Replay: Jim Ferlo’s Bad Arguments For Anti-Competitive Bar and Restaurant Regulations

(Bram Reichbaum dredged up this post on Twitter yesterday, reminding me that Jim Ferlo’s ideas on competition policy will be vastly more relevant now that he is running for Pittsburgh Mayor. It is of course relevant that as a state legislator, he opposed even this slightly pro-competitive policy change, without even the union excuse to cover him. I’ve seen several writers now say that Ferlo and Bill Peduto will compete for many of the same voters, so here is an issue where there is a big policy gap between the two men’s thinking. Bill Peduto wants to make it easier for new businesses, including food trucks, to enter the market and offer consumers new choices at different price and quality points. This is solid economic development thinking. Most jobs are created by new firms, not incumbent firms. If you want more job creation, you need to make things easy for new businesses. Ferlo’s idea seems to be that shielding incumbent businesses from competition is the way to go, but the only people who stand to gain from that are mediocre establishments who want to keep chargjng undeservingly high food prices – Jon)

I don’t agree with much of anything Jim Ferlo has to say here, but I especially want to point out how ridiculous this line of argument is:

Step three: Undermine all existing licensees. Say what you want about the confusing system of alcohol laws in Pennsylvania. They still have permitted many local businesses to thrive. Distributors, restaurants, and taverns have all found a way to make a good living within the existing constructs of the Liquor Code. Governor Corbett’s plan seems to threaten the existence of each of these entrepreneurs and small businesses in favor of large retail establishments. He seems to be throwing them a bone in the plan, but we all know what will become of our distributors and taverns that rely on beer sales and have adapted in order to compete in a closed system. They will fail and those local businesses that support our little league teams and volunteer firefighter organizations will be lost, replaced by indifferent big box stores run by huge corporations.

This is complete nonsense. What Ferlo is defending here is an uncompetitive restaurant and bar market.

First of all, the Corbett plan does not fundamentally change anything for most of the incumbent players in the alcohol market aside from the state store employees. The ridiculous beer distributor business model is still there. Now they will have to compete with supermarkets, but they’ll also be able to sell beer six-packs and wine and liquor. Taverns and restaurants will lose their monopoly on six-pack sales, but they’ll be able to sell wine to go.

This doesn’t go nearly far enough to increase competition in the bar and restaurant market, but Ferlo is acting like this small change is the end of the world for existing bars and restaurants. Even worse, he completely mischaracterizes the nature of the threat to incumbent bars and restaurants from reducing barriers to entry in this market. It’s not more competition from big box retailers that existing bars have to fear, but more competition from new bars and restaurants.

Corbett’s plan doesn’t touch the County Quota System that limits tavern licenses to 1 per 3000 people per County, and that’s a huge missed opportunity. The plan really ought to end the license cap, or at least print so many new licenses as to make the existing ones worthless. We’d need to compensate the license holders for some portion of what they bought them for, which could get expensive, but would unquestionably be worth doing. Letting all bars and restaurants sell alcohol is the easiest way I know of to increase service industry wages.

As liberals, that’s what we need to be concerned with, not plumping for incumbent interests with silly misleading talking points.