The editor’s opinion from Marketplace, Northeast Wisconsin’s business magazine. (Obligatory disclaimer: Most hyperlinks go to outside sites, and we’re not responsible for their content. And like fresh watermelon, peaches, pineapple, grapefruit, tomatoes and sweet corn, hyperlinks can go bad after a while.)

June 30, 2008

Occasions of sin

Those of you who subscribe to the Milwaukee Journal Sentinel (which, like Marketplace, is published by Journal Communications) may have been following the saga of Milwaukee Ald. Michael McGee Jr., who now faces federal prison time after he was convicted of charges of bribery, extortion, attempted extortion and failure to file a financial form on a wire transfer of $15,000.

One of the crimes for which McGee was convicted was shaking down store owners in his district, soliciting payments so that the store owners could keep their liquor licenses. The Milwaukee Common Council allows an aldermanic veto over the issuing or renewal liquor licenses in aldermanic districts, known euphemistically as “aldermanic privilege.”

WTMJ radio‘s Charlie Sykes (WTMJ is also part of Journal Communications) came up with what he called “a radical idea“ that really isn’t: “Instead of banning aldermanic privilege being used in the issuing of liquor licenses, how about simply banning liquor licenses being granted by politicians?” In other words, why give aldermen the privilege of deciding who gets to have, and who cannot have, a liquor license?

It may be surprising in a state with such a vigorous brewing history, but, to quote a history of early liquor laws on the Wisconsin court system Web site, “Wisconsin was torn by battles over alcohol during its early years,” particularly when the state’s first settlers, New Englanders who were teetotalers, ran into the German immigrants who enjoyed beer even during the work day. (Those were the days.) Then came Prohibition, the most spectacularly stupid joint effort of Congress and state legislatures in our nation’s history.

Current liquor laws (including our three-tier distribution system) date back to the end of Prohibition in 1933. (Technically, Prohibition lasted less long in Wisconsin, because the law enforcing Prohibition didn’t pass until 1921, and state voters approved a 1926 referendum allowing beer manufacturing, and a 1929 referendum repealing the 1921 law.) For some reason, federal and state powers of the time couldn’t imagine going back to the old laws that existed before Prohibition, so they created multiple layers of laws protecting people who enjoy alcohol from themselves. State law, for instance, allows municipalities to issue one liquor license per 500 residents. (Ephraim is the only dry municipality in Wisconsin, by the way.)

Tavern owners may not have intended this to happen, but liquor licenses are a form of what economists call “rent-seeking” — using government to make money instead of through trade or production of wealth. In this case, the liquor license limit means that only a set number of businesses are allowed to make money through the sale of alcohol for on-premise consumption. Tavern owners compete only among themselves; if you want to get into the tavern business, and your municipality has issued as many liquor licenses as allowed by law, your choices are (1) buy an existing bar or (2) go elsewhere.

The issuing of liquor licenses is a political act. It may be a more obvious political act in Milwaukee, but the city council or village or town board approves liquor licenses. (Some communities have a board that reviews liquor license applications and gives recommendations of approval or disapproval, but the city council gets the last word.) As we’ve seen with McGee in Milwaukee, giving individuals veto power over liquor licenses is a temptation to corruption. I doubt “aldermanic privilege” is so blatant elsewhere, but I wonder how many city councils would go ahead and approve a liquor license in an area where that area’s alderman opposed the license, for whatever (legitimate or illegitimate) reason.

So what (other than "that's the way we've always done it") is the rationale for political bodies’ issuing liquor licenses? What, for that matter, is the rationale for the 500-population-per-liquor-license limit? Why should the issuing of liquor licenses not be an administrative act, like a driver’s license, available to whoever wants one, with the market deciding who succeeds and who fails? As with a driver’s license, someone who gets too many points (for giving underage drinkers alcohol, or getting too many police calls, etc.) could lose their liquor license. Moreover, as Sykes pointed out, taking the liquor license out of city council hands doesn’t mean that tavern locations couldn’t be controlled through zoning. (That's the counter to those who claim that unlimited liquor license availability would lead to a bar on every street corner; the other is that, as with everything else, the market, rather than artificial government control, would decide how many bars a municipality should have.)

McGee’s case is an example of motive (getting money from business owners) meeting opportunity (the availability of his vote or veto). As with campaign financing, the way to curb abuses by elected officials is through limiting the authority of our elected officials. Since limiting their authority is up to elected officials, converting liquor licensing from a political process into an administrative procedure isn’t likely to happen, because, as we all know, politicians are loath to give up their own power. Which doesn’t mean that discussing it is a radical idea.

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