Treating "independent liquor store" or more generally "small business" as the target here seems likely to lead to divergence between the desired and actual outcomes, by propping up zombie businesses. The effect of zombie businesses' money flowing into the local economy isn't even a clear benefit, but a cost, as it propagates corruption through the local economy. And protecting predominantly preexisting businesses doesn't help entrepreneurs creating new types of value, which are the cases that most benefit from local information that hasn't yet been legibilized in ways that Costco can Kroger exploit.
We'd ideally like to let free participants in a market use their local information to decide which sorts of profitable value-added activities should take place locally and which should be purchased from afar. We can do this by articulating what some of the benefits of locally owned and operated independent businesses are, and subsidizing the benefits directly rather than protecting whole categories like "independent businesses that sell people poison to drink," which I think you agree is absurd, even if less absurd than trying to sell them the poison more cost-effectively.
The main benefits I see from local businesses are skin in the game, robustness to supply chain disruptions, and agglomeration.
Skin in the game: Someone who lives within walking distance of their liquor store is more likely to see drunk hooligans trashing the neighborhood as not merely a source of profit, but a problem. Someone who sells a significant share of their wheat to the local bakery they buy bread from is less likely to adulterate their product with stretchers or contaminants, both in order to preserve their reputation and in order not to harm themselves and their friends who eat the bread.
The Econ 101 way to promote skin in the game is to subsidize skin in the game. Businesses in dense, walkable areas that are fully owned and operated by people whose address for tax and school-district purposes is within walking distance could get a tax break or subsidy. Businesses in somewhat larger metro areas owned and operated by people whose address is within daily commute distance could get a somewhat smaller tax break or subsidy. To prevent straw ownership we could insist on unlimited liability, and limits on profit sharing (local owner(s) must have majority interest).
But I think it would make more sense to subsidize skin in the game in kind. Business owners with better incentives don't need to be regulated as strongly. Regulatory barriers are often what block new entrants, while incumbents have already invested the labor of figuring out how to comply or get special exemptions. Large businesses can not only realize regulatory economies of scale, but are also better placed to lobby for regulatory changes that favor them. So the state should offset this by explicitly implementing 2-tier regulation, with much more stringent inspections etc. for businesses with less skin in the game. The same proxies for skin in the game that would apply to a subsidy can be used here.
We might want additional countermeasures to big firms lobbying to scuttle this, like a substantial income tax for professional lobbyists.
Robustness to supply chain disruptions: Local and global supply risks are at least partially uncorrelated. If you're buying some of your intermediate or finished goods from global commodity markets, a local natural disaster doesn't hit you quite as hard. If they're locally produced, it doesn't matter as much if the Houthis attack global shipping or the President imposes big tariffs.
The policy fix here is a little trickier. You need some heuristic for how much localization you want in your supply chain, and the rate of tax or subsidy might need to be dynamically adjusted to match conditions. But the right policy here is something like a reverse VAT tax, in which buyers of a product get a tax break or rebate corresponding to some proportion of the value-added steps in the supply chain that occurred locally. You might want to make the subsidy stronger for contiguous local value-added steps, as these are especially helpful for avoiding external disruption. It's ok if it only works sometimes, and some businesses decide to forgo the subsidy to save on paperwork.
Agglomeration: Firms doing related activities in the same place can exchange information in ways that let them transact more efficiently, and let some businesses develop more suitable intermediate inputs and tools to sell to others with fast feedback loops. For example, a chemist working with a specialized glassblower might be able to get just the right tool for some new procedure much more easily than one buying commodity glassware.
The reverse VAT would help here too. We'd want to make sure it applied to financial services, and especially commercial / business banking.
The city or state could also divert some vocational education funding to subsidized apprenticeships in local businesses, but you'd want to limit the extent of any financial subsidy to a level that's only viable for businesses that are already basically profitable. A streamlined legal / regulatory / administrative framework for creating incentive-aligned apprenticeship arrangements would likely be more important here than a monetary subsidy.
There are definitely bad ways to run the alcohol sector that lead to monopoly and zombie companies. For example, I believe NJ has a fixed number of liquor licenses per area, sending their price through the roof and allowing current owners to merely squat on them until retirement and a 'cash out.'
I guess I should've been clearly that MD's law merely prevents grocery stores from selling alcohol; it isn't an affirmation that only dedicated liquor stores can sell alcohol. For example, we allow service industries (think like a barbershop or tailor) to sell alcohol to customers for on premise consumption during service. This is that creative destructive/entrepreneurship that I believe we both favor.
I like your additional benefits of local businesses.
Re: two-tier regulation, a great example of that is the US banking system post-GFC, as once banks hit a certain amount of total assets, there is a whole slew of new regulations and filings that they have to comply with. There are even a few banks that have judged to stay below this limit so as to avoid this additional oversight.
Re: local supply chains, I've always wondered about the concept of a truly 'state' or 'regional' store, where everything sold within it is made/prepare/crafted/manufactured/etc within a certain city/state/bioregion. There is honest debate about what qualifies as what, but let's just assume that there is a generally-accepted framework for determining what qualifies. Taking above, you can imagine a 'three-tier' regulatory framework, where the state offers significant tax breaks to that shop or even something like subsidized shopping weeks (e.g. MD already has a week where sales tax doesn't apply to school supplies, you could imagine something similar for a hypothetical MD or Chesapeake store).
Re: apprenticeship, just broadly, I feel this is a learning structure that society has lost touch with and that we should aim to bring back. My belief in this is at least partially a reflection of my own experience, where I never took a biology class in college, but as a sophomore-in-need-of-money, I took on a job as an assistant in an immunology lab, and now it's my career. Modern society so often selects for prior achievements rather than a general aptitude for learning, teamwork, etc.
For me this is a convenience thing. I grew up in MD and just thought this was how it was, lived in other states and it was so much nicer to be able to grab a bottle of wine at the grocery store or a 6 pack at a gas station. When I moved back I got reminded of what a pain in the butt it is. I’d also mention for restaurants in Montgomery County, where they’re only allowed to buy from the county, that’s super annoying and arduous. Really good liquor stores that have cool selection and knowledgeable staff will always have a market. I’d love to see Maryland loosen things up and allow bottle shops, like they have in NC where people can consume on site and hang out.
Yeah, I get your point, and I’m generally sympathetic, but I do like to drink and I think you can have both. I live in southern MD now where, I guess, many gas stations were grandfathered in and can sell liquor. I probably drive past a dozen every day, when I’m in a rush, I’ll pop into one on my way. But, if I have some time there’s a really cool place 20 minutes away that has all kinds of cool, weird stuff. I try to go give them my business if I have time. My point is, having the convenience and the cool local places is the optimal situation.
Yes, I fully acknowledge that MD's system is more inconvenient. I guess the broader point that I'm trying to make is that perhaps sometimes it is more beneficial for society to not always maximize short-term convenience and/or cheapness, but rather other aspects of cultural life, and MD's liquor stores is one concrete example of that. Much of that stems from alcohol's negative externalities. For example, dedicated olive oil or tea stores with cool selections and knowledgeable staff are awesome, but I'm not going to argue that grocery stores shouldn't be allowed to olive oil and tea. Those are areas where centralization, consolidation, and convenience make sense to me.
Treating "independent liquor store" or more generally "small business" as the target here seems likely to lead to divergence between the desired and actual outcomes, by propping up zombie businesses. The effect of zombie businesses' money flowing into the local economy isn't even a clear benefit, but a cost, as it propagates corruption through the local economy. And protecting predominantly preexisting businesses doesn't help entrepreneurs creating new types of value, which are the cases that most benefit from local information that hasn't yet been legibilized in ways that Costco can Kroger exploit.
We'd ideally like to let free participants in a market use their local information to decide which sorts of profitable value-added activities should take place locally and which should be purchased from afar. We can do this by articulating what some of the benefits of locally owned and operated independent businesses are, and subsidizing the benefits directly rather than protecting whole categories like "independent businesses that sell people poison to drink," which I think you agree is absurd, even if less absurd than trying to sell them the poison more cost-effectively.
The main benefits I see from local businesses are skin in the game, robustness to supply chain disruptions, and agglomeration.
Skin in the game: Someone who lives within walking distance of their liquor store is more likely to see drunk hooligans trashing the neighborhood as not merely a source of profit, but a problem. Someone who sells a significant share of their wheat to the local bakery they buy bread from is less likely to adulterate their product with stretchers or contaminants, both in order to preserve their reputation and in order not to harm themselves and their friends who eat the bread.
The Econ 101 way to promote skin in the game is to subsidize skin in the game. Businesses in dense, walkable areas that are fully owned and operated by people whose address for tax and school-district purposes is within walking distance could get a tax break or subsidy. Businesses in somewhat larger metro areas owned and operated by people whose address is within daily commute distance could get a somewhat smaller tax break or subsidy. To prevent straw ownership we could insist on unlimited liability, and limits on profit sharing (local owner(s) must have majority interest).
But I think it would make more sense to subsidize skin in the game in kind. Business owners with better incentives don't need to be regulated as strongly. Regulatory barriers are often what block new entrants, while incumbents have already invested the labor of figuring out how to comply or get special exemptions. Large businesses can not only realize regulatory economies of scale, but are also better placed to lobby for regulatory changes that favor them. So the state should offset this by explicitly implementing 2-tier regulation, with much more stringent inspections etc. for businesses with less skin in the game. The same proxies for skin in the game that would apply to a subsidy can be used here.
We might want additional countermeasures to big firms lobbying to scuttle this, like a substantial income tax for professional lobbyists.
Robustness to supply chain disruptions: Local and global supply risks are at least partially uncorrelated. If you're buying some of your intermediate or finished goods from global commodity markets, a local natural disaster doesn't hit you quite as hard. If they're locally produced, it doesn't matter as much if the Houthis attack global shipping or the President imposes big tariffs.
The policy fix here is a little trickier. You need some heuristic for how much localization you want in your supply chain, and the rate of tax or subsidy might need to be dynamically adjusted to match conditions. But the right policy here is something like a reverse VAT tax, in which buyers of a product get a tax break or rebate corresponding to some proportion of the value-added steps in the supply chain that occurred locally. You might want to make the subsidy stronger for contiguous local value-added steps, as these are especially helpful for avoiding external disruption. It's ok if it only works sometimes, and some businesses decide to forgo the subsidy to save on paperwork.
Agglomeration: Firms doing related activities in the same place can exchange information in ways that let them transact more efficiently, and let some businesses develop more suitable intermediate inputs and tools to sell to others with fast feedback loops. For example, a chemist working with a specialized glassblower might be able to get just the right tool for some new procedure much more easily than one buying commodity glassware.
The reverse VAT would help here too. We'd want to make sure it applied to financial services, and especially commercial / business banking.
The city or state could also divert some vocational education funding to subsidized apprenticeships in local businesses, but you'd want to limit the extent of any financial subsidy to a level that's only viable for businesses that are already basically profitable. A streamlined legal / regulatory / administrative framework for creating incentive-aligned apprenticeship arrangements would likely be more important here than a monetary subsidy.
There are definitely bad ways to run the alcohol sector that lead to monopoly and zombie companies. For example, I believe NJ has a fixed number of liquor licenses per area, sending their price through the roof and allowing current owners to merely squat on them until retirement and a 'cash out.'
I guess I should've been clearly that MD's law merely prevents grocery stores from selling alcohol; it isn't an affirmation that only dedicated liquor stores can sell alcohol. For example, we allow service industries (think like a barbershop or tailor) to sell alcohol to customers for on premise consumption during service. This is that creative destructive/entrepreneurship that I believe we both favor.
I like your additional benefits of local businesses.
Re: two-tier regulation, a great example of that is the US banking system post-GFC, as once banks hit a certain amount of total assets, there is a whole slew of new regulations and filings that they have to comply with. There are even a few banks that have judged to stay below this limit so as to avoid this additional oversight.
Re: local supply chains, I've always wondered about the concept of a truly 'state' or 'regional' store, where everything sold within it is made/prepare/crafted/manufactured/etc within a certain city/state/bioregion. There is honest debate about what qualifies as what, but let's just assume that there is a generally-accepted framework for determining what qualifies. Taking above, you can imagine a 'three-tier' regulatory framework, where the state offers significant tax breaks to that shop or even something like subsidized shopping weeks (e.g. MD already has a week where sales tax doesn't apply to school supplies, you could imagine something similar for a hypothetical MD or Chesapeake store).
Re: apprenticeship, just broadly, I feel this is a learning structure that society has lost touch with and that we should aim to bring back. My belief in this is at least partially a reflection of my own experience, where I never took a biology class in college, but as a sophomore-in-need-of-money, I took on a job as an assistant in an immunology lab, and now it's my career. Modern society so often selects for prior achievements rather than a general aptitude for learning, teamwork, etc.
For me this is a convenience thing. I grew up in MD and just thought this was how it was, lived in other states and it was so much nicer to be able to grab a bottle of wine at the grocery store or a 6 pack at a gas station. When I moved back I got reminded of what a pain in the butt it is. I’d also mention for restaurants in Montgomery County, where they’re only allowed to buy from the county, that’s super annoying and arduous. Really good liquor stores that have cool selection and knowledgeable staff will always have a market. I’d love to see Maryland loosen things up and allow bottle shops, like they have in NC where people can consume on site and hang out.
Yeah, I get your point, and I’m generally sympathetic, but I do like to drink and I think you can have both. I live in southern MD now where, I guess, many gas stations were grandfathered in and can sell liquor. I probably drive past a dozen every day, when I’m in a rush, I’ll pop into one on my way. But, if I have some time there’s a really cool place 20 minutes away that has all kinds of cool, weird stuff. I try to go give them my business if I have time. My point is, having the convenience and the cool local places is the optimal situation.
Any chance it's Talbot County? I don't know the exact history but they're somehow exempt and can sell alcohol in grocery and convenience stores.
Yes, I fully acknowledge that MD's system is more inconvenient. I guess the broader point that I'm trying to make is that perhaps sometimes it is more beneficial for society to not always maximize short-term convenience and/or cheapness, but rather other aspects of cultural life, and MD's liquor stores is one concrete example of that. Much of that stems from alcohol's negative externalities. For example, dedicated olive oil or tea stores with cool selections and knowledgeable staff are awesome, but I'm not going to argue that grocery stores shouldn't be allowed to olive oil and tea. Those are areas where centralization, consolidation, and convenience make sense to me.