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Articles March,  2011

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Time for Republicans to match their action with their rhetoric and

Recently, the Philadelphia Inquirer featured a story in which Chairman Patrick Stapleton of the Pa. LCB (the Penna. Liquor Control Board) seemed to have some impact on politicians with his claim that the LCB could be updated rather than abolished.  A much briefer (and even then heavily edited) version of this response to that concept was published as a "letter to editor" in the Inquirer on March 26, 2011. It deserves a clearer explanation, hence this article. This seems to be one of those rare moments when there might actually be a chance to get rid of the LCB, that incredible anchor around our necks. Yet, already--no great surprise--politicians on both sides of the aisle are waffling and backing off. We need to put some steel in their spines.

Chairman Stapleton believes that he can fix everything if only the legislature will let him. There is no issue that there are legislative bars to effective competition, but if anything, since Jonathan Newman's departure, the LCB's effective handling of wine seems to have actually declined. The LCB simply doesn't seem terribly interested in fine wine sales. That certainly wasn't the legislature's fault, or at least not solely the legislature's fault.

So, I had to laugh at the same-old, same old coming from the LCB and its political supporters. Gosh, the LCB folks don't want their jobs to disappear and their bureaucratic fiefdom to be abolished. Who knew? And gosh, now that it is seriously threatened for the first time in a long time, they finally promise to do a really, really good job in the future. Well, I believe that. I think I will get a pony for Christmas, too. Our legislators must get lots of ponies since they seemed to be swallowing the LCB's arguments, hook, line and sinker.

Here’s a simple truth. The government should not be in the business of deciding what California Cabernet you or anyone else wants to drink with dinner. It is almost beside the point to note that the LCB has proven repeatedly that it cannot and will not be as able as private businesses to provide selection, expertise, diversity, good service and good prices, the latter dramatically affected by the old, obsolete Johnstown flood Tax. The Johnstown flood was a long, long time ago, but we still pay the 18% tax on top of sales taxes and it makes our liquor sales non-competitive. Just like the LCB itself, this is an example of a government just being unable to let something go that it has no conceivable right to keep. It takes on a life of its own. It is like heroin to addicts. 

Calling the LCB a “world class” institution, as Chairman Stapleton did in the Inquirer article, is amusingly self-serving, but not even close to correct, as Chairman Stapleton’s own subsequent comments on lack of wine expertise and price plainly proved. I could go a lot further and discuss other flaws. I could talk about storage issues, lack of future offerings, imperfections in certain categories of wines. How could anyone be a satisfied Burgundy collector in Pennsylvania, for instance? In terms of service and expertise, I could tell a story coming out of my own ratings on eRobertParker.com.  I rated a wine  (Crasto Old Vines Reserva) at 93 points. So did the Wine Spectator that year. The LCB got some and put one case out on the shelf of the Center City superstore on Chestnut Street.  Most of the bottles, other than what I bought, languished for months. With identical scores like that from both of the wine publications that are arguably America's most influential wine magazines, plus a price tag of only $29, how could this tiny quantity of wine at the best store in the middle of the state's largest city not sell out in an instant? To be sure, it required hand selling. That is, to most Americans, this is an obscure foreign producer. Why wasn't it hand sold, then?  This has little to do with Chairman Stapleton's rationalization, in which the LCB is invariably hamstrung by the legislature and unable to hire wine knowledgeable employees. Selling this wine under these circumstances didn't even require knowledge of the wine. All you had to do was read the numbers--scores, price--and let your customers know. At the biggest store in the heart of the State's biggest city, this tiny quantity of wine should then fly off the shelf.  Of course, that assumes that there is anyone there who actually operates like a real salesperson, keeps customer lists and knows how to sell anything, let alone wine. 

Even if you have difficulty finding wine knowledgeable employees, you still should be training people to sell after they are hired, which is, after all, the basic skill for which they were hired. You could even train them to sell wine! Surely, that isn't all the legislature's fault. It is the system's fault. Expecting it to change at this point, unions and all, even if you can get past the political issues, is wishful thinking.  How many more decades of failure do you really need to see before you are willing to even try something else? With the long tradition in Pennsylvania of the LCB being as interested in controlling wine sales as in the act of selling wine, it is impossible to believe anything will ever change. Bureaucracies becomes fossilized. This one is long since dead and needs to be put out of its misery. 

Look at how different it is in free market systems where serious experts provide competition and service. When you go to New Jersey, if you are a German Riesling fan, to name one regional example involving small production wines that are hard to find, you can pick stores that specialize in it. To name one example I know of and therefore can speak accurately about, at Canal's-Hainesport, Joe Huber is the manager and a member of the German Wine Society. He's passionate and expert in this field. (Disclaimer: Joe is a drinking buddy and friend. That's how I know.) The store gets all sorts of interesting wines, many of which are hard to find. He knows what is happening, what's getting released, has great sales, and so on. It is one of the go-to resources for New Jersey residents interested in this category. Not every store will do every job as well in New Jersey. Some of them may be worse than the LCB. But if you don't like the way X store does it, if you don't like their storage, their selection, their prices or their service, you have the option to walk across the street and find someone who does it better. There will be someone who does it better--because in highly specialized fields no one entity should be expected to be everything to everyone. 

In Pennsylvania, of course, we instead have a monopoly and no choice. Walking across state lines is illegal. In a free market system, crazed, passionate enthusiasts raise the bar in private stores that become famed for their specialized expertise and service. Consumers get choices and get to pick people that serve their needs best in terms of price, service and specialization. With wine in particular, that works well on a small scale. Philosophical objections aside, it isn't so easy to do on a large scale--especially when decades of tradition suggest that no one wants to do it here. Pennsylvania is frankly closer to the old Soviet system, as the state controls all of the sales, all of the distribution, plus owns all the stores. 

I could go on and on about practical problems--and on--but really, and again, why bother? It entirely misses the point. It is quite obvious that the LCB has many problems, even just from what they admit, but the essential point is that even if it were a world class organization and its many flaws did not exist,  there is simply no reason we should have to waste time legislating about and creating a governmental bureaucracy to sell liquor. Don’t our politicians have anything better to do? Maybe they could focus on the budget deficit or the fact that they just cut a bunch of poor people off from health care benefits. The LCB is simply an ugly and obsolete remnant of the battle to end Prohibition, which itself was a concept that produced one the most bizarre and disreputable eras in American history.  No one sane and unbiased would think this was a good system starting from scratch.

Politicians simply lack the courage and intellectual honesty to change this absurd remnant of Prohibition. Why let some remnant of Prohibition--which merely ended on December 5, 1933--control us? Perhaps one day we will come into the 21st Century. Private industry can do it better, I think, but be that as it may--it should be private industry’s job and opportunity to succeed or fail. Selling wine is simply not an essential government service. The anti-competitive monopoly is simply not the American way. Selling California Cabernet is simply not a core government interest, justifying this vast departure from normal methods of operation. 

In other words, and simply put, keep your hands off of my Cabernet, Pennsylvania.

For Democratic politicians constantly looking for sophist rationalizations of their rote protection of union supporters, like Sen. Ferlo, quoted in the Inquirer article as wondering how the state can give up such a profitable enterprise, they should note that we are not all fools. From the canard on minors buying internet wines to this nonsense, let’s be clear—it’s only about protecting wholesalers and unions. Not about helping you, the consumer and taxpayer. It is not as if the state will suddenly stop making money from liquor after privatization, after all. The LCB and the unions consistently exaggerate its modest profitability by including taxation issues as its contribution. That's a separate issue. Get rid of the Johnstown tax, go private, let things happen here. Private industry would generate money, too, in new licensing fees and whatever taxes the State chooses to impose.  Studies routinely show that the LCB returns very little to the state as actual profit, particularly considering that it is a monopoly. Plus, new revenue sources would appear, another thing the LCB ignores. All those consumers who now go to NJ, DEL, NY, DC, and MD—one of the realities for the LCB is that there is a lot of competition as we are in a corridor of one of the very best wine sales regions in the USA—might actually buy things here and contribute MORE in basic tax revenues here. Indeed, we might actually establish highly regarded stores that attract new customers from other states, too. Competent sales people might generate high sales volume, too. Apparently, Sen. Ferlo and his ilk are incapable of understanding that 18% x $0 = $0. In other words, when you lose sales to others, you get $0, no matter how high your prices and taxes are here. There is also the issue, of course, of how much the state would earn by selling off the stores, including license fees. That, too, should be obvious. Americans tend to be math challenged, they say, but apparently Pennsylvania Democrats even more so. 

The argument concerning a shortfall in money is largely illusory and more LCB propaganda. Some writers, citing 2008 figures with a mere $80 million in profits, a pittance considering the LCB's position and sales, have suggested that selling the system and investing the proceeds would generate more in interest proceeds than the modest sums that the LCB actually generates in real profits, not to mention licensing fees, increased sales and all the other things the LCB supporters ignore. Update: In the Philadelphia Inquirer on April 12, 2011, p. B3, LCB President Joe Conti is quoted as saying the LCB will shortly turn over its annual $50 million in profit, a startlingly pathetic figure for anyone with this much in gross sales, let alone a monopoly. A monkey should make $50 million with a state-wide monopoly on booze.  Even if there were some shortfall, it is still the case that the state shouldn't be using that as an excuse to destroy an entire sector of private industry, or burden a disproportionate group of taxpayers with a burden they should not shoulder alone. Would it be ok if the state announced tomorrow that all food sales must be generated by state employees? That every tomato sold must be picked out and sold by the state? That every chef must be a state employee? After all--the state could argue that it might make money! Isn't that a sufficient reason to appropriate and destroy a sector of private industry? So, why not? If you can't distinguish those facts, the LCB must go.

Turning to the other side of the aisle, it will not likely come as any great surprise to voters and consumers that newly elected Republican politicians will abandon their promises to privatize so quickly. That, given the track record of the LCB in Pennsylvania, is what politicians do. For Republican politicians like Sen. Corman, quoted in the article as finding it curious that  no groundswell for reform  has come to his attention, I would say two things. First, most people have been so beaten down by the disingenuous support for the PA LCB over the years that they do not bother to complain any more. They have given up. Special interests protect the LCB. Everyone knows it. It is about political pull and influence, not logic or the welfare of Pennsylvanians. Nothing more, nothing less. Let's not pretend otherwise. Second, many don't complain any more because for them the LCB has long since simply become irrelevant. People work around it. The pretense that lack of complaint about the LCB means satisfaction with it is just that--pretense. New Jersey isn’t far, if you get the point.  A system that constantly turns normal citizens into scofflaws is, of course, a total failure. The mere fact that happens regularly proves the system is not working.

The LCB apparently misses that irony when it complains to the Legislature that more effort is needed to stop "border bleed." Translated, what they mean by that is: "We, the self-proclaimed world-class organization, can't actually compete well with small businesses across the river, so let's arrest normal Pennsylvanians en masse to stop them from shopping in other places." You've got a friend in Pennsylvania! Those people are customers who could be recaptured by an intelligent system, not law enforcement which has never worked. Who  knows, maybe New Jersey residents would actually shop here, too. They work here. Stop at a store after work, bring some stuff home. The possibilities are endless.

There is no point trying to repair the LCB. It simply should not be a governmental function. The state government is now controlled by Republicans. If Republicans, who of late noisily campaigned on supporting private enterprise, limiting government and eviscerating public unions, can’t get this clear and obvious step done, I imagine their hypocrisies will be all too visible to even their most partisan supporters.

It's time for the LCB to go. This is the time. Let's get it done. No more waffling.


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