Entrepreneurs are evading regulations to bring you beer and marijuana cleanses. | Rosemarie Fike
This summer I’ve been enjoying a lot of microbrewery tours — even though the main attraction isn’t the “tour” I pay for, but the free beer that comes with it. In fact, the breweries must know that’s why people come. So why don’t they just drop this tour façade and sell us the beer?
Regardless of which brewery you visit, you pay a mere $10 for a pint glass with the brewery’s logo on it. As a thank you for purchasing the pint glass, they then grant three tickets you can redeem for free “samples” — which are actually full-sized beers.
There are also usually food vendors and live music. This atmosphere combined with the inexpensive libations draw sizeable crowds to these “tours” — where only a handful of patrons actually tour the facility.
But why do the breweries insist upon selling us the pint glasses, when most of us only really want what goes inside?
In conversation with the brewery owners, I learned that the breweries in my town aren’t legally allowed to sell beer directly to consumers in the way a bar can. But there’s nothing in the law preventing them from giving their product away.
In response to those incentives, they sell customers a pint glass (or charge them for the “tour”) and rent some of their property out to food vendors to subsidize the cost of getting their product into the hands of eager consumers without technically charging them for it.
It’s far from an ideal situation for these businesses, but it allows them to introduce new people to their product and to earn some revenue in the process — even if it’s less revenue than they could earn if they were allowed to just sell people the beer. It’s a clever arrangement, and a perfect example of evasive entrepreneurship.
Evasive entrepreneurship is when individuals develop innovative ways to circumvent laws and regulations to pursue profit. When the formal rules of a society make it costly for individuals to voluntarily exchange with one another, it is not surprising that individuals begin to invest time and resources in figuring out how to sidestep these laws.
As in the brewery tour example, evasive entrepreneurship sometimes provides us with delightful products or services that may never have existed or found their market in the absence of certain rules. The citizen’s band (CB) radio, for example, became widely employed as a means to avoid cops during the mid-1970s after a national speed limit of 55 mph was implemented in an attempt to manage the oil crisis.
The low speed limit reduced the incomes of individuals working in the trucking industry, as slower travel speeds meant truckers could accept fewer jobs. Truckers soon began to utilize CB radios to communicate with one another and inform each other of police locations along the highway. Even non-commercial drivers joined in on the CB radio trend.
Now, the CB radio had existed for decades prior to the implementation of the national maximum speed limit, but consumers didn’t have much of a use for them before the appearance of that law. And the radios’ popularity rapidly faded after that law was repealed.
The Pot-Concealment Industry
Similarly, the federal prohibition of marijuana use has resulted in a wide variety of products that exist solely to help consumers hide evidence of their illegal activities. Hollow books, fake soda cans, and other creative containers allow consumers and distributors to conceal the product.
Consumers can also purchase cleansing drinks and other products that promise to help them pass a drug test. Without the laws that render recreational pot consumption illegal, consumers would not be willing to pay much for any of these things.
In the midst of an economy with institutions that are otherwise sound, evasive entrepreneurial activities can help facilitate mutually beneficial transactions between consumers and producers that are made too costly by certain aspects of the legal and regulatory code.
But if a society has weak property rights or dysfunctional political institutions, evasive entrepreneurial activities may manifest in less pleasant ways. For example, in a country with a burdensome maze of red tape standing in the way of entrepreneurs who want to open a business, bribery might become prevalent to the point that bureaucrats expect bribes and are unwilling to do their jobs without them.
Organized crime syndicates are another example of evasive entrepreneurship that became possible because of alcohol and drug prohibition. Because producers of illegal products cannot rely on ordinary police officers, lawyers, and judges to protect their property rights, they must come up with alternative ways of ensuring that people who steal from them are punished in such a way that deters others from attempting to do the same.
So, instead of pressing charges against thieves and using the court system, mafias and drug cartels invest in violence. The more violent and frightening their reputation, the more hesitant people will be to steal from them in the future. Without the laws prohibiting drug transactions, there would be little need to resort to violence.
Even when evasive entrepreneurship is targeted toward productive activities, it’s still important that it directs scarce resources toward rule evasion instead of other, more highly valued activities.
All of the workers, machines, and raw materials that go into the production of unwanted pint glasses and items that help people pass drug tests could have been channeled toward other uses (like making more beer). While it’s easy to identify the things that exist because of evasive entrepreneurship, it’s impossible to know which things that would have been made instead in a freer world. We will never be able to know what those resources would have been used to create if they hadn’t been used to evade.
Article by Rosemarie Fike, Instructor of Economics at Texas Christian University. Originally published at www.learnliberty.org.