Regulatory Hangover

Oversight of the alcohol industry has consolidated power in a few companies, says economist Fr. McGowan

By Mark Sullivan
Staff Writer

Part-time faculty member Richard McGowan, SJ (Economics), applies both his scholarly and religious vocations to researching the so-called "sin" industries of alcohol, tobacco and gambling.

Having previously authored books on the cigarette industry and state-sponsored gambling, Fr. McGowan recently published The Search for Revenue and the Common Good: An Analysis of Government Regulation of the Alcohol Industry . His study found that state intervention in the beer, wine and liquor market has unwittingly produced results which can be counterproductive to regulatory intentions.

As an economist, Fr. McGowan is interested in how sin industries affect, and are affected by, public policy. As a priest, he finds compelling the ethical questions posed to society by promoting activities which can be pleasurable in moderation, but hold the potential for abuse.

Part-time faculty member Richard McGowan, SJ (Economics) - "One of the unforeseen effects of most of this regulation is that you only stay in these industries if you have a very, very high stake - it's just too much of a pain in the neck." (Photo by Lee Pellegrini)

"In and of themselves, none of these activities is evil," Fr. McGowan said. "But clearly, there is a high potential that people may become addicted to them. So what do you do? You can't legislate goodness. At the same time, we do have a responsibility for each other. How we balance those two things is, for me, a fundamental religious question."

Alcohol is a $100-billion-a-year industry in the US, Fr. McGowan said, with beer accounting for about 60 percent of sales, distilled spirits 25 percent, and wine 15 percent.

Since the end of Prohibition, Fr. McGowan said, regulation of the industry has been placed almost exclusively in the hands of the states, which impose excise taxes and restrictions on when, where and to whom it may be sold. In the past decade or so, he added, stricter laws against drunken driving have become another important form of regulation.

But Fr. McGowan said the intricate web of state regulations has contributed to top-heavy concentrations of power in the beer and liquor markets, which have come to be dominated by a few giant companies that are best equipped to navigate government red tape. Four-fifths of the beer in this country is sold by three firms - Anheuser-Busch, Miller and Coors - while about 87 percent of the market in distilled spirits is controlled by three giant corporations, Seagram's, Grand Metropolitan and Brown Forman.

"Government policy makes them highly oligopolistic," he said. "One of the unforeseen effects of most of this regulation is that you only stay in these industries if you have a very, very high stake - it's just too much of a pain in the neck."

The alcohol industry also has tailored their lobbying and advertising campaigns in response to certain regulatory policies, Fr. McGowan said. For example, tougher laws and public campaigns against drunken driving have cut sharply into sales of hard liquor, while contributing to a corresponding rise in sales of beer as a less intoxicating alternative. Beer-makers have climbed aboard the anti-drunk driving bandwagon, Fr. McGowan said, contributing large sums to groups like Mothers Against Drunk Driving, and launching their own ad campaigns encouraging responsibility while drinking.

"One of the curious things [is that] kids usually get started on beer," said Fr. McGowan, "but [MADD] really doesn't go after beer. They're going after distilled spirits sales. Ironically, one of the biggest contributors to MADD is the beer industry.

"It's good public relations," he said. "No matter what segment of the alcohol industry I'm in, I can't advocate drunk driving."

As alcohol companies have vied for advantage on the regulatory playing field, Fr. McGowan said, states compete for increased revenues through alcohol sales. He noted that New Hampshire, one of six states to operate its own retail liquor stores, makes about 25 percent more per gallon of alcohol sold than Massachusetts, which allows private sale of liquor but taxes alcohol at twice the rate of its northern neighbor.

Fr. McGowan predicts this trend will continue, fostering interstate rivalries and contributing to ever greater concentrations of corporate power in the hands of the largest beer and liquor companies.

Given such volatility, and in light of past results, Fr. McGowan said those who promote regulation of the alcohol industry need to be "more conscious" of legislation's long-term social and economic impact.

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