Today being St. Patrick’s Day, it seems appropriate to revisit the unlikely juxtaposition of two of my favorite legal policy topics: alcohol and the Commerce Clause. (Listen to my podcast on the subject or read its transcript.) The point of all this is that alcohol is no different from any other commodity in that states cannot erect arbitrary regulations that privilege in-state interests (be they retailers, wholesalers, or producers) ahead of their out-of-state counterparts.
But St. Paddy’s Day is not the only reason the issue is topical. Last week, the Supreme Court declined to review the Fifth Circuit’s indefensible decision in Wine Country Gift Baskets.com v. Steen. It did so despite the Fifth Circuit’s upholding of a Texas law designed to protect Texas’s in-state liquor retailers from out-of-state competition, a holding that disregarded recent high-court precedent.
In Granholm v. Heald (2005), decided together with the Institute for Justice’s Swedenberg v. Kelly, the Supreme Court struck down a similar protectionist law. Both cases challenged laws that permitted in-state wine producers to sell directly to consumers while prohibiting similar sales from out-of-state producers. The Court held that, notwithstanding a provision in the 21st Amendment (which repealed prohibition) that allows states to regulate their own liquor industries, the Commerce Clause prohibits states from disrupting free trade by discriminating against out-of-state businesses in favor of in-state businesses. This interpretation of the Commerce Clause grew out of the common-sense understanding that, if left unchecked, state governments have strong incentives to protect in-state businesses (who are voters) at the expense of their (non-voting) out-of-state competitors. Without constitutional checks, such laws could eviscerate Congress’s constitutionally enumerated power to “regulate [make regular] commerce … among the several States.”
Nevertheless, the Fifth Circuit decided to limit Granholm to wine producers. As is evident by the name, however, the Wine Country Gift Baskets.com case concerns a wine retailer. Yet Granholm explicitly said that states “may not enact laws that burden out-of-state producers or shippers simply to give a competitive advantage to in-state businesses.” It is dismaying that the Supreme Court didn’t care about the Fifth Circuit’s neglect of this language.
Granholm was an important blow against the heavily protectionist and cartelized liquor industry. As was documented in a pre-Granholm article in Cato’s Regulation magazine, the prohibition on direct shipment has been used to strangle small wineries as they struggle to access larger markets without having to go through the state-controlled distribution networks. Despite an explosion of wine-drinking and -making in this country in the last 30 years – with consumption increasing by nearly 50% between 1991-2001 and wineries quadrupling between 1974-2002 – the small winery still fights against an old-boy network of producers and distributors. In 2003, the top 30 wine companies still provided 90% of U.S. wine although they were less than 1% of the producers.
This is, of course, exactly how the top 30 wine companies want it.
Granholm dismantled some of this network. Unfortunately, Wine Country Gift Baskets.com will allow this unconstitutional infringement of the right to earn an honest living (see Timothy Sandefur’s excellent book of the same name) to persist in some states.
But Americans, like most of the world, appreciate their booze. During prohibition, Americans endured Tommy-guns, corruption, gangsters, and speakeasies just for a drink. If the government made it illegal to drink responsibly, many Americans were willing to thwart the law and drink irresponsibly.
The negative effects of prohibition were too visible to deny and, after 13 years of waging war on a non-compliant population, prohibition ended. In its wake, however, prohibition left another war, an 80-year “on-going, low-level trade war” (in the words of Granholm) between states and their three-tiered monopolies over the production, distribution, and sale of alcohol. And so, 21st Amendment or not, prohibition lives on – though the colorful characters in spats carrying Tommy-guns have been replaced by iPad-wielding lobbyists and politicians who do their bidding.
Thanks to Trevor Burrus for his help with this blog post.