Walters: The Darker Side of Regulation

Assembly Bill 1133 would appear to be one of the least important of the 700-plus measures that the Legislature sent to Gov. Gavin Newsom in the final days of its 2019 session.
Sponsored primarily by Anheuser-Busch and the Teamsters Union, AB 1133 would allow brewers to provide, free of charge, up to five cases of branded glassware to individual bars and restaurants each year.

In a larger sense, however, AB 1133 is a prime example of what one might call the darker side of liberal governance, a belief that the public interest is served by regulation of even the most mundane human activities.
Regulatory zeal compels those subject to rule-making to become involved in politics, with all that entails — hiring lobbyists, making campaign contributions and so forth — to protect their interests. It also encourages economic interests to use regulation, backed by the power of the state, to shield themselves from unwanted competition.
Two recent, very important bills illustrate the point.
One, Assembly Bill 5, introduced in response to a state Supreme Court ruling, defines which workers can be independent contractors and which must be payroll employees.
The labor union sponsors of the bill granted exemptions to a few professions and trades via a secretive process, such as barbers and commercial fishermen, but they appear to be arbitrarily chosen, without any underlying principle.

The Second Example Is Senate Bill 10

When the Legislature reconvenes in January, many other occupational groups will try to get exemptions. Meanwhile, the “gig economy” companies such as Uber and Lyft most affected are threatening to place a measure on the 2020 ballot to overturn the law.
The second example is Senate Bill 10, passed in 2018, which would essentially outlaw the cash bail system for criminal defendants. It would, in effect, wipe out California’s bail bond industry and, not surprisingly, bail agents have already qualified a referendum asking voters to repeal the law. Having one’s business regulated out of existence is a great motivator for political action.
Back to AB 1133.
Many decades ago, thanks largely to legendary lobbyist Artie Samish, California enacted so-called “fair trade” laws that were anything but fair. Samish’s liquor industry clients wanted the laws to protect their monopolies.
By and by, most of the laws were voided by the courts, but so-called “tied-house” laws remained on the books, theoretically dividing the liquor trade into three distinct tiers of manufacturer, wholesaler and retailer and prohibiting cross-connections among the three.

Logically, the Laws Should Be Repealed

The rationale behind the laws was to prevent domination of the liquor trade via vertical integration, but their real effect has been to force members of the industry to plead for exceptions to the arcane regulations the laws spawned.
In this case, providing free glassware is deemed to violate the three-level tied-house system because it involves something worth more than 25 cents, the current limit on giveaway trinkets carrying advertising.
Some kind of tied-house exception arises in virtually every legislative session. When, for example, a local grocer purchased Stockton’s minor league hockey team, he had to get a tied-house exception to serve beer at hockey games. When Seagram’s, the Canadian liquor colossus, purchased a theme park in Southern California, it also needed an exception to sell liquor. And so forth.
The Legislature has granted so many exceptions over the years that the tied-house laws are a complete mess, devoid of any real meaning and serving only to maintain the brisk political trade in punching even more loopholes.
Logically, the laws should be repealed because they are pointless. But logic only rarely intrudes upon political decision-making.
CalMatters is a public interest journalism venture committed to explaining how California’s state Capitol works and why it matters. For more stories by Dan Walters, go to calmatters.org/commentary