By Rahul V Kumar | September 12, 2016
The reason why prohibition as a political tool evokes curiosity is that it has historically proven to be unsuccessful. Whether it is the case of the 18th amendment of the US constitution or the silently thriving industry in the so-called dry state of Gujarat, prohibition of alcohol has not succeeded.So then why is it used time and again by our political representatives?
The immediate consequence of prohibition is that it creates artificial shortages, while demand remains. When demand exists, the market finds alternative routes to supply the product. The near-term consequence of this is that substitutes flock the market. Kerala is a good example of the unintended consequences of prohibition. Drug abuse is now a growing concern in the State.
Bihar’s prohibition gimmicks are worthy of analysis. The new law in the State attempts to impose collective responsibility to curb alcohol consumption. This is done by extending penalties on households or institutions if an individual associated with them consumes or stores alcohol. Apart from violating the Constitution, this law topples economic fundamentals.
Collective responsibility is rarely an incentive to dissuade people from performing an act. It is likely to create conflicts within the collective that faces legal action. On the economic side the assumption that collective responsibility through arbitrary laws will maximise individual welfare needs to be proved. Arbitrary laws as in the case of Bihar’s prohibition laws could indeed have unintended consequences as seen in the case of Kerala. Such laws demand a restructuring of institutions. This could have cost implications for organisations and financial and psychological implications for households. It also brings a lot of additional powers within the ambit of the State.
Prohibition creates a parallel growth of State power to indulge in determining what is right or wrong for individuals. There are seeming advantages for proponents of a growing welfare state in the first few stages of prohibition. State governments need to have greater power at their command to enforce prohibition. This could include strengthening police and law enforcement and the excise departments and a subsequent heightened vigil over individuals. That is probably the first stage.
However, beyond that, it erodes the existence of the state itself. Not only does imposing state power erode individual-state relations, it raises new issues when maintaining the new bureaucratic structure requires greater finance. Wile taxes from alcohol had served as a source of revenue earlier, it now becomes necessary to find alternative revenue sources following a ban.
Newer taxes or newer debts become crucial for the state to finance the growing bureaucracy. Even if we assume that the state dilutes its stand on alcohol at a future date, the power that it has vested on its bureaucracy tends to exist. This power which allows discretionary policies to flourish further.
The roots of it all
There was a time in history when alcohol was perceived to be the cause of all socioeconomic miseries. However, even following bans such miseries never ceased but rather seemed to aggravate. Do politicians really believe that banning alcohol could woo the voters when the opposite has been proved? What these questions reflect is the audacity of the state not to learn from past mistakes as against individuals who work forward through trial and error. The state can afford to make gargantuan mistakes and still survive, but the individual cannot.
The root cause of the problem highlighted by the prohibition issue is the growing distance between politics and economic logic. Most populist policies instigated by politicians lack any evaluation of its economic implications. It also begs the question on how this growing divide between political and economic concerns can be bridged. There are various ways in which this could be attempted. Most of it however demands increasing individual freedom in the system, with the government not obstructing market outcomes.
The writer is a research consultant at Centre for Public Policy Research, Kochi. Views expressed by the author is personal and does not represent that of the CPPR
This article was first published in The Hindu Business Line on 12th September 2016: Why prohibition makes no sense