Craft Beer, a Neoliberal Economy and Private Market Rent-Wall Barriers

Matt Yglesias has a post about beer and neoliberalism (with a follow-up) which was responding to posts from Tom Philpott and Erik Loomis on craft brew deregulation.  Crooked Timber has a response.

Matt writes that Carter-era deregulation has reduced the substantial mid-century market power of the large breweries which in turn means there’s less surplus to be shared with unionized workers.  Turns out that when examining the numbers this isn’t right, and looking at this closer will points out three interesting developments that have happened in the real economy during the past thirty years, developments we should examine more often here.

After posting this graph:

Matt writes:

And as Loomis notes, one consequence of the cartelization of the American beer brewing industry was to generate monopoly profits for the large breweries. This was good not just for “Miller executives” but for all the stakeholders in the enterprise. When a unionized firm is in a non-competitive marketplace, the union is in a strong position to force the firm to share some of the monopoly rents with the workforce. When the market becomes more competitive, not only does the unionized firm lose market share but the union in general loses leverage…In a highly competitive market, there’s not much surplus for unions to get a share of.

Should we assume this increase in brewers has threatened marketshare?  If me and 1500 of my closest friends hung signs that said “Investment Bank” on our doors I highly doubt Goldman Sachs would be worried.  We’d have to assume that at least a few of these new breweries run as at a loss as a hobby, or don’t even survive the start-up period.

To get numbers for changes in market concentration, let’s look at the 1994 paper Economics of Brewing, Theory and Practice: Concentration and Technological Change in the USA, UK, and West Germany since 1945 by Terence R. Gourvish of the London School of Economics.  Specifically this graph:

Market share jumps from 75% for the top five firms in 1980 to 92% in 1990, a dramatic 22% increase in a decade that’s on trend with previous increases.  To bring us to now, here’s the estimate I found from Carbaugh’s Contemporary Economics which shows this is still in play in 2002:

Here the top four firms have a 91% share, changing from top five a decade earlier.  The only more concentrated manufacturing industry than breweries is cigarettes – which is the definition of an industry with returns-to-scale production and inelastic (addictive, even) consumer demand.  The sense from estimates I’m seeing is that the entire craft brewery movement accounts for about 4% of the market.

So the interesting question isn’t why the mid-century period of breweries were so heavily concentrated but why they were so lightly concentrated.  I think there are three interesting things to examine in the post-1980s economy that might help explain this.

The first is the abandonment of monopoly and trust law. The LSE report notes the late 1970s not for entry deregulation but for a change in the way the government approaches mergers: “In the USA [for concentration increase of the 1960s-70s], the process was clearly more a case of internal growth than merger and acquisition, the latter being actively discouraged by antitrust regulation until a belated relaxation in the late 1970s.” This was replaced in the neoliberal age with a distrust in the action of the government to put limits on scale and size of anticompetitive industries alongside a larger belief in the ability of potential competition to keep oligarchical firms in check.

The second would be a corporate strategy, following Jack Welch at GE, to emphasize getting most industries down to 2-3 major players.  This combines with a Wall Street and financial industry that was more aggressive in going after firms in takeovers to bring this into reality. The growth line from the LSE report is key here – the more oligarchical rather than monopolistic firms of the mid-century period sought to grow internally through earnings rather than debt-driven consolidation and financial engineering techniques.

The third and last thing would be the ways new monopolies share the surplus among each other in ways that create barriers-to-entry.  The biggest problem for any of these large number of new craft brewers would be finding the ability to sell their product.  They have the means to create new beers but how does that help them get it into Wal-mart or large grocery chains?

As Barry Lynn argued when he made the case for referring to Wal-mart as a monopsony power in Harper’s (his book Cornered is excellent on this as well), the consolidation of markets – the actual physical places people buy and sell goods, from grocers to Wal-mart – has created the ability of the owners of those markets to squeeze producers. In that article – an excellent one if you haven’t encountered it before – Lynn walks through how Wal-mart is able to dictate “how [firms with products at Wal-mart package their products, how they ship those products, and how they gather and process information on the movement of those products.”  A hard rationalization of major production alongside the efficiency standards of a single entity.

One fun example of this power is slotting fees – a cousin of our old friend the interchange fee – which is “is a fee charged to produce companies or manufacturers by supermarket distributors (retailers) in order to have their product placed on their shelves.”  Firms must use upfront cash to bid on the ability to buy out supermarket shelf space – how would a small vendor compete?

As always, follow the surplus.  Who wins under this regime?  The marketplace vendors obviously, as they get to capture some of the surplus of these consolidated firms.  Consumers get some of that as well, however much of these fees are passed right along, so on net that positive is blunted.  Large firms get beaten up at first, but on the other hand these slotting fees and rationalization run as a private-market barrier to entry that protects them from competition from all these brand new brewers and small firms.  The real losers are small vendors, who are priced out.

You might notice that the deregulation of the late 1970s was about removing government imposed barriers-to-entries for new firms.  But what we see here are large firms using standardization and coordination alongside various slotting fee style programs to create private-market barriers-to-entries that exclude smaller vendors.  The first version is created by the government and thus an enemy of neoliberals everywhere;  the second results from the market and private agents and is passed over in silence because there isn’t any language in the neoliberal lexicon to even discuss it, much less conceptualize it as a political problem.

I find it interesting that neoliberalism creates a governmentality where citizenship is redefined along market terms – each person his or her own brewing CEO – at the same time where the largest firms become even bigger and create surplus-sharing rent walls capable of excluding these new citizen-CEOs.

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22 Responses to Craft Beer, a Neoliberal Economy and Private Market Rent-Wall Barriers

  1. That’s definitely an interesting post. But it seems non-responsive to the question I’m asking: From an anti-neoliberal, pro-labor perspective should people support anti-competitive regulations to bolster the position of unionized firms? Both your response and Henry’s response seem like efforts to avoid this but it pops up in many forms. The UFCW wants organized supermarket chains to be sheltered from competition from WalMart. The CWA wants AT&T to be allowed to gobble up TMobile and concentrate the cell phone market.

    The brewery market struck me as an interesting example simply because new entry into the beer sector was being celebrated by various folks who sometimes slam me for being insufficiently pro-union.

    • Petey says:

      “…by various folks who sometimes slam me for being insufficiently pro-union.”

      I don’t think you’re “insufficiently pro-union”. I think you’re “anti-union”.

      A semantic quibble perhaps, but perhaps not.

      • I don’t think you’re “insufficiently pro-union”. I think you’re “anti-union”.

        It seems to me that anti-union people in the United States of America generally favor right-to-work laws whereas I favor repealing such laws. Anti-union people in the United States of America generally oppose EFCA whereas I favor EFCA. And yet, as you say, there’s a widespread perception that I’m anti-union.

        So this is exactly the issue I’m trying to get at. Obviously, many people think my posture isn’t the “real” pro-union posture. The issue often seems to be that I don’t support trade barriers designed to help shelter unionized firms from competition. But I find that relatively few people are excited about following that general principle in a consistent way.

  2. Mike says:

    Right – and it’s a good example because people (and myself!) like individuals taking up craft beer if they want to and the regulations on it seem silly in retrospect (as far as I could find anything arguing for it).

    I like recasting the tension between competition as ultimate check on firms with the idea that anti-trust law should be more robust and more actively used. Because at this point you can make arguments that anti-trust broadly isn’t about turning the economy back into artisan, local production but instead to a slightly more competitive oligarchical model (the SAFE Banking amendment would have broken the largest banks into $400 billion sized banks – not local corner banks by any means).

    Your question is interesting and my initial reaction would be: no, if only because those kinds of handshakes between government-business-labor rarely work out for labor well (see the NRA) and what I want labor unions to do is less about surplus capture in industries that generate rents and more about the treatment and power of workers more broadly. But that’s not the area I spent enough time in to appreciate the full arguments.

    • Mike – I think you can argue in favor of lots more competition and more use of anti-trust laws (though I’d say those laws should be used especially in industries such as banking). You can also argue that unions will need to change from the corporate model that fits nicely with Budweiser manufacturing so that they can exist in a more fluid, competitive market.

  3. I’ve been thinking about this a lot lately (helped along by Galbraith’s American Capitalism). The whole ideological structure of neoliberalism is geared toward the outcome you mention in your last paragraph and why its pushed by the “rentier class” It hinges on the fiction that there is no such thing as market power, only political power (which is why neolibs are silent on market power, it simply doesnt exist).

    Anyway, I think this fiction is so pervasive that “the left” in many ways has been forced to justify government strictly in terms of market failure. Providing public goods, cleaning up externalities etc becuase intellectually markets have automatically become equated with “perfectly competitive markets”. I think the tact should change to an insistence that market power exists and that it is the job of government to correct “market failure” in the sense that it helps build “countervalling powers” (to use Galbraiths term) to offset market power.

    Not that i think there is much of a need to re-regulate the brewing industry. There are already way too many beers to sort through.

    • Mike says:


      I think that’s spot on re: the “market failure” approach. And to the extent that there is a market power issue it is folded into political power, which from a neoliberal POV is usually thought of in a campaign contribution, rent-seeking manner. Which is then folded back into Public Choice theory, which also calls for knee-capping the concept of a government.

      • Well that’s another appealing aspect of the whole “contervalling powers” idea is that it is fluidly “political economics”. You can acknowledge that firms exercise both political and economic power and you can then demand institutions that curb things like rent seeking from the government.

        On the public choice tip, in highly concentrated industries like brewing a consequence of a radical pure deregulation would be essentially be choice reduced to Bud and Bud Light which is exactly the same issue public choice faults the political process for (politics doesn’t give us infinite choices!).

    • It hinges on the fiction that there is no such thing as market power, only political power (which is why neolibs are silent on market power, it simply doesnt exist).

      This is a great example of what I find so frustrating about this blog debate on “neoliberalism.” Which neoliberals are silent on market power? Which ones say it doesn’t exist? Brad DeLong thinks market power exists.

      • I’m using “neoliberal” the same way that Mike uses it which is to say a “neoliberal” wants markets to dominate and determine all aspects of life (i.e. I’m talking about Holtz-Eakin and not DeLong).

      • I mean, the shorthand is necessary and I would definitely be interested in hearing what the neoliberal generation (broadly speaking) of economists have to say about the problems of market power.

      • Matt – I agree. People who favor markets favor them in many ways because they believe government props up powerful market players at the expense of new entrants, etc. So the government created the bastions of power in the big breweries and removing government helped new entrants gain a toe-hold. Of course, now that there is such an uneven playing field, maybe government can play a further role in evening the playing field. And yes, there are going to be times when markets can become unaligned even without government intervention.

    • chrismealy says:

      Libertarians love to put market failure in scare quotes. Maybe progressive should too. John Kay had a piece about how using the market failure frame concedes too much to the right. It’s paywalled now but here’s a summary:

      Oh hell, the short version is that human values (health and education for all, fairness, decency, etc) trump allocative efficiency. Duh.

  4. I did not see MY’s post before I posted but I feel like my comment applied more or less to his comment.

  5. hhoran says:

    Looking across a wide range of industries the important issue is the post 1980s “concentration is good for business” ideology reflected in the three points (antitrust, Jack Welsh, etc). Tying this to the blogosphere “craft beer” meme undermines this point. There were two phases in the concentration of the beer industry. The first (mid 60s-mid-80s) was the jump from 30%-ish to 70%-ish concentration, as was driven by the (a) growth of network television (especially sports) which allowed the big breweries to create national brands that could overwhelm small local producers and (b) preservatives and refrigerated shipping, so the big brands could be distributed nationally. Only the second phase of concentration (post 1985 jump to 90%) was due to the “concentration” ideology. Antitrust law, if enforced could have dealt with this phase but not the earlier phase, which was legitimately driven by technology/consumer demand shift, and not primarily by the exploitation of artificial market power in the second phase. The UK market shows some 80s/90s concentration driven by the tying of distribution (pubs) to breweries, but without the impact of sports-TV driven branding (although this tendency has hit European markets in the last few years).
    The answer to Matt’s question lies in the subtleties of how artificial market power can be exploited once industries like these get to 80%+ concentration, and that goes back to Mike’s points about the concentration ideology and the gutting of antitrust law. Craft brewing is a red herring and needs to be taken out of the discussion. Using 80%+ concentration and the “pro-concentration ideology” to extract artificial anti-competitive profits is bad–period, full stop. There is no clear link between concentration levels and “conditions favorable for unions” You’ll see situations where union locals at the big oligopoly companies fight to protect these rents (because they get a cut–Delta Air Lines is a good example) and cases where the oligopoly owners think they have enough power to screw the workers just as badly as they are screwing consumers. Sometimes concentration below 80% creates favorable conditions for workers (as with the brewers in the 1980s) sometimes it doesn’t.

  6. Can I add a modest plea for sanity in this debate? Where exactly does MY get the fallacious idea that monopolistic industries are necessary for unionization? This premise in his argument is simply wrong.

    The only reason why we tend to notice a link between unionization and older incumbent firms is precisely because of *anti-union* laws and practices that make it difficult or impossible to organize *newer* firms. In France, for example, there is no association between the competitiveness of an industry and the union presence – every firm with more than 50 employees must hold elections every 2 years to decide which unions the workers want to represent them in bargaining, and all workers must be covered by a union-negotiated agreement. A microbrew over there is no less likely to be unionized than a major brewery (assuming it has more than 50 workers).

    In the the US, it is only because of the contingent historical fact that unionization was easier in the past but harder in recent times that there is a unionization/older firm correlation. If MY is concerned about that on pro-competitive grounds, it should cause him to redouble his already passionate commitment to reviving the labor movement, rather than lead him to petition the left to rethink its own commitment to it.

    Of course, as long as the movement is stymied, there may well be, *in the meantime*, one of MY’s beloved “tradeoffs” — in this case between the level of unionization in an industry and the entry of new firms. Since he wants to know where those of us on the anti-neoliberal side come down on these tradeoff, my answer is simple. I’m for the unions.

  7. Pingback: Big Beer — The League of Ordinary Gentlemen

  8. Rodger says:

    I found some more recent data from the Brewers Assocation (

    The craft brewing sales share in 2010 was 4.9% by volume and 7.6% by dollars.
    Craft brewer retail dollar value in 2010 was an estimated $7.6 billion, up from $7 billion in 2009.
    1,753 breweries operated for some or all of 2010, the highest total since the late-1800s.

  9. K. Williams says:

    “to say a “neoliberal” wants markets to dominate and determine all aspects of life”

    This is just a laughable characterization of American neoliberalism, of which MY and Delong are both exemplars. There’s simply no way you can read them and think that they want markets to “dominate and determine all aspects of life.” As usual, this is an absurd straw man set up so that people like Andrew can preen and congratulate themselves on their moral righteousness, all while drinking their craft beer, driving their Accords, and using their T-Mobile phones.

  10. K. Williams says:

    “The craft brewing sales share in 2010 was 4.9% by volume and 7.6% by dollars.
    Craft brewer retail dollar value in 2010 was an estimated $7.6 billion, up from $7 billion in 2009.
    1,753 breweries operated for some or all of 2010, the highest total since the late-1800s.”

    This is what’s mysterious about Mike’s argument about slotting fees, etc. If, in fact, ever-growing concentration among brewers has given them market power that “protects them from competition from all these brand new brewers and small firms,” then why is it that ordinary consumers have so much more access to high-quality beers today than they did in the 1980s?

    • Andy says:

      I think Mike’s point is that “ordinary consumers” don’t have access to that 1000+ brewers. I’m from Maine where there is one micro brew for every ten people* and I live in NYC now where there are…well… lots of yuppies so i have always had lots and lots of access to fancy beer (I even worked in a specialty beer store in the late 90s). I’m not convinced that the rest of the country where demographics are different and there is a greater dependence on large chain stores has the same access.

      However, to add some nuance to your basic restatement the point Mike is refuting: I’m not totally convinced this is strictly a supply side issue too. My father and brother will not touch fancy beer. I’ve tried to get them to drink it and they run back to the fridge to gargle with Bud Light. It makes more sense to me that my dad doesn’t like it. He was drinking “big 5” beer for like 40 years before fancy beer became a thing but I also think there is a socio-economic element to it too (as I think it is with my brother).

      Also, I was talking to a friend of mine who works at a brewery in Montreal and he made the point that there are no (or virtually none, i bet someone can come up with an exception) microbrews that market to african-americans. Again, this seems to reinforce the idea that there is something wonky about the demand (or the marketing/supply induced demand) for fancy beer. But still, the fact that Sam Adams is like the 5th or 6ths largest brewery in the US and has less than 1% market share is striking and probably not explainable by the fact that the guys at Sam Adams prefer the people who drink thier beer have college degrees.


      * Remember when we used to call these things micro brews and not “craft” beers? I always wondered why the shift because I don’t like the craft label cause it sounds too foodie-esque, too close to “artisanal” so I’ve always wondered if the term is intended to elevate or the term eveloved becuase you cant really call Sam Adams and Sierra Nevada microbreweries.

  11. K. Williams says:

    “I’m not convinced that the rest of the country where demographics are different and there is a greater dependence on large chain stores has the same access.”

    Access to 1000+, no. But access to a wide array of micro-brews, yes. You can buy Samuel Adams’ Seasonal Ale at Wal-Marts across the country, and most Wal-Marts will have a reasonable number of micro-brews in stock. As you suggest, I think the real issue is not slotting fees/access, but rather taste (and cost — Bud and Coors are just a lot cheaper to drink).

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