The Problem of the Absentee Owner

“The ‘tied house’ system had all the vices of absentee ownership. The manufacturer knew nothing and cared nothing about the community. All he wanted was increased sales. He saw none of the abuses, and as a non-resident he was beyond local social influence.”
Fosdick and Scott, Toward Liquor Control

When Prohibition ended, many states took steps to ensure that those who sold alcohol in their community were part of the community. Some states had residency requirements for retailers and wholesalers. Others restricted the number of licenses that could be held by a single owner, corporation or chain operation, since these were often absentee owned. Other states took the approach of requiring an out-of-state entity to designate a local manager as an additional licensee.

And, today’s three-tiered regulatory system is designed to prevent or curtail local market domination of alcohol sales by a few large companies. Some of these state regulations have been challenged in the courts without an understanding of why they were instituted in the first place. Or, it is assumed that these regulations are merely there to favor local businesses. However, in most cases these provisions predate the local industry.

The concern over absentee owners or oversight far removed from the local market has had a long history in land reform debates. Even the federal code requires federal judges to live within their districts. (See 28 U.S.Code Section 44 (c).)

To understand these regulations as well as the three-tier structure, one needs an explanation of how local markets became dominated by large, out of state businesses; and, how these companies created major social problems via their business practices. Most states– to one degree or another– relied on recommendations from a study conducted as the nation was moving towards repeal of the 18th Amendment called Toward Liquor Control. As noted in the first paragraph of this article, the issue of the absentee owner was uppermost in the minds of those who drafted recommendations for the design of our system.

To continue reading the Healthy Alcohol Marketplace Newsletter, click here.

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