A Buffalo News article today on fines levied against New York wine and liquor retailers includes a quote from Eliot Spitzer that reinforces my extreme doubts that he is capable of improving the state's business climate.
Seven of the area's largest liquor stores will pay fines totaling $150,000 and agree to refrain from longtime illegal buying schemes under a final agreement announced Friday by state Attorney General Eliot Spitzer.
The local retailers are among 31 liquor stores across the state that will pay more than $700,000 in penalties as Spitzer's crackdown on liquor and wine purchases comes to a close before he becomes governor on Monday.
Now, before I get to Spitzer's statement, let's be clear that New York State's liquor laws are unlike those regulating any other retail business in the state. They were passed in large part in the 1930's after the repeal of Prohibition and were designed to eliminate any possibility of Mafia influence -- the mob having controlled liquor sales up till then.
Over the years, though, the laws have been modified to protect small liquor stores from competition by larger ones. The so-called Mom-And-Pops have a surprisingly large lobby in Albany and have managed to keep things their way.
In other industries, it's perfectly normal business practice to offer discounts to favored customers -- usually your largest. That's how business is done and it's one of the reasons that the best are able to get better and grow even more. But New York's liquor laws essentially prohibit that.
But in New York, if a wine or liquor wholesaler offers a discount, then he must give it to all his customers. This is one of the reasons why we see so few big discount liquor retailers along the lines of Premier in Kenmore. The laws are concocted specifically to make it difficult for them to exist.
And so, the efficiencies of scale that we enjoy with supermarkets and Target, for example, can't work in New York when it comes to wine and liquor sales. A lot of New Yorkers heartily approve of this regulation, believing mistakenly that it helps average citizens make a living and encourages more neighborhood retailing. But what it really does is cause the consumer to pay more for a smaller selection.
In short, New York state has set up a rigged system, a controlled market that benefits one group of retailers while hindering the best who would grow larger and benefit the rest of us. Eliot Spitzer, of course, is perfectly right to defend those laws. That was his job as Attorney-General and this liquor store investigation was on much more stable ground than his Wall Street fishing expeditions, but here's what worries me.
Spitzer said he launched the investigation into practices by liquor retailers, wholesalers and suppliers because illegal pricing had prevented a free market that would lead to lower prices for consumers.
In this case, of course, "illegal" pricing means "low" pricing. Charging too much for gasoline may catch the Governor's eye but so does charging too little for alcohol. And, he goes on, this low pricing prevented a free market!
If Eliot Spitzer believes that New York's onerous and consumer-harming liquor regulations create a "free market" than I cannot believe that he has the ability to do what it will take to improve the economy in New York State. He's sounds like nothing but another government-obsessed planner who thinks he knows better than the rest of us what we need to prosper and will make sure that we do it his way.
He'd made some good noises about the economy lately, and I hope I'll be proved wrong, but I think that one statement sums up Eliot's attitude toward business quite accurately and succinctly and it doesn't inspire confidence.
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