mandates

Washington State Ballot: Cracking Open the Wine and Spirits Market

by Angela Logomasini on October 29, 2010 · 2 comments

in Nanny State, Personal Liberty

This election day, Washington State voters will have to decide on two different ballot initiatives dealing with alcohol regulation (#1100 and #1105). The first will open the market to competition at all levels — allowing competition necessary to reduce prices, make shopping more convenient, and increase consumer choice. The second goes halfway, forgoing many benefits offered by the first. (A helpful chart comparing the two initiatives can be found in this Washington Policy Center study.)

Both initiatives would essentially privatize spirit sales, but 1100 would also eliminate government pricing schemes for all alcohol that currently bar retailers from offering discounts. In addition, it breaks the state-imposed three-tier system by eliminating regulations that keep retailers from buying wine directly from wineries around the world rather than buying it all through wholesalers. Initiative #1105 would privatize spirits (which is good!) but  keeps three-tier mandates intact and also includes harsh taxes and regulations that will keep prices high.

Tackling three-tier mandates–as 1100 would do — is critically important.  Three-tier mandates serve wholesalers and bureaucrats well — at the expense of everyone else. They ensure that retailers cannot simply buy direct from wineries and then pass savings onto consumers. It also means, if wholesalers don’t want to carry certain wines, retailers can’t offer them.

Initiative 1100 was originally developed and promoted by Costco, which wants to buy direct and offer steep discounts to consumers. Opponents suggest that means the initiative is designed to undermine small retailers and wineries to benefit “big box” stores. That’s ridiculous. Costco isn’t asking for special privileges. It’s asking for opportunity to compete.

Voluntary contracts and competition drives market players toward arrangements that ultimately benefit consumers, and that’s what 1100 is all about. This system gives everyone a fair-and-equal shot, whereas government regulations favor the politically organized. If Costco wins in an open market, it will win because it meets consumer demands.

Costco won’t be the only business that wins. A more open marketplace will raise the best businesses to the top. It will help wineries and retailers — large and small — explore new opportunities for marketing products.

And an open marketplace won’t destroy wholesalers or the three-tier system; it would simply base that system on voluntary contracts rather than mandates. Competition for contracts will reward those wholesalers that provide the best service and eliminate those dependent on governmental guarantees. California and D.C., for example, do not have three-tier mandates, yet wholesalers play a critical role based on voluntary market arrangements.

Still, opponents of both initiatives–a good portion of which includes wholesalers–have suggested that privatization and rational market arrangements will undermine public health and promote alcohol abuse. Concerns about alcohol misuse are certainly important they have no bearing on economic organization of the marketplace, nor could they ever justify government-created monopolies. Social problems should continue to be addressed by other means, such as checking identification and private social services to help abusers.

In fact, the data shows that states with more open economic arrangements do not suffer from more alcohol-related problems. For example, a study published by the Virginia Public Policy Institute compares data from 18 “control states” (where at least some kinds of alcohol is sold only in government stores) and 32 “license states” (states where all alcohol is sold in private shops). The researchers found no difference between the two approaches in terms of alcohol-related health and social problems.

Specifically, they found that between 2001-2005 the number of per-capital alcohol-related deaths, binge drinking incidents, and drunk-driving cases were roughly the same among the states, regardless of where the alcohol was sold. In other words, government ownership of any portion of the industry does not improve public health and safety. The Commonwealth Foundation drew similar conclusions in an analysis of the data that produced in 2009.

This Reason Foundation study underscores some of the other fallacies associated with “temperance”-based arguments favoring regulation. In addition, check out Tom Wark’s blog, Fermentation, for helpful information on the initiatives and problems associated with three-tier mandates.

Image: Wine at California Costco Store, by Willscrlt’s photostream on Flickr.

Sex in the Board Room!

by Fred Smith on October 21, 2010

in Culture, Odds & Ends, Politics as Usual

Over at the Boards at their Best blog, James Kristie, editor of the journal Directors & Boards, recently proposed a rule requiring that at least 40 percent of corporate board members be women.  Support for diversity on corporate boards has become customary.  But, for some diversity advocates, voluntary change is no longer viewed as sufficient.

In 2003, Norway enacted a law setting a 40 percent gender quota for that country’s corporate boards.  Firms that fail to comply face dissolution!  Now Kristie wonders why we don’t bring just such a law here to the United States, and his is not an isolated view.  Having asked the question, though, Kristie sought out a range of opinions from various experts, and these are featured as the cover story in the fall 2010 edition of the journal.  You can read my contribution here.  Since the length was tightly limited, I thought I’d expand on my thoughts and add a few points I couldn’t make in that shorter format.

It’s no surprise that a proposal like this would be adopted first in Norway. After all, including women in political governance has long been a Nordic tradition – Gro Harlem Bruntland became the first female (and youngest) Norwegian Prime Minister way back in 1981.  But is it wise to dictate that kind of diversity in corporate governance?  I suggest the answer is no.

There are important differences between politics and business, and it does no one good to blur those distinctions.  Governments may need diversity to legitimize their ability to exert coercive power, but firms have only the power granted them by consumers.  Whether women or men, Catholics or Protestants, engineers or accountants would strengthen a board’s ability to meet these challenges is best determined by consumers via competition.

Corporations are specialized entities organized to meet specialized human needs.  Corporate boards oversee these institutions, seeking to ensure that top managers effectively coordinate the firm’s employees to achieve that task.  And the modern corporation has been extremely effective in aligning the self-interest of firms and their employees to advance human welfare, as John Micklethwait and Adrian Wooldridge document so well in their book, The Company.  They achieve in the large what Adam Smith noted long ago happens in the small: “It is not from the benevolence of the butcher the brewer, or the baker that we expect our dinner, but from their regard to their own interest.”

Corporate boards oversee these management decisions, so the challenge of selecting the appropriate mix of individuals to play these roles is critical.  Why would we expect politicians (focused on the general duties of government) to better select the specialized team needed to achieve these highly specialized tasks?

Not surprisingly, proponents see the Norwegian law as a “great success.”  Kristie, for example, notes that, “In 2003 women represented 7% of board directors in Norway.  Today, that total is 40%.”  What else would we expect when the law mandates that at least 40 percent of corporate directors be women?  But, while this surely benefits those women who’ve been promoted to the boardroom, is it good for their firms?  Is it good for society?  A recent University of Michigan study notes that the law has reduced corporate performance.  The reasons for this are unclear, though the authors suggest it may reflect the shorter workplace experience of the women appointees.

As in so many cases, politics is impatient.  Technological and institutional innovations have reduced the biological pressures for differentiated sexual roles, and those factors are having major impacts (note how the proportion of women in MBA and legal programs has exploded in recent decades).  Feminists may argue that “justice delayed is justice denied!”  But is it wise to promote those women now playing valuable mid- and senior-management roles to the boardroom before they’re ready?  The Norwegian experience suggests not.

The private world experiments and adopts changes as they prove their competitive value.  It is not surprising that these factors will operate very differently in different business sectors.  But, when innovations prove their worth, they are adopted.  Politicians may gain voter support by promoting such policies, but they may well harm consumers far more than we realize.  It is far better to strengthen competition and allow the market to determine what firms do — and with whom they select to do it.

Distracted Driving Kills, But What About Dysfunctional Policy?

by Marc Scribner on September 21, 2010

in Mobility, Nanny State, Personal Liberty, Politics as Usual, Regulation, Zeitgeist

The Obama administration, having succeeded in bringing about economic recovery and having nation-built a democratic Afghanistan, has set its sights on another pressing issue: driving while distracted. Today in Washington, the Department of Transportation is holding its second annual Distracted Driving Summit. This meeting of the minds brings together finger-waving bureaucrats and activists from across the country to devise strategies on how to make another molehill into a mountain. They even have a website, Distraction.gov, which instructs lowly citizen visitors to “Become a fan of [Transportation] Secretary [Ray] LaHood [on Facebook]” (which, of course, I did).

LaHood is currently waging a war on “texting while driving,” as many cities and states continue to ban holding phones behind the wheel. But why the selective hysteria over texting and hand-held cell phones? Research suggests that drivers using hands-free devices are no safer than those using hand-held devices, yet I have heard no calls to prohibit hands-free devices — not to mention fiddling with the stereo or yelling at your kids in the backseat or listening to NPR’s awful cringe-fest “Wait Wait…Don’t Tell Me!,” which are also potentially deadly distractions.

These laws, which have little effect on actual human behavior (particularly among high-risk demographics) given that they are so difficult to enforce, have little basis in reality. Despite the fact that many drivers ignore these laws, distracted driving deaths fell this past year. LaHood and his cronies have no doubt taken credit, despite there being no evidence to support their shameless high-fiving.

The Independent Institute’s transportation guru Gabriel Roth (editor of the indispensable volume on creative, market-based transportation solutions Street Smart) suggests that focusing on distracted driving is a way for transportation officials to avoid addressing real problems because, well, they are the problem.

CEI has long noted that, as they continue to be ratcheted up, Corporate Average Fuel Economy (CAFE) standards will continue to kill thousands of drivers by putting them into smaller, lighter, less-safe cars. Yet because The Environment is spared a trivial amount of damage, that’s okay. A government monopoly over the roads preempts the market-based solution — insurance testing and certification, just like they often do in the shipping industry — with inefficient, expensive, poorly enforced government mandates. Yet this is okay because it keeps politicians and bureaucrats such as LaHood perpetually employed.

Rather than holding summits and engineering new nanny state policies, regulators and their cheerleaders should focus on rolling back deadly and perverse government mandates.

Insurance Industry Stung By Health Care Deal

by Greg Conko on November 11, 2009

in Culture, Health and Illness, Healthcare, Insurance, Legal, Personal Liberty, Regulation, Zeitgeist

With much of the health care reform debate still focused on the wisdom of including a government-run, “public” health insurance “option,” too many opponents are neglecting a far more insidious feature of the Democratic proposals:  the mandatory purchase requirement.  Under each of the bills moving through Congress, every person living in the United States would be required by law to have health insurance.  And, if your employer doesn’t provide you with it, you’ve got to buy it yourself or pay a monetary penalty.

What’s more, the proposals would make it more difficult to get some of the options that are available now — particularly the low-cost insurance plans that cover only catastrophic health events and have substantial cost-sharing features.  And, depending on which bill would eventually be enacted into law, Congress, state insurance commissioners, and/or a federal Health Choices Commissioner would get to dictate what benefits have to be covered in every policy, and would be empowered to determine whether any given plan even qualifies as health insurance.  The end result will be considerably higher costs for almost every person living in the country.

On the other side of the equation, the Democratic proposals would mandate that every insurance company has to issue a policy to anyone who wants to enroll, and would forbid premiums from being based on the enrollee’s health status.  The expectation is that healthy young people would subsidize the health care costs of those who are older or sicker.  But states that have enacted these guaranteed issue and community rating mandates see premiums rise and healthy individuals drop their coverage.  After all, if insurers must issue a policy to all comers, why not wait until after you get sick to sign up?

Early on in the health care debate, the insurance industry agreed to support guaranteed issue and community rating, but only if Democrats would implement the mandatory purchase requirement.  That made Democrats happy because the number of uninsured Americans would fall if being uninsured were made illegal.  And the insurance industry was happy because more people would be forced to buy their products, hyper-inflated prices or not.

Trouble is, in all of this back-door finagling, someone forgot about ordinary Americans.  It turns out that most people don’t like the idea of being fined for choosing not to buy health insurance.  In turn, Democrats were forced to lower the penalty on people who choose to go without it.  And that means there will be fewer healthy people in the system to subsidize the rest.  All of which leaves the insurance industry holding the bag.

Janet Trautwein, CEO of the National Association of Health Underwriters, has an op-ed in today’s Wall Street Journal whining that a weak individual purchase mandate is bad for everyone, and insisting that Congress give people less choice, not more.  It’s unfortunate, to be sure, that hundreds of millions of Americans will face higher health insurance premiums generated by ill-considered legislation.  But, no one should feel bad for those in the health insurance industry who tried to cut this lousy deal and came out losers.  The better solution is not to double-down on the individual purchase mandate, but to scrap the other regulations that will put health insurance and health care out of reach for millions of Americans.

Someone should tell Janet Trautwein that, if you lie down with dogs, you might get fleas.