In Defense of Nikos Ridge

What an obnoxious title. Yeah, that’s how Iron Horse does it. Or maybe that’s how I do it and I am trying to cover. More importantly, Nikos Ridge doesn’t need defense. He’s an articulate individual who runs a great business. And chances are you haven’t read his recent article and possibly don’t even know who he is. Have a read and come on back.

What I truly aim to do is support some of his arguments with arguments made by someone else. Now, you are probably thinking, ‘don’t you have any thoughts of your own Greg?’ Good question, but it’s irrelevant. Think about it, when someone is rambling on then suddenly breaks for a quote, inside your head you go, ‘ooh, better listen up, they are quoting someone who is smart’. I am bright enough to realize you probably feel that way about me. Honestly, at this point your best bet is to go read the article I intend to quote. If you did, and came back here, well, I’ll keep going.

Here is one thing craft does that MillerCoors and ABInBev does not do, employ lots of people. The craft beer industry is employing a growing number of Americans — 128,768 as of 2016. While over at the big guys, between 2002 and 2007, employment at breweries actually declined in the midst of an economic expansion.

A less-concentrated industry is good news, since monopoly power has been linked to lower wages.

Small breweries provide the kind of outlet for individual entrepreneurship and initiative that is often sorely lacking in today’s corporatized economy.

In other words, craft beer offers one small way in which an enterprising, hard-working individual can bootstrap themselves to the middle- or upper-middle-class and accumulate some capital, without moving to the big city or getting a degree from a top school.

I must be honest, to a fair degree, this describes the Iron Horse story. While I started with a fair amount of advantage, like coming from a middle class family, it was enterprising, hard work by me and a few others in a small town that got Iron Horse to where it is. I have no degree, nor does my dad and Ross’ is in English so that tells you all you need to know. Our story is not unique, there are plenty of other brewers that follow this same trajectory.

So let’s review, small producers employ more people (who knew inefficiency would become a good thing?), at better wages, and we unleash creativity in support of a greater accumulation of wealth in the middle and upper middle class.

Sorry Pete Coors, true craft and your brethren are different and one is better for the country.

So here is where I take it a little further than just a defense of Nikos and a critique of Pete Coors. What has been good for craft beer and thereby the country, could also, Noah Smith argues, be a way to help other healthy middle class industries grow and thrive. I tend to agree.
What’s unique about the craft beer and alcohol industry at-large are the post-prohibition protections put into law.

In the early 20th century, alcohol producers owned or subsidized many bars and saloons. At the end of Prohibition, lawmakers felt that smashing these vertical monopolies was critical to promoting safe drinking. This led to a “three-tier system” in which producers (tier one) sold to independent middlemen that were wholesalers or distributors (tier two), who then sold to retailers (tier three). By dividing the liquor business into three distinct groups, these state-by-state rules made the alcohol industry deliberately inefficient and hard to monopolize.

For example in Washington, the middle tier, which is comprised by the beer wholesalers, is the structural necessity that provided access to the market for small producers like Iron Horse. If ABInBev owned the distribution network you can be sure that there would have been no interest in distributing independently made beer.

Further, on the benefits of smaller producers taking market share:

The economy gains little from having companies like General Mills and Pepsi dominate the shelves, and small farmers, food processors, and drink makers seem fully capable of providing a more interesting, high-quality selection.

And

There are other industries where the craft approach could work — furniture, perhaps, or other household goods. In these markets, governments should consider policies that allow small craft brands to outcompete large producers.

The ban on money’s-worth exchange is a great example of the type of regulation that creates a playing field on which small producers can compete. What this means is that anything that a bar, restaurant or grocery store would otherwise have to pay for cannot be provided by an alcohol producer. This prevents the major producers from basically owning the shelf space. Need an example of what’s offered when there is no ban on money, or money’s-worth exchange, look at the chip or soda aisle in a major grocery store. I’m shooting from the hip here but I would gamble that 90% of the shelf space is dedicated to 4 companies.

While we generally try to stay away from politics; we aren’t captains of industry, hedge fund managers, fortune 500 CEOs, or part of the 1% and we figure 99% of our customers aren’t either, so therefore putting some good words in for pro-small business legislation is a small risk and one worth taking in the interest of creating a richer dialog on how to make the american economy of the future work for more people.

Here’s a podcast where we talk about this subject because independent beer is important.

 

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