Towards an enlightened liquor policy

In deciding on South Africa’s liquor policy, government should recognise freedom to trade as a fundamental right. Without any interference on the part of government, firms must be allowed to implement strategies that will make their businesses profitable provided that there is no force or fraud involved. Under such circumstances they have to be competitive, efficient, and above all, they must satisfy the wishes of consumers.

However, no firm wishes to make profits at the cost of being a societal pariah. In other words, businesses will take immediate corrective action when they find that any of their activities are causing displeasure within the broader community. Sellers of liquor have an added burden: they are blamed when people misuse their products. Liquor is not dangerous if imbibed in moderation but a minority of people will drink excessive quantities, which is dangerous. We therefore find liquor producers appealing to the public to use their products in moderation. There is also an ongoing debate as to who should be held responsible for over-indulgence, not only for excessive use of liquor but of a wide range of products.

A pattern has developed of blaming the producers of products for their misuse and holding consumers blameless, which is unjust. Reports from the USA indicate that producers of hamburgers and other foods are being blamed for obesity. Instead of curtailing their indulgences the consumers seek to recover damages from the producers to compensate them for the consequences they have brought upon themselves. Although there is not yet a hamburger tax, very heavy taxes are imposed on other products that are considered to be potentially harmful but which many consumers consider to be particularly desirable. The ostensible reason for such taxes is to reduce consumption but the cynical believe such taxes have more to do with government’s desire to raise more tax than with the stated objective.

How then should the state deal with this controversial product? There is a case to be made, as with all products for consumption, for strict health rules to apply to the production of liquor. There is also a case for prohibiting sales to minors and to people who are intoxicated. Other than these safety measures there does not appear to be any reason why the state should be at all involved in the process of manufacture and sale of liquor products. Dealing with the misbehaviour of people who misuse liquor, for instance, should not determine the structure of the industry.

The apartheid government believed that only civilised whites had the moral strength and wisdom to handle liquor safely. In addition to the usual laws relating to “separate amenities” there were also prohibitions on the sale of liquor by blacks to blacks, a prohibition that was naturally widely ignored. Shebeens came into their own and became meeting places and places of entertainment for blacks in the townships. However, they were the constant targets of the police, who carried out regular raids, confiscated liquor stocks without giving receipts for the stock taken, and laid criminal charges against proprietors. Now, in our new democracy, the police constantly raid shebeens, confiscate liquor stocks without giving receipts for the stock taken, and lay charges against the proprietors. For shebeen owners 1994 meant no change to the harassment they had always endured.

There is no good reason why the current government should continue with the apartheid government’s liquor laws. They surely do not have the same views as to the supposed inferiority of the majority of the population and surely therefore do not need to impose the same paternalistic measures. Why do we see the raids on shebeens continuing? Why not normalise the trade, set objective rules for liquor sellers to follow, and let them get on with their businesses in peace. If there are communities that have moral objections to liquor, allow them to hold referendums to decide whether or not to allow liquor outlets in their areas. If noise is a problem, apply neighbourhood laws to stop the nuisance. All the problems can be solved locally. It is not necessary to have a complicated and expensive centralised licensing system and it is especially unnecessary to have officials from outside deciding what should be happening within the community.

When we come to manufacturing and distribution it is absurd for government departments to attempt to prescribe how business should be conducted. Any attempt to do so is based on what the great economist Friedrich von Hayek described as a “fatal conceit”. He maintained that governments are conceited if they believe that they can devise a system that will provide a better outcome for producers and consumers than the unimpeded market. Such a conceit is fatal because of its negative economic consequences. In the interests of SA’s producers and consumers government should therefore discard its plans to interfere in the manufacture and distribution of liquor.

Government’s explanation that the purpose of its intended interference in the structure of the liquor industry is to bring about empowerment is not convincing. Firstly, no details are provided as to how this is supposed to come about, and secondly, there appears to be a view that as long as a few black businesspeople are advantaged it does not matter what costs are imposed on the consumer. We had the Competition Commission arguing correctly during the Portfolio Committee hearings on the liquor bill that vertical integration provides economies and results in reduced prices. Black consumers will suffer most from the consequences of the intended interference in the liquor industry and such a result would be most unfortunate. Surely the objective should be to bring about the greatest benefit for the greatest number.

There is also a disturbing lack of confidence in the people who are already involved in the liquor industry. If all the small liquor outlets in the townships were to have the yoke of illegality lifted off their necks they would be able to build and expand their businesses. They would be able to start integrating upwards. They would empower themselves and that is the kind of empowerment that does most to grow the SA economy.

Author: Temba A Nolutshungu is a Director of the Free Market Foundation. This article may be republished without prior consent but with acknowledgement to the author. The views expressed in the article are the author’s and they are not necessarily shared by the members of the Free Market Foundation.

FMF Feature Article / 1 July 2003 - Policy Bulletin / 04 August 2010