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26th of February 2018

Moral Values



Small Beer: Raising a Glass for Freedom - The Imaginative Conservative

Distributism is the only practical solution to the problem of rampant corporatism and the globalism which is its inevitable consequence. Next time we raise a glass of craft-brewed ale, we should not merely enjoy its flavor, we should also raise a toast to the political and economic freedom that it represents…

Some time ago I took part in a public debate in which I argued for the need for distributism whereas my interlocutor argued for what might be called free market libertarianism. During the course of the debate, it was suggested that distributism was merely an aesthetic position, rooted in G.K. Chesterton’s idealizing of a free peasantry and the need for the proverbial “three acres and a cow.” It was, my interlocutor claimed, romantic wishful thinking with no practical applicability to the “real world.” Needless to say, I argued against such a reductionist view, insisting that distributism was the political creed arising from the fundamental principles of political philosophy enshrined in the social encyclicals of the Catholic Church, especially in terms of the need for subsidiarity and solidarity. In practical terms, I pointed to the work of the groundbreaking economist, E.F. Schumacher, whose book Small is Beautiful became an international bestseller when first published in 1973. My own book, unimaginatively titled Small is Still Beautiful, sought to take Schumacher’s principles and apply them to today’s economic and political situation, affirming their continuing relevance. One of the chapters in my book was entitled “Small Beer: A Case Study” which focused on the rise of the craft ale movement, first in the UK and subsequently in the USA. What was particularly encouraging about this phenomenon of proliferating micro-industries in an age of corporate giantism was, I wrote, that it shows how David really can slay Goliath.

A recent essay in The Atlantic illustrates this to a sublime degree.

“Craft beer is the strangest, happiest economic story in America,” writes the article’s author, Derek Thompson. In an age of monopoly, in which a handful of companies control the bulk of the market, the craft brewing industry is bucking the trend. As recently as 2012, two duopolistic companies, Anheuser-Busch InBev and MillerCoors controlled almost ninety percent of beer production. Apart from their own “domestic” products, these two giants sought to consolidate their grip on the market by buying up successful smaller breweries. Thus Blue Moon, Boddingtons, Pilsner Urquell, and Goose Island are all owned by one of these two mega-brewers.

“This sort of industry consolidation troubles economists,” Thompson writes. “Research has found that the existence of corporate behemoths stamps out innovation and hurts workers. Indeed, between 2002 and 2007, employment at breweries actually declined in the midst of an economic expansion.” And yet, in the last few years, “something strange and extraordinary has happened.”  Between 2008 and 2016, the number of new breweries rose by a factor of six, and the number of employees in the brewing industry rose by 120 percent. Even more incredibly, this sextupling in the number of new breweries and more than doubling of the workforce has come at a time when overall beer consumption in the USA has actually declined.

Mr. Thompson also reports that preliminary mid-2017 numbers from government data are even better. There are nearly 70,000 brewery employees, almost three times the figure of a decade ago. Average beer prices have grown nearly fifty percent over the same period. “So while Americans are drinking less beer than they did in the 2000s (probably a good thing) they’re often paying more for a superior product (another good thing).” Furthermore, in spite of economies of scale and massive marketing budgets, the big brewers are losing their stranglehold on the market. The best-selling beers are all in steep decline. Between 2007 and 2016, production levels at five major brewers—Anheuser-Busch, MillerCoors, Heineken, Pabst, and Diageo, which owns Guinness—fell by fourteen percent. “Goliaths are tumbling,” Thompson writes, “Davids are ascendant.” The same is true of liquor distilleries and wineries. Employment within both these groups grew by seventy percent between 2006 and 2016. Part of the reason for this resurgence of small businesses in a market previously dominated by the Goliaths is the falling real cost of the equipment needed to produce ale, wine, and spirits in small quantities. Another reason is the ability to advertise local businesses on social media. And a third reason, perhaps the most encouraging of all, is a rise in localism and the desire to consume locally-produced products.

“When I first came across these statistics,” Mr. Thompson writes, “I couldn’t quite believe them. Technology and globalization are supposed to make modern industries more efficient, but today’s breweries require more people to produce fewer barrels of beer. Moreover, consolidation is supposed to crush innovation and destroy entrepreneurs, but breweries are multiplying, even as sales shrink for each of the four most popular beers: Bud Light, Coors Light, Miller Lite, and Budweiser.” According to an economist with whom Mr. Turner spoke, 2016 would probably prove to be the best year for job creation at breweries in American history.

But what explains the nature of the craft-beer boom? From several interviews with economists and beer-industry experts, Mr. Turner concluded that there appear to be two big reasons—a straightforward cause and a more complex and interesting history.

“We’ve seen three main markers in the rise of craft beer,” said Bart Watson, the chief economist at the Brewers Association, “fuller flavor, greater variety, and more intense support for local businesses.”

And yet the rise of the small brewers has only been possible because of changes in the law which prevent the Goliaths from using their economies of scale to smash the competition. This can be illustrated by looking at the history of the brewing industry in the United States over the past century.

Prior to Prohibition, the big brewing companies owned or subsidized many bars and saloons, which were known as “tied houses,” since the bars were “tied” to the brewers and distillers. At the end of Prohibition, citizens in all states voted to abolish tied houses by separating the producers (brewers and distillers) from the retailers (bars and restaurants). This led to a “three-tier system” in which producers (tier one) sold to independent middlemen that were wholesalers or distributors (tier two), who then sold to retailers (tier three).

“The great effervescence in America’s beer industry is largely the product of a market structure designed to ensure moral balances, one that relies on independent middlemen to limit the reach and power of the giants,” wrote Barry Lynn, the executive director at the Open Markets Institute. An example of this are laws which make it illegal for brewers to offer gifts to retailers in an attempt to purchase favorable shelf space. Other rules make it illegal for big producers to buy shelf space, enabling smaller brewers shelf space and therefore access to the market. Such legislative intervention in the marketplace serves to limit the political and economic power of the largest brewers while creating opportunities for small businesses to enter the market. In the absence of such laws, Mr. Lynn told The Atlantic, there would never have been the Napa Valley renaissance and Americans would now be exclusively sipping three varieties of Gallo table wine. “The reason that didn’t happen fifty years ago is because you had this system that was designed to promote deconcentration, to incentivize [retailers] to go out and find the new, the different, the alternatives. It was effective in achieving that aim.”

These sound distributist principles, enshrined in law, were jeopardized during the Reagan Presidency when the Justice Department relaxed its enforcement of antitrust laws, ironically in the name of the “free market.” The consequence was a period of consolidation across the economy. In the brewing industry forty-eight major brewers were swallowed up to form two super-brewers: Anheuser-Busch InBev and MillerCoors.

Yet such federal favouring of the reign of the conglomerates could not prevent the rise of a new generation of small brewers. In 1978, after Congress approved a resolution that legalized home-brewing, an embryonic revolution was born, “unleashing a generation of beer makers who experimented with flavors far more complex than the simplicity of Schlitz, Budweiser, and other basic brews.” No longer would the discerning palates of American drinkers consider the macro-swill to be swell. The times they were a-changing!

More recently, in further examples of legislative distributism, many states have made exceptions for small craft breweries to sell beer directly to consumers in taprooms. These self-distribution laws create an exception to the three-tier system in a way that deliberately advantages smaller breweries.

Mr. Turner concludes his article by asking what lessons can be learned for the rest of the economy from the astonishing success of the craft beer movement. He points to research which shows that gargantuan companies are bad for innovation and job creation, whereas “the craft-beer boom shows that the burgeoning of small firms stimulates both product variety and employment.” He adds that consumers sometimes “have their own reasons to turn against monopolies—particularly in taste-driven industries—just as they are moving away from Budweiser and popular light beers toward more flavorful IPAs and stouts produced by smaller breweries.” He argues that “even in an economy obsessed with efficiency, sometimes it is just as wise to design for inefficiency.” Legislation that discourages consolidation and the establishment of monopolies and duopolies, encourages retailers to sell new brands and makes it easier for small businesses to introduce their own products to the market. “Those are the aims the country should adopt at the national level, both to make it easier for small firms to grow and to make it harder for large firms to relax,” Mr. Turner concludes.

“A phalanx of small businesses doesn’t automatically constitute a perfect economy,” he adds. “But what the U.S. economy seems to suffer from now isn’t a fetish for smallness, but a complacency with enormity. The craft-beer movement is an exception to that rule. It ought to be a model for the country.”

Returning to the view of my skeptical friend with whom I had the public debate, we can perhaps persuade him that distributism is far from being merely a romantic aesthetic, or a neo-mediaevalist hankering for three acres and a cow. It is, in fact, the only practical solution to the problem of rampant corporatism and the globalism which is its inevitable consequence. Next time we raise a glass of craft-brewed ale, we should not merely enjoy its flavor, we should also raise a toast to the political and economic freedom that it represents.

The Imaginative Conservative applies the principle of appreciation to the discussion of culture and politics—we approach dialogue with magnanimity rather than with mere civility. Will you help us remain a refreshing oasis in the increasingly contentious arena of modern discourse? Please consider donating now.

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