Political Profiteers

This article originally appeared in The Baltimore Sun on April 22, 2003.
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With the 2003 Maryland General Assembly now adjourned, political commentators are making their observations of the session highlighted by the state’s budget crisis, the push for video slot machine gambling, and the advances and setbacks of the new Ehrlich administration. Yet very little — if any — attention will be given to the latest developments in one of Annapolis’s most consequential, long‐​running and disheartening political games: the ever‐​tightening restriction on consumer choices in order to increase profit margins for politically favored businesses.

The game works like this: A politically favored business group becomes worried that an innovative new competitor might open shop and offer consumers lower prices, better selection, higher quality or greater convenience. Instead of lowering prices or reinventing themselves to meet this challenge and better serve consumers, the old‐​guard businesses instead use their political connections to gain passage of new laws and regulations that make it harder for the innovative newcomers to open shop, or ban the newcomers altogether. The old‐​line businesses are protected, and they can increase their prices and profit margins because they know they are safe from competition.

In economic jargon, this game is known as “rent seeking.” Because of government’s restraints on competition, the politically favored businesses earn extra profits — “rents” — that they would not have earned in a fair, open marketplace where consumers have broader freedom of choice.

Rent seeking is a long‐​running, successful game in Annapolis. From 18th century banking regulations to restrictions on who can take the bar exam, to rules governing new car dealerships, to laws on telecommunications and energy companies, Maryland politicians have handed out monopolies and established business cartels with well‐​protected profit margins. Just recently, state lawmakers prohibited the retail sale of gasoline at below‐​wholesale prices after service station chains complained that convenience store “promotional special” gas prices were cutting into the service stations’ profit margins. Thanks to friends in the legislature, service stations’ bank accounts are larger and consumers’ wallets are lighter.

In 2003, liquor shop owners became the newest business group to become big‐​time players in the rent‐​seeking game. Worried that beverage store chains like Virginia’s Total Beverage or retail grocery and convenience chains like Safeway or 7‐​eleven would step up their efforts to sell beer and wine in Maryland at lower prices and with greater convenience for consumers, liquor shop owners in Charles, St. Mary’s and Washington counties successfully gained passage of laws prohibiting any chain that sells alcoholic beverages in other states from receiving an alcoholic beverage license for those counties. (Lawmakers previously passed similar legislation for Baltimore City and Baltimore and Anne Arundel counties.) It should come as no surprise that, in the most recent election cycle, alcoholic beverage retailers in Charles, St. Mary’s and Washington counties gave almost $4,000 in campaign contributions to the sponsors of those bills.

Annapolis politicians and shop owners defend the restrictions on consumer freedom by claiming that beverage chains would drive the local stores out of business and then would jack up prices. That defense is without merit; if a chain attempted to do so, it would be too easy for another competitor to take away the chain’s business with lower prices. The real reason that liquor store owners want the law is because they fear consumers will prefer the lower prices and greater selection of a beverage chain or the tremendous convenience of buying beer and wine at a grocery or convenience store.

Purposely restricting the free market to force consumers to pay more and boost politically favored businesses’ profit margins is bad enough. Maryland lawmakers’ decision to do this at a time when they are also raising taxes and cutting further into residents’ income is galling.

Thomas A. Firey

Thomas A. Firey is a senior fellow of the Maryland Public Policy Institute and also managing editor of Regulation magazine, a publication of the Cato Institute.