SECOND INTERNATIONAL HARVARD CONFERENCE ON INTERNET & SOCIETY  may 26-29, 1998

Pecking Away at the Dinosaur by Patrick Campbell This is an abbreviated version of an article that first appeared in "Wine Trader," Sept. 15, 1995 Giving back power to the states may not be quite the savior of personal and commercial freedoms that the new Washington politicians claim. A reduction in the federal bureaucracy may indeed lead to fewer restraints on business and greater consumer access to goods in general, but the purported benefits will not apply to the producers and the consumers of American wine any time soon. In fact, if the success of the effort to decentralize government were measured against its lugubrious effects on the wine industry, latter-day Madisons and Jeffersons would run, not walk, back to the drawing board of political theory. The chaos that pervades interstate wine commerce is a direct consequence of the 21st Amendment, which granted the regulation of the licensed beverage trade exclusively to each state following (and as a condition of) the demise of Prohibition. Authority over taxes, some aspects of labeling, selection and retention of wholesalers, advertising, interaction with customers, sales venues, pricing formulas, and marketing are but a few aspects of the wine business that were thereby granted to the discretion of each state. Most governments never met an opportunity to seize power they did not like. Thus, when the 21st Amendment offered each state the virtual control over an entire industry, they accepted with gusto. The resulting monopoly of regulation over a legal business by each state has not surprisingly created a dinosaur: fifty fiefdoms of patronage, Byzantine bureaucracy and, often, corruption. The crazy quilt of overlapping, contradictory, and ever more complicated laws guarantees little more than restraint of trade for wine producers in forty-four states and limited access to goods for wine lovers in fifty states. It is often said that selling wine in the United States is like selling wine to fifty different countries. In many cases it's more difficult. A wine lover in Moscow asked us to ship her some wine. Within a few weeks the wine arrived, no problem, and little paperwork. By the way, that's Moscow, Russia, not Moscow, Idaho we're talking about—shipping wine direct to a consumer in Idaho is illegal. European wine shipments (sans government warnings and sulfite statements, of course—they're not welcome there!) travel regularly, with a minimum of paperwork and bureaucratic hassle. No problem. But try shipping a box of wine to your uncle in Texas or New Jersey or Maryland. The wine may be confiscated, fines assessed, and licenses revoked. How about selling to an independently owned retail store in Utah or Pennsylvania? They don't exist. Maybe you want to introduce a new label in Connecticut or change the price of your wine in New York; better plan months in advance for the approval process -- and don't forget the hefty registration fees. Sorry, no more wine in Texas for a while - you forgot to notarize your reporting form once too many times. Want to change your distributor in Georgia? You'll have to wait four years for your franchise agreement to phase out. You want your wine to retail at roughly the same price in tax-heavy as in tax-light states? Better be prepared for flexible pricing. The list goes on. Want to send a case of wine back home to Grandma or to a customer in another state because the wine is not available locally? Sorry, not allowed. Equally, a wine lover cannot order a bottle of wine to be shipped to himself in another state (with limited exceptions). Was this the intent of Twenty-first Amendment? Maybe we winery owners are just in the wrong line of work. Other businesses don't have to put up with all this red tape. Take, for example, munitions sellers. Semi-automatic weapons cross state lines with impunity: no licenses, no government paperwork, no fees, no taxes, no regulation. No problem. It's easier to ship a container load of bullets, a tank, or a weapon that spits out scores of rounds than a case of wine. Easier to ship a Luger than a box of Laurel Glen wine. Let's be fair though. State Alcoholic Beverage Commissions do serve important functions: the regulation of inner city bad apple retailers and sales to minors, for example. Why, however, fifty states need fifty different sets of mostly arcane and invariably archaic laws, that are overseen by fifty different agencies, in order to restrict the interstate commerce of wine, is not easily explained. It is hardly ironic that the same ever more complicated network of state laws that erects roadblocks to interstate distribution has afforded special advantages to the increasingly few and powerful distributors within and outside of state boundaries. After all, state regulation of trade historically favors monopolies and finds its highest expression in consumer-unfriendly state-run enterprises, such as the state-controlled wine distribution and sales agencies of New Hampshire, Utah, and Pennsylvania. The concentration of the sales and distribution of wine in ever fewer hands is not merely a matter of market forces. The ability to navigate in a world of Byzantine bureaucracies and laws is the birthright of the large and the powerful. Franchise laws guarantee the survival of the few, greater access to the lawmakers and regulators is afforded to the well-heeled, and so on. This basically comfortable detente between the regulator and the regulated makes systemic change all but impossible. Thus, is it any wonder that fifty virtually unregulated and intentionally non-coordinated autocracies have effectively stifled the free commerce of wine between states and, often, within states? Or that the number of distribution outlets shrinks every year through consolidation? And is it any wonder that medium-sized distributors are an endangered species and small distributors operate on the margins of the economy? Or that hundreds of smaller American wineries are effectively disenfranchised from the distribution process? Or that American consumers, particularly those outside metropolitan centers, are unable to purchase a wide range of wines locally? Small, specialty wine producers (which is to say, most American wineries) simply cannot command the attention of the ever larger and fewer distributors. Winery sales direct to a consumer or a retailer in another state through mail order or an on-site broker or now the Internet—options available to every other legal industry—are simply not available to wineries. Accordingly, wine producers are denied access to markets and consumers are denied freedom of choice. Is this what the father of the American wine industry, the original American wine lover, and the spokesman of decentralized government envisioned? Thomas Jefferson likely would have been appalled, as should the latter day partisans of states' rights. Patrick Campbell established Laurel Glen Winery in Glen Ellen, Sonoma County in 1981. A true innovator in the wine industry, Campbell spends several months each year in Latin America, producing a high quality, inexpensive Cabernet Sauvignon for sale in the U.S. He earned his B.A. in English Literature from Pomona College in California and his M.A. in Philiosophy of Religion from Harvard. Upon graduating, Campbell moved to Sonoma and worked as a vineyard manager by day and as a violist in a Bay Area symphony orchestra by night. He has served as president of Family Winemakers of California and a member of the Executive Board of the American Vintners Association. This reference was contributed by Jerry Brentar on behalf of Peter Granoff, Wine Expert and Co-Founder, Virtual Vineyards.