Beer Cronyism

Last week, the Texas House passed a bill that will establish new regulations for craft brewers who sell directly to consumers. The bill will require brewers who produce more than 175,000 barrels per year to sell their product to distributors, and then buy it back from the distributors before selling it to consumers.

In theory, the beer would never even leave the brewer’s premises–the transaction could occur entirely on paper. Yet, the brewer will be forced to pay the distributor for doing absolutely nothing. Which means, consumers will pay higher prices.

A lawyer for the Wholesale Beer Distributors of Texas said that the regulation will prevent large brewers from establishing a monopoly. Such arguments are often used by the beneficiaries of cronyism to justify government intervention.

Monopolies are a creation of government. Only government can prohibit or limit competition. In a free market there are no barriers to entry. Even if a single brewer dominated the market, others remain free to open a brewery. And competition isn’t limited to breweries. Wineries and distillers also provide competition.

The only beneficiaries of this bill are the distributors. Despite their claim that the bill prevents a monopoly, it actually does the opposite. It grants distributors a monopoly. Brewers will be forced to use the services of the distributors whether they want to or not.

Without this regulation, brewers would be competing with the distributors. They would be providing an alternative method for getting beer to consumers. But the regulation prohibits this.

The operative word in “free market” is “free”–the absence of government coercion. In a free market producers can produce and sell the products of their choice on the terms of their choosing. Consumers are free to purchase those products or abstain. Government’s only proper role is to protect the rights of individuals to act on their own judgment and prosecute those who initiate force or engage in fraud.

In a mixed economy, such as we have today, special interest groups compete to win government favors. They seek subsidies, restrictions on competition, and other policies that limit the freedom of individuals. They don’t want to compete in a free market. Instead, they use their political connections to obtain what they cannot get through voluntary means.

1 comment to Beer Cronyism

  • James

    I can see a few other arguments against the “it’s to protect us from monopolies” nonsense.

    First, in an environment where there are numerous craft and established, large-scale firms, the threat of monopoly is marginal at best. I can go to Wal-Mart and buy beer from five or six different companies; if I go to a store that sells local beers the number jumps an order of magnitude. The idea that any one company could establish a monopoly is inane.

    Second, the whole craft brewing thing is a reaction against a near-monopoly. Growing up I remember there were only a handful of beers available. Few people had heard of stouts or heffeweisens, and most thought “ale” was a generic term for beer. Once the government-mandated restrictions on beer production the market became flooded with not just new brands, but new varieties of beer. I’ve even seem lambics in a few places!

    Third, there’s no way to even pretend this isn’t targeting craft brewers (the absolute least likely people to develop a monopoly in an industry dominated by a small handful of multi-national companies). The big names already have distributers, meaning that this law will do nothing to them. It’s flagrant regulatory capture, and a clear attempt to bar entry into the marketplace.