneurial innovation, and opportunity. They thereby limit consumer choice; drive up consumer prices; and they support politicians who willingly overstep the constitutional limits of their powers to create, maintain, and expand these anticompetitive bottlenecks.The Institute for Justice’s new book Bottleneckers coins a new word in the American lexicon, and provides a rich history and well-researched examples of bottleneckers in one occupation after another—from alcohol distributors to taxicab cartels—pointing the way to positive reforms.

CHAPTER 1

How Bottleneckers Got Their Name

Sitting atop her tractor, Juanita Swedenburg bounced along a dirt path, seething with anger.¹ Earlier, the sixty-something-year-old Virginia farmer had been flipping through a new issue of a magazine delivered to her house when she stumbled upon an article that started her slow burn. According to the article, she—a card-carrying Daughter of the American Revolution—was allegedly a criminal, a felon.

In 1976, Juanita and her husband, Wayne, had retired from careers in the US foreign service and bought a 120-acre farm in bucolic Middleburg, Virginia. Both were raised on farms, and they drew on their experience to raise cattle on their new property.² Although they never entirely abandoned this pursuit, they soon shifted their efforts to a crop that was ideal, though then sparsely grown, in their slice of Loudon County: grapes. Prompting this course of action was Juanita learning that Thomas Jefferson thought that Virginia’s soil was like that of France, known, of course, for its wines.³

With experience only as wine consumers, Juanita and Wayne set out to start a winery specializing in the type of wine they had enjoyed while serving in Saigon in the foreign service. “In those days, it was the Paris of the East, and I was so much a wine novice,” Juanita recalled. “We drank really good 1948 and 1949 Bordeaux and cabernets. It taught me a lot about good wine.”⁴ Juanita and Wayne immersed themselves in learning the craft of wine making. After copious reading, workshops, trial and error, sharing of notes with neighbors, and years of physical labor,⁵ they planted their first grapes in 1982 and opened the Swedenburg Estates Winery in 1988.⁶

Their chardonnay, cabernet, and fruity Riesling began drawing a following, and they shipped cases to customers all over the country who wanted something different from what was available in their neighborhood stores.⁷ In any given year, mail-order sales amounted to somewhere between 10 and 20 percent of the two thousand cases they sold⁸—that is, until that fateful day when Juanita was alerted of her criminal ways.

Always looking to grow her skills as a winemaker, improve the business, and stay abreast of the industry, Juanita read wine publications religiously. It was in one of these magazines that she discovered her crime⁹—the laws of twenty-four states made it illegal for Juanita to ship wine from her farm in Virginia directly to consumers in the respective states.¹⁰ At first she ignored her new realization and continued shipping out wine,¹¹ but her conscience—pricked by a pocket copy of the US Constitution she carried with her everywhere—got the better of her. When out-of-state customers visited her tasting room and asked for cases of alcohol to be shipped to their homes, Juanita’s reply became, “Sorry, I can’t.”

Three thousand miles away, the owner of another small family winery was also coming to the realization that he had been breaking the law for years. Only, in his case, he had learned of his criminality from threats of prosecution rather than a magazine. David Lucas had also started in the wine business later in life, after years spent serving the United States abroad. Raised in an agricultural family in California, as a young man David served in the peace corps, first growing rice in remote parts of India and then serving as a peace corps director in Iran. After leaving the peace corps, he worked in the fruit-and-vegetable canning industry, saving his money to buy some land and build his dream business—a winery.

He began his wine making as a sideline while still in the canning industry. His first wines tasted much like other popular wines in the United States—sweet and fruity with plenty of alcohol. A few years into his part-time wine-making pursuit, he landed a position with a company that would alter his wines and the course of his life—the Robert Mondavi Winery. As head of global research and joint ventures, David worked closely with Mondavi for sixteen years, learning the business and traveling around the world. Along the way, he tasted some of the world’s great wines and made a painful observation: his own wines were embarrassingly bad.

Making full use of his position at Mondavi, David became a student of wine making, paying close attention to how the world’s great wineries crafted their products. He abandoned his earlier efforts and began making wines that were food friendly, refined, and restrained and whose taste reflected the vineyards from which they came.

By the time David left Mondavi, his business was small but thriving; so much so that his tasting room was regularly full of out-of-state customers asking for his wines to be shipped to their homes. Although such shipments would never represent a large percentage of his business, they were nevertheless important to it. David only sold his wines directly, not through supermarkets, big-box stores, or other retailers. He was, therefore, all too happy to fulfill individual customer requests for shipment.

A concern, however, nagged him. He knew other wineries in his area shipped to out-of-state customers—it was common practice, in fact—but he wondered occasionally if there were restrictions on interstate alcohol shipping. All doubt was laid to rest when he received the first in a series of cease-and-desist letters from state liquor commissions. Like Juanita Swedenburg, David Lucas, a small-business owner and veteran public servant, was a felon. Or so said the laws of various states—laws intended not to protect the public from harmful perpetrators but to guard a powerful private interest from competition using government power. The origins of such laws can be traced to one of history’s leading industrialists—John D. Rockefeller Jr.

THE ORIGINS OF PROTECTIONISM

At the turn of the twentieth century, Rockefeller, and other industrialists like him, believed America had a problem—a “liquor problem.”¹² It was a belief that had been building around them for decades in the form of the temperance movement.¹³ In the early nineteenth century, physicians, ministers, and employers had grown increasingly concerned about the drunkenness of workers and servants. Throughout the first half of the century, this concern mushroomed into a mass movement, encompassing more than a million people across a broad spectrum of the middle class who committed themselves to complete abstinence from alcohol.¹⁴ The 1840s saw the first state attempts at prohibition, followed in the 1880s by a second wave of attempts. Although most of these laws were overturned, a few survived into the early twentieth century as a new prohibitionist organization—the Anti-Saloon League—came to dominate the movement.¹⁵

The league operated with a level of sophistication not known before. It hired lawyers to write model laws, built up a war chest of funds, and collected political favors subsequently used to expand the number of elected officials beholden to it.¹⁶ First working state by state, the movement wielded those resources to achieve prohibition of alcohol in twenty-three states by 1916 and seven more by 1919.¹⁷ It also came out for a federal constitutional prohibition in 1913, working to achieve it in Congress in 1917, and then achieved a final ratification in Nebraska in 1919. The Eighteenth Amendment—commonly called Prohibition—went into effect a year later.¹⁸

Throughout this period, the league’s efforts were bankrolled by Rockefeller—a lifelong teetotaler—and fellow industrialists. Like early temperance adherents, they believed alcohol undermined the morals of their workers and hampered productivity.¹⁹ Moreover, the league thought that by enacting Prohibition, saloons would become unavailable as meeting and recruiting places for unions and socialist organizations, and social blight in the form of crime, poverty, insanity, disease, and urban disorder would come under control.²⁰

At first, Prohibition seemed to work. In the early years, alcohol consumption appeared to decline, and police, social workers, ministers, and journalists reported reductions in problems associated with alcohol abuse.²¹ But these effects—to the extent that they actually resulted from the Eighteenth Amendment—were fleeting and never entirely successful. The drinking of alcohol continued, especially in large cities, and, as the 1920s progressed, additional negative effects of Prohibition materialized and metastasized—alcohol was illegally produced and distributed, organized crime flourished, bribery and corruption of public officials prevailed, cases of alcohol poisoning arose, and there was a widespread violation of the law. It was particularly this last problem that prompted Rockefeller and others to begin rethinking their support of Prohibition.

Although the “lawlessness” associated with Prohibition is sometimes thought to describe organized crime, it actually refers to the disrespect for all law, and the law’s loss of legitimacy, resulting from the mass disobedience of Prohibition. This lawlessness was aggravated by the looting, rioting, and mass demonstrations that grew out of the Great Depression.²² By 1932, such lawlessness had sealed the fate of Prohibition: John D. Rockefeller Jr. announced his support for repeal, the momentum for which had been building for some time, and other industrialists followed suit. As Rockefeller explained,

In the attempt to bring about total abstinence through prohibition, an evil even greater than intemperance resulted—namely, a nation-wide disrespect for law, with all the attendant abuses that followed in its train. That this intolerable situation should be done away with has seemed to me even more important for the moment than the promotion of temperance.²³

On November 16, 1932, the US Senate submitted the Twenty-First Amendment, repealing the Eighteenth Amendment, to state constitutional conventions for ratification. On December 5 of the following year, Utah became the thirty-sixth and deciding state to ratify the amendment, putting repeal into immediate effect.²⁴

In the minds of Rockefeller and others, however, repeal was no solution to the root problem. Rockefeller warned, “As Senator Capper has aptly said, ‘We may repeal Prohibition, but we cannot repeal the Liquor Problem.’ If carefully laid plans of control are not made, the old evils against which prohibition was invoked can easily return.”²⁵ Among other things, the Twenty-First Amendment left such control to the states, but legislators—most of whom had little personal expertise in the complexities of liquor regulation—were ill equipped to navigate the difficult policy and political choices that accompanied it.²⁶ Into this vacuum stepped Rockefeller; this time with a highly influential study that produced model legislation for the states.

Toward Liquor Control,²⁷ a book bankrolled by Rockefeller and written by two of his close and trusted advisors, Raymond Fosdick and Albert Scott, outlined the details of two post-Prohibition systems of regulatory policy: one that the authors greatly preferred and another that they included for pragmatic purposes. The first, which they strongly recommended, was a monopoly approach, in which states would allow individual sales of alcoholic beverages in restaurants and hotels while maintaining a public monopoly on the sale of packaged goods. The second was a licensing system under the auspices of a state board that would ideally be as far removed from politics as possible. Critical to the success of the latter scheme was the control of the number of businesses allowed to sell liquor and the complete elimination of the “tied-house system.”

Tied houses were taverns owned by or under exclusive contracts with alcohol manufacturers.²⁸ Prior to Prohibition, alcohol was not transported across the country as it is today. Instead, there were many breweries and other producers operating in cities and counties that were engaged in aggressive competition to exclusively sell products. They did so through a combination of manufacturer-owned taverns and independent establishments that agreed to sell only a certain brand of beverage. To compel such loyalty, producers sold to taverns on generous credit terms, provided them with equipment and supplies, and paid rebates. This tied-house system was widely believed to be a principal cause of excessive alcohol consumption and relat...

Table of contents

• Cover
• Title Page
• Copyright
• Dedication
• Table of Contents
• Introduction
• Chapter 1: How Bottleneckers Got Their Name
• Chapter 2: Casket Cartels: Robbery without a Pistol
• Chapter 3: When Licenses Creep
• Chapter 4: Designed to Exclude: The Interior Design Cartel’s House of Lies
• Chapter 5: To Speak Freely, Pee in This Cup
• Chapter 6: The Regulatory Stone Age
• Chapter 7: The Schnitzel King Is No More
• Chapter 8: The Bottlenecking Vanguard
• Conclusion
• Acknowledgments
• Endnotes
• Index