Magazine | April 22, 2013, Issue

Quakers and Bootleggers

(Getty Images/Chris Mellor)
They’re putting a cork in Pennsylvania liquor-law reform

What are these Republicans drinking? In 2011, Governor Bob McDonnell of Virginia tried to privatize his state’s Soviet-style liquor stores and was handed a stinging legislative defeat. In 2013, another Republican governor, Tom Corbett of Pennsylvania, persuaded the Pennsylvania house of representatives to pass a liquor-privatization bill, which remains stalled in the senate. The efforts of those GOP governors have been stymied in part by Democrats unwilling to give up state-run enterprises and the money that the union-dominated work forces associated with them shunt into their campaign coffers. But those free-market Republicans face another obstacle: anti-free-market Republicans.

In 1983, economist Bruce Yandle published his famous “Bootleggers and Baptists” essay, in which he argued that parties with opposite interests often find themselves supporting identical regulations. In the case of alcohol prohibition, teetotaling Baptists supported the law because they hoped that fewer people would raise their spirits by downing spirits, while bootleggers supported the law because they wanted to drive drinkers into the black market, which outlaws would by definition monopolize. Without intending to, the Baptists and bootleggers formed a unified political coalition. Sometimes, such competing interests are members of the same organization, as with the case of the Taliban, which is a narcotics syndicate that crusades against drug use, or the U.S. government, which both penalizes and subsidizes the consumption of tobacco. Likewise, the Commonwealth of Pennsylvania is both the regulator of alcoholic beverages and the sole retailer of wine and spirits. Call it “Bootleggers and Quakers.”

Except Pennsylvania is not really the Quaker State any more. The Quakers’ social conservatism regarding issues such as gambling and drinking has long since disappeared from Pennsylvania politics. (It has mostly disappeared from the Quaker ethic, too, and America’s most famous pacifists are of late much more interested in sponsoring Hamas munitions flotillas than temperance pledges.) The government of Pennsylvania is up to its ears in various sindustries: When Pennsylvania’s government-cartel casinos stock their bars, they go to the state’s government-monopoly alcohol wholesalers, which also supply the state’s government-monopoly spirits retailers and its government-monopoly wine retailers. And that means there’s a powerful nexus of economic and political interests at work in the Keystone State: crony capitalists and public-sector unions. Divorcing the two is no small task. Governor Corbett, like Governor McDonnell, has a Republican majority in the state house to rely upon, and, unlike the Virginian, he has a Republican majority in the senate, too. But liquor reform is far from a done deal.

Pennsylvania is kind of goofy when it comes to booze, with the most restrictive laws outside of Utah. A bar can sell you a six-pack of beer to go, but no more. A state-licensed beer distributor can sell you a case of beer, but no less. Grocery stores are forbidden to sell beer unless they have restaurant licenses, seating for at least 30 people, and a separate cash register for ringing up the booze. Spirits and wine are sold only in the state-run monopoly stores, where clerks with decidedly Stalinist demeanors will grumble while collecting in excess of $40,000 a year for scanning whichever bottle you choose out of the scant selection on hand. Those clerks are represented by hall-of-fame working-class hero Wendell W. Young IV, who inherited the presidency of the United Food and Commercial Workers Local 1776 — and the 260 grand a year that goes with it — from his father, Wendell W. Young III.

You can see how the math works: Wendell W. Young IV makes about ten times what the average member of his union is paid, and if those members had to compete in a real labor market rather than in a state-run monopoly, their compensation probably would go down, and his paycheck and political influence would be more difficult to support. The unions spread money around to both parties, lavishing special attention on key leaders and committee chairmen. The 150 or so grocery stores that have restaurant licenses do not want to compete with the thousands of grocery stores that don’t. And most of all, those government-protected beer distributors do not want new competitors in the marketplace and will fight like rabid wolverines to maintain their political privileges. Some of them are better prepared for battle than others: Pat Deon Beverages in suburban Bucks County is owned by Republican bigwig Pasquale Deon, who is a member of the board of both the turnpike commission and SEPTA, the Philadelphia area’s mass-transit authority — high places in the patronage-driven ecosystem of Pennsylvania politics.

Privatization proponents have offered some serious sweeteners for the distributors, such as a year-long period during which they would have exclusive access to new liquor licenses at a deep discount, but it is not clear that they will be enough. Republicans may have a nominal majority in the state legislature, but conservatives complain that the functioning majority belongs to the “union party,” the bipartisan collection of legislators beholden to the state’s public-sector labor syndicates. The failure of earlier piecemeal reform efforts nonetheless has reformers betting big on true full privatization. “It’s the Soviet Union trying to move to a market economy,” says Matthew Brouillette of the Commonwealth Foundation, a free-market think tank dedicated to Pennsylvania issues. “The transition costs are high. But we’ve tried perestroika strategies, and they’ve given us boondoggle after boondoggle.”

#page#The booniest of those boondoggles were the wine kiosks experimentally installed in a number of Pennsylvania grocery stores. This being Pennsylvania, it goes without saying that the contract for the kiosks went to a major financial supporter of Democrat Ed Rendell’s gubernatorial campaign — to his finance chairman, in fact — but the machines themselves were the real treat. They were essentially giant soda machines with a direct link to agents at the state’s Liquor Control Board. Would-be buyers would walk up to the kiosks, swipe their drivers’ licenses to prove their age, submit to an examination by LCB officials operating remote cameras, submit to a breathalyzer exam, and then — if the chemistry and the bureaucracy were all satisfied — choose from a selection of wines about the size and quality of that offered in business class on a domestic airline. Strangely, this did not catch on. Governor Rendell’s buddy’s firm threw in the towel, and the state managed to lose a million dollars or so on the deal. “You can buy the machines on eBay,” Brouillette observes drily. “Pennsylvania operates like an arsonist that is preaching fire prevention. On one hand, the state is trying to sell more liquor, on the other they’re supposed to be regulating consumption. Privatization gets rid of that conflict of interest.”

It is illegal for Pennsylvania residents to drive over the state line into Delaware or New Jersey and bring back a bottle of Bordeaux, but the Liquor Control Board concedes that the bootlegging law is widely ignored, and sales lost to other states cost Pennsylvania some $180 million a year. “People cross the border to get wine and spirits, either because you can’t get them here, because of the limited selection, or because of lower prices,” says Brouillette, a self-confessed bootlegger.

One key opponent of privatization is state senator Chuck McIlhinney, whose law-and-justice committee has jurisdiction over the issue. He has already said he would have voted against the house bill, and though he says he supports “smart privatization,” his most recent legislative action on the subject was a bill that would have preserved the state-monopoly structure with a few modifications, such as keeping stores open on Sundays — not privatization at all. Conservative activist Rob Ciervo has threatened to stage a primary campaign against McIlhinney over the issue, and reformers have been withering in their criticism.

“McIlhinney introduced legislation to ‘modernize’ but not privatize the system,” says Leo Knepper of the conservative reform group Citizens Alliance of Pennsylvania. “His plan keeps liquor stores under state control, while the state also wholesales all of the liquor in Pennsylvania. Him saying that he’s in favor of ‘smart privatization’ sounds opportunistic. If his version of ‘smart privatization’ is anything like his ‘modernization,’ it will be privatization in name only.” McIlhinney points to imperfections in the house bill, such as the fact that it maintains the silly separate-counters rule for grocery stores, and wants to hold extensive hearings on the subject. “After waiting since 1930 for privatization, a little more time to ‘get it right’ for every Pennsylvanian seems fair to me,” he wrote in an op-ed (flashing B.S.-alert quotes around “get it right” in original). His critics suspect that he is simply trying to delay the bill to death. Knepper points out that the separate-counters rule was included as a sop to the beer distributors, who are opposed to liberalization in toto. “He’s criticizing something that was put in there at the request of the constituency he’s trying to please,” Knepper says. “If he really wants a broader range of free-market solutions without these kinds of restrictions, we’d be thrilled to support that.”

So it’s the union party duking it out with the cocktail party. The liquor-reform bill is expected to remain in limbo until the early summer, at which point it probably will become a bargaining chip in broader budget negotiations. The underlying issues — crony capitalism, the baleful influence of public-sector unions on both parties at the state and local levels, the fact that Republicans will on occasion auction their free-market principles to the highest bidder — will be occupying conservatives long after Pennsylvania has figured out how to let Trader Joe’s sell a bottle of wine.

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