The federal courts’ extraordinarily broad interpretation of the Constitution’s interstate commerce clause has long posed a problem for localists — which is to say, for community self-governance. That has never been more true than in the past two decades, when virtually every business, no matter how small, with an e-commerce website can be said to be engaged in business throughout America, and indeed the world. For anyone who believes, as our Bill Kauffman puts it, that San Francisco should be allowed to be San Francisco, and Utah to be Utah, established interstate-commerce jurisprudence (spearheaded, as often as not, by allegedly “conservative” judges) is a matter of deep concern.

On the other hand. . . . it is not only state or municipality legislation to ban the corner porn shop that runs afoul of interstate-commerce law. It is also legislation that protects powerful corporate monopolies and oligarchies. Sometimes localities wish to restrict trade to protect the community’s sense of decency, beauty, or unique identity. And sometimes (probably more often) they wish to restrict it to protect the businessmen with whom the legislators have cozy relationships. And that kind of trade restriction is often most damaging to the small businesses and entrepreneurs who truly help local places flourish.

That’s what is going on with HR1161, the legislation introduced in Congress by Utah Rep. Jason Chaffetz. The “Community Alcohol Regulatory Effectiveness Act” is a naked attempt to protect or reinstate the virtual monopolies on interstate alcohol sales enjoyed by huge corporate distributors. It would do this by allowing states to ban out-of-state direct-to-consumer sales by, for example, small wineries. I may be wrong, but the bill, sponsored by groups such as the Wine & Spirits Wholesalers of America, is likely a response to the Supreme Court’s 2005 ruling in Granholm v. Heald that if states allowed producers to sell wine to in-state consumers over the web, they must also allow them to sell to out-of-state consumers. According to this article in today’s Arizona Republic, HR1161 affirms the right of states to “pass laws discriminating against out-of-state producers if the measures advance ‘a legitimate local purpose that cannot be adequately served by reasonable nondiscriminatory alternatives.'”

It’s hard to see how protecting market-controlling corporate middlemen would serve a “legitimate local purpose,” especially when the effect will be to severely curtail the revenue streams that small local wineries, brewers, and boutique liquor producers would otherwise enjoy (and in some cases, are enjoying right now). There is precious little reason not to let the wineries of Arizona compete against those of California, Washington, and even Utah in the marketplace. Small wineries do not want this kind of state protectionism. National distributors want to force it on them, and Rep. Chaffetz and friends are apparently willing to act as their shills.

The interstate-commerce clause is often wielded by corporate interests and their judicial enablers as a weapon against local communities and local businesses. With HR1161, corporate interests and their legislative enablers now attempt to limit the reach of that much-abused clause in order to . . . damage the interests of local businesses and the communities they support.  Of course. Would-be monopolists are nothing if not consistent.

 

15 COMMENTS

  1. The community is not free if it does not influence education, moral, economic, and welfare legislation. On the other hand, local businesses benefit from the federal government’s free trade guarantees. So, on this occasion, we run up against a conundrum. Should we accept the guarantee’s of our central government because they insure small businesses free trade, or should we decentralize authority. Here, it is argued that decentralization will lead to corporatism. Perhaps Jeremy is correct. Although, wouldn’t it be nice to live in a society where authority is given to local communities, and the people have enough sense to demand their legislators privilege businesses that operate on a relational scale?

  2. If the bill is designed to curb out-of-state wine sales, how does this violate the localist sensibility? It will increase sales from local wineries. It serves a legitimate local interest by only allowing people to buy online from local wineries. Regardless of whether its constitutional or not, I don’t see what your beef is. Yes, it will curtail sales from out-of-state small wineries. But they are not local to the purchaser.

  3. John — let’s dispense with the term local for a moment, just for the sake of clarity. My beef is that the bill would allow states to ban in-state wineries from making direct-to-consumer sales to out-of-state customers. This benefits the big distributors who can therefore monopolize such sales, and of course their larger-winery clients. It hurts small wineries. Small businesses are good. The more of them are, the more places and communities that flourish. Of course, what is pernicious about HR11161 is that it is sold, in part, under the guise of local control. But it’s really just a big-business protection bill. That was my point.

  4. Rent-seeking knows no bounds. If the local brewer and the local vinter and the local baker could use legislation to squeeze out competition from afar, they very likely would. The grape growers in Pennsylvania have managed to make it largely illegal to make commercial wine out of grapes from other states. They did not do this out of a commitment to locally produced goods.

    Big business is quite a bit better at this game, but I suspect that most of my local businesses would gladly enrich their own coffers by limiting my choices as a consumer. That’s often why national legislation is required in the first place.

  5. Now we arrive at the question: consumer choice or community freedom? Yes, small businesses influence legislation for selfish reasons. However, small businesses–like small government–are more accountable and more relational by nature than corporations and federal government. It is convenient to require free trade nationally. Could not the same argument be applied internationally?

  6. Very… odd legislation. It is akin to legislation that allows states to randomly tax local businesses out of existence; sure it gives states control, but it’s a dumb kind of control that can only lead to the state’s harm. I suppose one could argue it’s the state’s right to allow itself to harm itself and that you just have to make sure the possibility created by this law is not actualized, but it’s a pointless law that could not benefit localities as it doesn’t restrict ‘imports’ from other states.

    State control over imports (rather than out-bound sales) would be a much more sensible power to create, as it would actually protect local businesses from the mega-corporations that don’t care about states. Prohibiting out-bound sales would simply damage in-state businesses while allowing the free flow into the state from out-of-state corporations whose states aren’t dumb enough to kneecap its own businesses. It’s kind of asinine.

    From some comments I get the sense that they don’t understand what this legislation does.

  7. Good luck to the legislator who has to defend that vote. Although, if it only bans exports then I doubt it has a chance of passing.

  8. This seems an odd sort of Localism that only interests itself in how other communities (and their businesses) interfere with my local economy and has no concern for how my community (and my business) might be interfering with theirs.

    Controlling imports and subsidizing exports is bad national policy (protectionism) which has been demonstrated time and again to actually reduce wealth. It’s also quite an ugly bit of naked self-interest (misguided though it is).

    I know I’ll run afoul of a few on FPR when I say this, but I have such little concern for the “freedoms of the consumer” because the consumer is a harlot who’ll give up their birthright for a bit of pottage in a pinch–me included. (In fact, their flighty nature is considered a necessary good in free market circles… as it is the fingers of the magic hand of market justice.)

    Stability in community comes from bonds and those bonds must bind or stability is impossible. Sure, if you’re a Reason Mag-Dynamist libertarian-a-whatsis I do get your economic mojo. But the older I get and the more mucking about in the real world watching all that constructive-destruction the less enamored I become. When someone says your local baker is filling his coffers at your expense, what exactly does that mean? Just how full are those coffers? As full as a robber baron’s? And with whom and how does the baker who has his oven’s serviced by a local man, and pays a local farmer for wheat, and pays the parson’s daughter to teach his children their letters do with all that ill-gotten booty?

    Because when Bakers-R-Us shows up and drives him out of business, much more of your bargain bread’s bit of bingo will take flight to live out the rest of its life far beyond your borders.

    Poor consumer, he cannot obtain his instant gratification at the expense of the welfare of his town. I weep for his loss.

  9. Yes, indeed, the distributors tried to put my in-laws, along with all small Michigan wineries, out of business a few years ago. As your post indicates, they failed.

    Liquor distributors, under the cover of fear for public safety (i.e. the possible sale of alcohol to minors), have worked to maintain a monopoly on the entire wine and spirits market in many states (perhaps all? I only know Michigan, Illinois, and Pennsylvania). In banning direct sale, they impose a huge cost-of-entry on a market that is usually not very profitable to begin with (wine, that is).

    A business should exist within a state at the pleasure of that state, I believe, but when the state’s pleasure is merely to create a privileged position for a middle-man distributor — well, there’s no principle at stake, actually, because in practice it always serves crony capitalism and outright bribery and corruption.

  10. Yes. But these distributors are run by mom-and-pop, too. I live in PA where the beer distributorships weild a huge amount of power. Aren’t we worried that their coffer are filled enough, and that they will not be able to hire the parson’s daughter to teach letters anymore?

    Like I said, mom-and-pop are rent seekers, too, whether they are distributors or bakers or anyone else. For instance, I suspect that most of those parson’s daughters are now in the teacher’s union. And they are not smiling kindly on anyone teaching anything to anybody without a license.

  11. Sam, you may be thinking of merchants, not Distributors. The distribution layer in the 3-tier system is a special “monopoly” shared by a few very large (generally Regional at this point) distributors.

    This tier is not really “open” in that the state guarantees that (usually) only one vendor can distribute one brand. So all the Mom and Pop merchants/restaurants have to buy, say, Rosemount Shiraz from one state sponsored middle man. Not only is this a state protected distribution right, but because the market is not open, Rosemount would not even entertain an offer from Mom and Pop to sell their product period.

    While Mr. Wilson is correct that the distributors will cry “for the children” to prevent any competition… the states (each state has its own set of regulations) are not blameless – which is why Mr. Kaufman’s article is crossing streams.

    In the end, the smaller entity (the little “s” state) is skirting the constitutional prohibition against inter-state trade for the sole purpose of Tax Revenue.

    The 3-Tier distribution system is a very lucrative tax arrangement (with an entirely unnecessary Distribution monopoly) that direct Internet winery sales threaten to disrupt. Pace Arizona wine makers, but this is not a localist issue pertaining to wine… it is the state colluding with distributors to protect their middle tier rent ($0.30/bottle in Virginia).

    So, while I whole heartedly agree with Mr. Beer’s sentiments on the matter, the “legitimate local purpose” the legislation provides is to preserve the indirect tax and therefore revenue to the state. It’s just a bad source of revenue, and neither the distributors nor the state representatives will go to the press with their motto: “save the taxes.”

  12. I may be missing something, but there doesn’t seem to be any especially deep issue of principle at stake here. All this bill shows us is that state and municipal laws can be bad just as easily as federal laws. Despite the apparent implications of some of the occasional comments on this site, we already knew that; anybody who thinks that federal laws are the only bad ones has a perverse sense of history. So the only deep question of principle is: should there be any laws regulating consumer choice, or not? I suspect few FPR symapthizers will say no; otherwise why call yourself a localist or a conservative when you’re just a liberal whose personal moral judgments seem old-fashioned to kids? So, supposing that there ought to be some laws regulating economic activity, the questions become, which kinds, for what reasons, with what limitations? Jeremy’s reasoning is pretty clear on this point: the ones that will protect or even promote small businesses, and not ones that will protect or promote large ones. I’m happy with making that goal explicit, but I suspect many people wouldn’t be, because the mantra of “local self-governance” is often too tightly bound up with libertarian anti-statist rhetoric to make blatantly non-neutral economic regulations very comforting. Thus we end up with the somewhat confused cacophony of responses to Jeremy’s article, most of which succeed only in avoiding any direct confrontation with the issue in favor of falling back on ideological generalizations. But the simple fact is that either you should be an anarchist or you have to face up to the messy particularity and complexity of legislation.

    Perhaps one thing that all the non-anarchists could agree on: the bill serves the interests of large businesses at the expense of small ones, and is a bad one for that reason. But would we really have fewer bad laws if local communities were more ‘free’ to impose their own laws and regulations?

  13. As far as I can tell, everyone here agrees the state should not privilege corporate interests by hindering the direct sale of booze. In so far as this is the case, we all seem to be rooting for small and perhaps even local businesses. It makes sense. There are a lot of benefits to having small businesses around. People who own businesses in a community feel like they have a stake in that community. The small shop privileges relationships over policy. Owners are accountable to their customers. They have to shake their hands and walk passed them on the street. All in all, it prevents atomization and supports civil society.

    DJR asks a good question. He wants to know if giving local governments more authority leads to an increase in hellaciously unfun laws. I think the answer is yes—with a stipulation. Those bad laws do not define the good life for the whole country. They only define the good life for a single community. Also, just like the small business owner, the local legislator has to see his constituents everyday. If he writes a terrible law you can confront him. If the authority to make economic and moral legislation stays in Washington, a single person has little hope of influencing the way Washington defines the good life. On a local level, that might not be the case.

    All things considered, I think local government will lead to more bad laws. But, I think those bad legislators will have some accountability and people will have the option to choose a community that defines the good life the same way they do.. So, you won’t necessarily have to live under the burden of those bad laws.

  14. The purpose of Federal Commerce Clause powers was to prevent the states from waging economic warfare against each other through trying to concoct local laws to shut out competition.

    This has little to do with large or small, corporate or mom-n-pop. It is purely local favoritism … and not a lot different than putting excessive residency time limits before being permitted to vote in local elections, and the like. How to disadvantage the newcomer and the outsider. How to limit people’s choices, to someone elses monetary advantage.

    Local and state government can be just as tyrannical as federal, given the opportunity. Perhaps more.

  15. Yes, it is overzealous decentralization and hyper powerful villages and townships I fear most. What has been done by mayors, school boards, and town councils, with their atom bombs, gas chambers, labor camps, international trade warss, genocide, and all around bad manners cannot be matched in inhumane nastiness by the secular nation states of the twentieth century. Oh, wait a minute, I may have crossed some wires back there. You get the idea though, right?

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