Cycles in Regulatory Review: the Case of Alcoholic Beverage Advertising

ABSTRACT - Alcoholic beverage advertising has historically been subject to state scrutiny. The contemporary push for a ban on wine and beer commercials is an extension of that thrust. This paper contexts the situation in which such a decision is made and suggests reasons for continued public debate.



Citation:

William C. Lesch (1985) ,"Cycles in Regulatory Review: the Case of Alcoholic Beverage Advertising", in SV - Historical Perspective in Consumer Research: National and International Perspectives, eds. Jagdish N. Sheth and Chin Tiong Tan, Singapore : Association for Consumer Research, Pages: 314-319.

Historical Perspective in Consumer Research: National and International Perspectives, 1985     Pages 314-319

CYCLES IN REGULATORY REVIEW: THE CASE OF ALCOHOLIC BEVERAGE ADVERTISING

William C. Lesch, Illinois State University

ABSTRACT -

Alcoholic beverage advertising has historically been subject to state scrutiny. The contemporary push for a ban on wine and beer commercials is an extension of that thrust. This paper contexts the situation in which such a decision is made and suggests reasons for continued public debate.

INTRODUCTION

Contemporary markets for alcoholic beverages throughout the U.S. are changing, seemingly beyond the direct control of producers and marketers. Concurrent with health-oriented lifestyles, and government and public interest group pressures, a well-positioned drive is underway to ban all wine and beer advertising from broadcasting. The economics of a total blackout would result in reallocation of more than $750 million in ad budgets. If carried out, social, legal, and regulatory policy will have been transformed. This paper reviews the historical context in which the contemporary decision rests, providing a chronicle of cyclical exchanges among varied participants in an ever-changing political system.

THEORETICAL PERSPECTIVE

Systems models depicting general policy formation (Enis and Kangun 1975; Ferrelland Krugman 1978) and specific policy content (Krasnow, Longley, and Terry 1982; Fritschler 1983) have been advanced to aid in identifying elements important to political outcomes. Overall, these focus on inputs to the economic system which are processed in a manner resulting in conflict. Resolution of the latter emerges as public policy, and in other forms of political compromise. Changing system structure (e.g., new government agencies), shifting power bases, pluralistic goals, and/or varying degrees of mutual accommodation among participants guarantees a degree of dynamism and uncertainty in any given situation (Krasnow, Longley, and Terry 1982).

In the present case, major contributors to the problem have been (and promise to be) the courts, major federal agencies (FCC, FTC, FDA, BATF), the Congress, public interest groups, the President, and the regulated industries (broadcasters and manufacturers of alcoholic beverages). Recounting the historical interaction of these primary elements forces any observer to not only wonder at the complexity of the political process, but serves to remind us each of Santayana's admonition: those who fail to consult the past are doomed to repeat it. Moreover, definition of critical issues can aid in the prediction and control of a policy outcome. Below the author has demarcated three periods that have each culminated in an equilibrium of political and economic nature. In an epilogue, the immediate future of the advertising ban is contemplated.

ORIGINS OF CONFLICT: THE PRE-INDUSTRIAL PERIOD

Understanding the interval of the 17th through 19th centuries can be best enhanced by recognizing two epochs within. Colonial and Formative divisions rest on the sharp changes in interest group activity and responses in the policy-making system.

Colonial

Pioneers of the U.S. expressed their cultural and ethnic heritages in enjoyment of and economic appreciation for alcoholic beverages. Local and colonial governments (operating under traditional English law) levied taxes on the products primarily for revenue, with the relatively few restrictions otherwise imposed relating to hours of sale, pricing and/or licensing (Byse 1940; Aaron and Musto 1981; Conlon 1940). Secondary controls were limited in scope and related to minor court sentences for "chronic" insobriety or nuisance. These were rare, however, due to strong social forces mitigating for moderation. Promotional practices, particularly advertising, were rudimentary, and concurrent with media sophistication, icons and boards common retail forms (Presbrey 1929). By the middle of the 18th century domestically produced rum was New England's most profitable enterprise (Rouech, 1963) owing in part to the fact that the "general pattern ... was for the men and women to drink alcohol every day, at all times during the day, and in large quantities at most every social occasion" (Levine 1982, p. 32). Alcohol was a fixture of American culture, and all public policy subordinate thereto (Hancock 1978).

A conflux of factors, however, led to more formal control of alcoholic beverages. First, gluts in the rum markets drove down prices, increasing availability. This met head-on the developing capitalist drive for industrialization, that defined insobriety as intolerable in the labor force (Levine 1982). Religious institutions were more varied by the mid-18th century as well. While the Puritans viewed alcoholic beverage consumption as unacceptable in the excess, the Quakers and Methodists forbade consumption as destructive (Bainton 1945; Baird 1946), and the latter were growing in assertiveness. The publication in 1786 of "An Inquiry into the Effects of Ardent Spirits" by the Quaker Rush (Room and Mosher 1979; Quarterly Journal of Studies on Alcohol 1944) fueled coalition formation. A change was imminent.

Finally, and attributable in part to the rise in mass markets and mass communication, Bryant (1975, pp. 5-6) observed that

... while the volume of alcoholic beverage advertising was relatively small prior to prohibition, it ranked high in bad taste. It was uncontrolled; seemingly the forces of moderation were nonexistant or nonaggressive. Brands were presented as cures for all ailments from mumps to snake bite. Some advertisements were obscene by any standards.

Formative

The first of the large temperance groups formed in New England in 1785 (Levine 1982) with many to follow. Though frequently plagued by bitter internal disputes, they managed in a cyclical fashion to shape policy (Aaron and Musto 1981). Fosdick and Scott (1933, p. 2) note the extremes in policy vacillation, such that Rhode Island, for example, "...swung from license to prohibition and back again three times in less than forty years."

By the middle of the 19th century the industry had begun to mount its own defense. Aaron and Musto (1981) discuss the formation of several trade groups and lobbies, including the "Personal Liberties League," designed specifically to combat anti-beverage legislation. Funding for these efforts was provided primarily from monies collected from retailers who, because of the extreme vertical integration of the industry, were primarily agents for the large brewers. In fact, bribery, graft, and blackmail throughout this system were used as a means of preserving the structure of distribution (Baird 1948; Byse 1940; Fosdick and Scott 1933). A state's public servants were frequently part of the problem, not of the cure, intensifying the need for a superior authority. In sum, quilted state legislation with poor enforcement could not control behavior in conflict with the changed mores toward consumption and frequently fostered a range of social ills. The growth in number and strength of interest groups made federal legislation a mandate.

THE "NOBLE EXPERIMENT" AND REPEAL

This section addresses two subdivisions on regulatory activity, the first of which solidified interest group power, and the second of which represents its reversal and accompanying agency growth.

Interest Group Solidification

The strength of the coalitions was expressed in several important Congressional acts preceding the 18th Amendment. The first of these, entitled the Webb-Kenyon Act (1913), prohibited interstate commerce in liquor into dry states in violation of a dry state's laws (Byse 1940). The second, the Reed Amendment (1917), federally prohibited interstate transport and commerce into states already prohibiting manufacture or sale of alcohol (Byse 1940; Kelly, Harbison, and Belz 1983; Carr 1940). Finally, in 1918, Congress removed liquor from production under the auspices of the Lever Act (Downard 1980; Kelly, Harbison, and Belz 1983) as a means of preserving food stuffs for the war effort.

The 18th Amendment to the U.S. Constitution, liquor prohibition, was designed to eliminate all manufacture of and commerce in alcoholic beverages over a specified proof of one-half of one percent. The law was instituted on January 16, 1920, and its failure as written has been well noted by scholars of virtually every discipline. Berkshire (1940, p. 559) perhaps sums up our national experience best in stating:

Repeal came about largely as a result of two outstanding considerations: disgust for prohibition and desire for revenue. Disgust for prohibition was justified. The desire of revenue was indispensable.

Attendant gambling, racketeering, organized crime, and citizens' revulsion at the protracted infringement of personal liberties "justified" revocation of the act. Oddly enough, an antiprohibition interest group was also a major force in the repeal. Established in 1920 and entitled the "Association Against the Prohibition Amendment," leaders of the group included the DuPonts and argued for repeal on largely economic grounds (Downard 1980).

Continuing prohibition became an issue in the 1928 Presidential election as well, but the temperance position (reflected in Hoover's policies) prevailed. It was indeed ironic that the nation's economic woes (in part attributed to his administration) contributed to the revival of demand for the substances. Repeal of the 18th Amendment was, in fact, among the issues immediately tackled by his successor, Franklin D. Roosevelt, and immediately approved by the Congress (Morison, Commager, and Leuchtenburg 1983). Thus, the 21st Amendment negated the 18th, providing only that transport into dry states in violation of that state's laws was prohibited. Ratification by the necessary states took less than ten months (December 5, 1933).

Agency Growth

The next few years were difficult administratively for producers, with formal guidance in its infancy. The Federal Alcohol Control Administration (FACA),formed in 1933 as a product of the National Industrial Recovery Act (O'Neill 1940; Lee 1948), contained the first efforts to regulate all phases of commerce in the products, including advertising. This was in place for the two-year period concluding in May of 1935, after the overriding NIRA was declared unconstitutional (Cooper 1979; Lee 1948; O'Neill 1940). Within a few months, Congress implemented new legislation, ultimately to be housed within the Treasury Department, where it has (under various names) stayed through today. Entitled the Federal Alcohol Administration Act (1935), the statute was designed with an eye to the elimination of practices in restraint of trade (e.g., tied-houses"), and as one contemporary critic opines, "...goes on to provide which at the time was (and, on paper, still is) one of the strictest consumer protection laws ever adopted by Congress" (Benson 1978, P. 164). Focusing discussion in committee was the concern for purity, and as Russell (1940) and Benson (1978, p. 165) record, lawmakers especially targeted advertising regulations toward the "prevention of deception of the consumer ... informing the consumer adequately."

The FAA came to important agreements with other government agencies during this period regarding matters of jurisdiction. Both the FDA and the FTC, as mentioned above, by statute held limited authority over product content and/or labeling and advertising (see Benson 1978; Gaguine 1939; Lee 1948; and Russell 1940), but each generally deferred to the FAA. The concern of legislators over the control of deceptive advertising practices was in part rooted in Supreme Court reversals of the FTC's authority in the area, a problem which would lead to expansion of its authority in 1938 (Lesch 1983). Also, the Federal Communications Commission (FCC) newly formed in 1934, had been spending no small amount of effort examining such practices (Ramey 1966), and it was an attempt at regulation of such infringements that had culminated in the first code of radio advertising of the NAB just prior to repeal of prohibition (Ramey 1966).

Advertising was to receive considerable attention from regulators (Russell 1940), with formal rules directed to truthfulness and amount of information. informally, the government agencies did all in their power to discourage radio advertising. The FCC served notice of this in 1934, and public interest group input resulted in Congressional debate on a bill to summarily prevent radio ads for liquor (Russell 1940; Thomas and Culver 1940). This was not successful, however, as regulators felt any combination of discussions among the FTC, FCC, FAA, and the radio industry would suffice. Gaguine (1939, pp. 960-961) has observed that the chief proponent of strong informal regulation may have been the FAA who warned that use of the medium "...is a potential avenue leading to the return of prohibition."

Accordingly, marketers focused retail advertising in print, though by provision of the Reed Act, these ads could not be "exported" to "dry" areas. While self-imposed bans avoided constitutional confrontation for broadcasters, publishers deleted such content and used disclaimers to stay within the law (Thomas and Culver 1940).

As a result of questions brought before it in the mid-1940's, however, the FCC was compelled to issue a report detailing its position on the subject in 1949 (Ramey 1966). Since licenses have always been allocated with the public interest, convenience, and necessity in mind (Ginsburg 1979; Pember 1984), the agency suggested a need to make response time available for temperance groups opposed to such products that may be advertised (beer).

Throughout the 1930's and 1940's, parallel to the growth of the malt industry (Keithahn 1978), interest groups exerted their influence in other tangible ways. All states (except Arizona) implemented statutes requiring schools to educate adolescents on harms of abuse (Roe 1942a, 1942b). A direct attempt at Prohibition-style legislation in the Congress failed, however, in 1941 (Rostow 1942), an indication of the swing in public attitudes.

While the 1950's brought challenges to brewers on "non-fattening'' campaign themes (Business Week 1955), the most serious issue faced in broadcasting resulted from a BATF ban on appearance by active sports celebrities (Westerman 1985). While the NAB reaffirmed its membership ban on broadcasting liquor ads in 1952, they were buoyed by the acceptance of ads by the Saturday Evening Post (Business Week 1958). At the behest of the trade association (DISCUS), women were allowed to appear in ads for the first time since Prohibition's end (Business Week 1958).

Interest groups reasserted pressure during the Congressional race of 1960, with polls conducted of political hopefuls including questions on a "bill to ban all liquor advertising in interstate commerce" (Advertising Age 1960, p. 2). Also, a bill was introduced (and dropped) which would have ended the tax deductibility of all advertising for alcoholic beverages (Advertising Age 1960). At least one law note addressed the first of these issues (constitutionality of an ad ban) and found support for the dominance of the 21st Amendment over any free speech issues (Lydick 1960). This problem has recently reappeared, as discussed below.

A summary of the period of repeal suggests that interest groups exercised considerably less power at the federal level and obtained comparatively marginal support among the states for their cause. The several government agencies established their respective authorities and preferred to rule by industrial self-rule, though they were on occasion responsive to the public interest pressures. As the industry continued to season, similar issues faced it.

THE INDUSTRIES MATURE:1960-1985

Economic observers had predicted the maturation of brewery and distilling industries by the close of the 1970's,while wine markets now also approach saturation (Beverage Industry Annual Manual 1983; Keithahn 1978; Newsweek Research Report 1976). Record expenditures have been recorded for advertising in all three.

This period of time has also registered as the most active in consumer terms. These expressions were injected into the alcoholic beverage industry at the earliest in the early 1970's concerning ingredient labeling for beer, wine, and spirits (Benson 1978; Cooper 1979), with the Center for Science in the Public Interest (CSPI) directing the cause. Following requests to the FDA and BATF, who disagreed over jurisdiction, no labeling rules emerged. The debate resumed in 1978 with new Senate hearings over warning labels (Committee on Human Resources 1978; Cooper 1979), but again, no changes in regulation resulted.

By the close of the 1970's a new lifestyle reflecting a health orientation was in full swing (Sherman 1985). As a result, a renewed level of public interest group activity has inundated state legislatures, and recently, the federal government. "Mothers Against Drunk Driving", the PTA, and numerous others have successfully lobbied to obtain tough liquor laws, "...over 360, mainly drunk-driving ... since 1981," (Sherman 1985, p. 2). The government, perhaps equally cognizant of what many refer to as the slaughter on the highways, has funded numerous alcohol/driving studies and implemented corrective programs (Levy, Voas, Johnson, and Klein 1978; "U.S. Department of HEW" 1978; Zador 1976). Likewise, the industry has responded with educational campaigns (Westerman 1984) and heavy expenditures ($50 million in 1984) for messages on moderation (Sherman 1985).

But basic social conflict remained. In November 1983 CSPI filed an omnibus petition with the FTC, in behalf of itself and some 28 other groups, seeking industry-wide investigation and rule-making on what were alleged to be deceptive and misleading practices in advertising by beer companies. The industry response was swift and negative, with one outgoing executive lamenting that "malt beverage wholesalers have never been attacked so aggressively or unfairly" (Bayles 1984, p. 15). Almost simultaneously, the President accepted a study-group recommendation for a uniform national raise in minimum drinking age to 21.

Before the FTC could deliver its findings, the Congress was mulling hearings (Hume 1984a, 1984b) and following testimony from expert witnesses. Considerable doubt was adduced concerning the advertising-abuse link (Westerman 1985). Concurrently, House Speaker O'Neill, President Reagan, and his aide Baker each positioned himself as opposed to a legislative ad ban and further indicated opposition to a modified ban of all sports celebrities (Colford 1985a, 1985b, 1985c). The final blow may have been struck with the FTC's issuance of the staff report and commissioners' decision in denial of the CSPI petition, where analysts (Levine, D'Amato, Poppe, and Keenen 1985) concluded that insufficient evidence existed to date linking advertising to abuse.

Can critics conclude that the ad ban is effectively tabled? Will public interest groups be content with no action here, or will additional pressures be brought to bear? Is there sufficient stability in the remainder of the system to preclude additional policy formation?

EPILOGUE

The overriding question in this instance is whether or not a state of equilibrium exists in the system; clearly it does not due to uncertainty surrounding the following issues.

First, opponents to industry advertising will not be satisfied with the present situation and seem to be actively pursuing alternatives. A bill introduced by a California Congressman (Brown) mimics one of an earlier day, calling for review of the non-taxable status of alcoholic beverage advertising (Colford 1985d). Also, attempts at state-level ad bans have been and continue to be sought; so far they have met no success (Advertising Age 1985 ).

An equally protracted avenue would be to invoke Fairness Doctrine privileges in response to issue(s) that may be raised by such product advertising. While such access is far from guaranteed (Edlavitch 1976), it does represent an outlet.

The courts too are playing a substantial role in this controversy. Recent 1st Amendment case law has reversed decades-old precedents and begun to afford all advertisers nearly full rights (Fuchsberg 1980). As well, recent liquor advertising cases in Oklahoma and Mississippi have struck down state and interstate bans on advertising, with emphasis on 1st Amendment supremacy to the 21st Amendment clause (Ito 1982 Loevinger 1984). New ground is being broken here, and advertisers stand to benefit tremendously as a result.

An additional and volatile issue remains. Distillers have sought and been denied the privilege to air on major networks their "PSA's" regarding alcohol content equivalency among kinds of beverages (Jervey 1985). Critics suggest the current ban controversy may persist or intensify when a "cooling off" period is allowed before this matter is further pursued. It continues to flare, as if distillers preferred it so.

In summary, advertising for these products seems destined to continue, with broadcasting available to beer and wine producers. Cable may shortly be available to the liquor industry. Public interest groups will likely continue their causes, attempting to shape the industry and the agencies that govern their behavior, albeit at a pace slower than they would prefer.

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----------------------------------------

Authors

William C. Lesch, Illinois State University



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SV - Historical Perspective in Consumer Research: National and International Perspectives | 1985



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