Saturday, December 1, 2012
Monday, November 26, 2012
The Osama bin Laden Myth
If you need a scapegoat, blame an Arab and then make such war on them as to last many decades until there is nothing left worth fighting for. This is our future. By electing the same types of people for every election cycle, we've doomed our future and our children's lives to perpetual death and destruction. There are days when I wish to a god I don't believe in that the Mayans were right. Wipe the slate clean, see what other species can evolve to fuck everything up in a couple million years.--jef
November 26, 2012 |Paul C Roberts
The interview below with Osama bin Laden was conducted by the Karachi, Pakistan, daily newspaper, Ummat and published on September 28, 2001, 17 days after the alleged, but unsubstantiated, al Qaeda attack of September 11, 2001, on the World Trade Center twin towers and Pentagon. The interview was sensational. The alleged “mastermind” of 9/11 said that he and al Qaeda had nothing to do with the 9/11 attack. The British Broadcasting Corporation’s World Monitoring Service had the interview translated into English and made public on September 29, 2001.
Osama bin Laden’s sensational denial was not reported by the US print and TV media. It was not investigated by the executive branch. No one in the US Congress called attention to bin Laden’s refusal of responsibility for the greatest humiliation ever inflicted on a superpower.
To check my memory of the lack of coverage, I googled “Osama bin Laden’s interview denying responsibility for 9/11.” Some Internet sites reproduced the interview, but the only mainstream news source that I found was a 1 minute YouTube video from CNN in which the anchor, after quoting an al Jazeera report of bin Laden’s denial, concludes that “we can all weigh that in the scale of credibility and come to our own conclusions.” In other words, bin Laden had already been demonized, and his denial was not credible.
The sensational news was unfit for US citizens and was withheld from them by the american “free press,” a press free to lie for the government but not to tell the truth.
Obviously, if bin Laden had outwitted not only the National Security Agency, the CIA, the Defense Intelligence Agency, and the FBI, but also all 16 US intelligence agencies, all intelligence agencies of Washington’s NATO puppet states, Israel’s Mossad, and in addition the National Security Council, NORAD, US air traffic control, and airport security four times on the same morning, it would be the greatest feat in world history, a movement building feat that would have made al Qaeda the most successful anti-imperialist organization in human history, an extraordinary victory over “the great satan” that would have brought millions of new recruits into al Qaeda’s ranks. Yet the alleged “mastermind” denied all responsibility.
I remember decades ago when a terrorist attack occurred in Europe, whether real or an Operation Gladio http://en.wikipedia.org/wiki/Operation_Gladio false flag attack, innumerable organizations would claim credit. Perhaps this was the CIA’s way of diverting attention from itself, but it illustrates that every intelligence service understands the value to an organization of claiming credit for a successful attack.Although bin Laden denied responsibility, in 2011 some al Qaeda leaders, realizing the prestige value of the 9/11 attack, claimed credit for the attack and criticized Iranian President Ahmadinejad for questioning the official US story.
Although only a few Americans are aware of the September 28, 2001 interview in which bin Laden states his non-involvement with the 9/11 attacks, many Americans have seen post-2001 videos in which a person alleged to be bin Laden takes credit for the attacks. There are two problems with these videos. Experts have examined them and found them to be fakes, and all of the videos appeared after bin Laden was reported by the Pakistan Observer, the Egyptian press, and Fox News to have died in mid-December, 2001, from lung disease. http://www.foxnews.com/story/0,2933,41576,00.html See also http://www.legitgov.org/News-Bin-Ladens-Death-and-Funeral-December-2001
Bin Laden also suffered from kidney disease. According to a CBS news report on January 28, 2002, Osama bin Laden was hospitalized for dialysis treatment in the Pakistani military hospital in Rawalpindi on September 10, 2001, the day before 9/11. http://www.globalresearch.ca/where-was-osama-on-september-11-2001/3194
Obviously, a man suffering from terminal lung and kidney disease did not survive for another decade to be murdered by a US Navy SEAL team in Abbottabad. A Pakistani TV interview with the neighbor of the alleged “bin Laden compound” exposed the assassination hoax. This sensational interview also went unreported by america’s “free press.” I had the interview translated, and it is available here:
http://www.globalresearch.ca/pakistan-tv-report-contradicts-us-claim-of-bin-laden-s-death/25915 See also http://www.bbc.co.uk/news/world-south-asia-13329078
Shortly after the alleged assassination 30 members of the SEAL unit died in a mysterious helicopter crash in Afghanistan, and now we learn that not a single one of the thousands of sailors on the aircraft carrier, the USS Carl Vinson, witnessed bin Laden’s alleged burial at sea from that ship. The press reports with a straight face that for unexplained reasons it was kept secret from the ship’s sailors. This is supposed to be the explanation of the sailors’ emails reporting to family and friends that they witnessed no burial at sea. Some speculate that the SEALs were bumped off before their questions to one another, “Were you on that raid?,” reached outside the unit. Apparently, it doesn’t strike the media or the public as strange that the US government captured and killed the terror mastermind without interrogating him and without keeping any evidence or presenting any witnesses to support the assassination claim.
Adolf Hitler claimed that communists burned down the Reichstag and that Polish troops had crossed the frontier and attacked Germany. With 9/11 americans experienced Washington’s version of these grand lies. An omniscient bin Laden dying from terminal illnesses in distant Afghanistan defeated the American National Security State and drove his attack through the walls of the Pentagon itself, requiring for our defense a “war on terror” that destroyed US civil liberties and financially ruined the country in order to prevent the triumph of a man who died of natural causes in December 2001.
On May 9, 2011, Professor Michel Chossudovsky republished the September 28, 2001, Osama bin Laden interview in Global Research.
Interview with Osama bin Laden. Osama Denies his Involvement in 9/11
By Global Research
Global Research, May 09, 2011
Url of this article:
http://www.globalresearch.ca/interview-with-osama-bin-laden-denies-his-involvement-in-9-11/24697
Global Research Editor’s Note
Full text of September 2001 Pakistani paper’s “exclusive” interview with Usamah Bin-Ladin
Ummat (in Urdu), Karachi, 28 September 2001, pp. 1 and 7. http://ummatpublication.com/2012/11/25/
Ummat’s introduction
Kabul: Prominent Arab mojahed holy warrior Usamah Bin-Ladin has said that he or his al-Qa’idah group has nothing to do with the 11 September suicidal attacks in Washington and New York. He said the US government should find the attackers within the country. In an exclusive interview with daily “Ummat”, he said these attacks could be the act of those who are part of the American system and are rebelling against it and working for some other system. Or, Usamah said, this could be the act of those who want to make the current century a century of conflict between Islam and Christianity. Or, the American Jews, who are opposed to President Bush ever since the Florida elections, might be the masterminds of this act. There is also a great possibility of the involvement of US intelligence agencies, which need billions of dollars worth of funds every year. He said there is a government within the government in the United States.
The secret agencies, he said, should be asked as to who are behind the attacks. Usamah said support for attack on Afghanistan was a matter of need for some Muslim countries and compulsion for others. However, he said, he was thankful to the courageous people of Pakistan who erected a bulwark before the wrong forces. He added that the Islamic world was attaching great expectations with Pakistan and, in time of need, “we will protect this bulwark by sacrificing of lives”.
Following is the interview in full detail:
~~~~~~~~~++~~~~~~~~~~
November 26, 2012 |Paul C Roberts
The interview below with Osama bin Laden was conducted by the Karachi, Pakistan, daily newspaper, Ummat and published on September 28, 2001, 17 days after the alleged, but unsubstantiated, al Qaeda attack of September 11, 2001, on the World Trade Center twin towers and Pentagon. The interview was sensational. The alleged “mastermind” of 9/11 said that he and al Qaeda had nothing to do with the 9/11 attack. The British Broadcasting Corporation’s World Monitoring Service had the interview translated into English and made public on September 29, 2001.
Osama bin Laden’s sensational denial was not reported by the US print and TV media. It was not investigated by the executive branch. No one in the US Congress called attention to bin Laden’s refusal of responsibility for the greatest humiliation ever inflicted on a superpower.
To check my memory of the lack of coverage, I googled “Osama bin Laden’s interview denying responsibility for 9/11.” Some Internet sites reproduced the interview, but the only mainstream news source that I found was a 1 minute YouTube video from CNN in which the anchor, after quoting an al Jazeera report of bin Laden’s denial, concludes that “we can all weigh that in the scale of credibility and come to our own conclusions.” In other words, bin Laden had already been demonized, and his denial was not credible.
The sensational news was unfit for US citizens and was withheld from them by the american “free press,” a press free to lie for the government but not to tell the truth.
Obviously, if bin Laden had outwitted not only the National Security Agency, the CIA, the Defense Intelligence Agency, and the FBI, but also all 16 US intelligence agencies, all intelligence agencies of Washington’s NATO puppet states, Israel’s Mossad, and in addition the National Security Council, NORAD, US air traffic control, and airport security four times on the same morning, it would be the greatest feat in world history, a movement building feat that would have made al Qaeda the most successful anti-imperialist organization in human history, an extraordinary victory over “the great satan” that would have brought millions of new recruits into al Qaeda’s ranks. Yet the alleged “mastermind” denied all responsibility.
I remember decades ago when a terrorist attack occurred in Europe, whether real or an Operation Gladio http://en.wikipedia.org/wiki/Operation_Gladio false flag attack, innumerable organizations would claim credit. Perhaps this was the CIA’s way of diverting attention from itself, but it illustrates that every intelligence service understands the value to an organization of claiming credit for a successful attack.Although bin Laden denied responsibility, in 2011 some al Qaeda leaders, realizing the prestige value of the 9/11 attack, claimed credit for the attack and criticized Iranian President Ahmadinejad for questioning the official US story.
Although only a few Americans are aware of the September 28, 2001 interview in which bin Laden states his non-involvement with the 9/11 attacks, many Americans have seen post-2001 videos in which a person alleged to be bin Laden takes credit for the attacks. There are two problems with these videos. Experts have examined them and found them to be fakes, and all of the videos appeared after bin Laden was reported by the Pakistan Observer, the Egyptian press, and Fox News to have died in mid-December, 2001, from lung disease. http://www.foxnews.com/story/0,2933,41576,00.html See also http://www.legitgov.org/News-Bin-Ladens-Death-and-Funeral-December-2001
Bin Laden also suffered from kidney disease. According to a CBS news report on January 28, 2002, Osama bin Laden was hospitalized for dialysis treatment in the Pakistani military hospital in Rawalpindi on September 10, 2001, the day before 9/11. http://www.globalresearch.ca/where-was-osama-on-september-11-2001/3194
Obviously, a man suffering from terminal lung and kidney disease did not survive for another decade to be murdered by a US Navy SEAL team in Abbottabad. A Pakistani TV interview with the neighbor of the alleged “bin Laden compound” exposed the assassination hoax. This sensational interview also went unreported by america’s “free press.” I had the interview translated, and it is available here:
http://www.globalresearch.ca/pakistan-tv-report-contradicts-us-claim-of-bin-laden-s-death/25915 See also http://www.bbc.co.uk/news/world-south-asia-13329078
Shortly after the alleged assassination 30 members of the SEAL unit died in a mysterious helicopter crash in Afghanistan, and now we learn that not a single one of the thousands of sailors on the aircraft carrier, the USS Carl Vinson, witnessed bin Laden’s alleged burial at sea from that ship. The press reports with a straight face that for unexplained reasons it was kept secret from the ship’s sailors. This is supposed to be the explanation of the sailors’ emails reporting to family and friends that they witnessed no burial at sea. Some speculate that the SEALs were bumped off before their questions to one another, “Were you on that raid?,” reached outside the unit. Apparently, it doesn’t strike the media or the public as strange that the US government captured and killed the terror mastermind without interrogating him and without keeping any evidence or presenting any witnesses to support the assassination claim.
Adolf Hitler claimed that communists burned down the Reichstag and that Polish troops had crossed the frontier and attacked Germany. With 9/11 americans experienced Washington’s version of these grand lies. An omniscient bin Laden dying from terminal illnesses in distant Afghanistan defeated the American National Security State and drove his attack through the walls of the Pentagon itself, requiring for our defense a “war on terror” that destroyed US civil liberties and financially ruined the country in order to prevent the triumph of a man who died of natural causes in December 2001.
On May 9, 2011, Professor Michel Chossudovsky republished the September 28, 2001, Osama bin Laden interview in Global Research.
Interview with Osama bin Laden. Osama Denies his Involvement in 9/11
By Global Research
Global Research, May 09, 2011
Url of this article:
http://www.globalresearch.ca/interview-with-osama-bin-laden-denies-his-involvement-in-9-11/24697
Global Research Editor’s Note
We bring to the attention of our readers the following text of Osama bin Laden’s interview with Ummat, a Pakistani daily, published in Karachi on September 28, 2001. It was translated into English by the BBC World Monitoring Service and made public on September 29, 2001.
The authenticity of this interview, which is available in recognized electronic news archives, is confirmed.
Osama bin Laden categorically denies his involvement in the 9/11 attacks.
Bin Laden’s statements in this interview are markedly different from those made in the alleged Osama video tapes.
In this interview, Osama bin Laden exhibits an understanding of US foreign policy. He expresses his views regarding the loss of life on 9/11. He also makes statements as to who, in his opinion, might be the likely perpetrator of the September 11 attacks.
This is an important text which has not been brought to the attention of Western public opinion.
We have highlighted key sections of this interview. It is our hope that the text of this interview, published barely a week before the onset of the war on Afghanistan, will contribute to a better understanding of the history of Al Qaeda, the role of Osama bin Laden and the tragic events of September 11, 2001.
Michel Chossudovsky, May 9, 2011
Full text of September 2001 Pakistani paper’s “exclusive” interview with Usamah Bin-Ladin
Ummat (in Urdu), Karachi, 28 September 2001, pp. 1 and 7. http://ummatpublication.com/2012/11/25/
Ummat’s introduction
Kabul: Prominent Arab mojahed holy warrior Usamah Bin-Ladin has said that he or his al-Qa’idah group has nothing to do with the 11 September suicidal attacks in Washington and New York. He said the US government should find the attackers within the country. In an exclusive interview with daily “Ummat”, he said these attacks could be the act of those who are part of the American system and are rebelling against it and working for some other system. Or, Usamah said, this could be the act of those who want to make the current century a century of conflict between Islam and Christianity. Or, the American Jews, who are opposed to President Bush ever since the Florida elections, might be the masterminds of this act. There is also a great possibility of the involvement of US intelligence agencies, which need billions of dollars worth of funds every year. He said there is a government within the government in the United States.
The secret agencies, he said, should be asked as to who are behind the attacks. Usamah said support for attack on Afghanistan was a matter of need for some Muslim countries and compulsion for others. However, he said, he was thankful to the courageous people of Pakistan who erected a bulwark before the wrong forces. He added that the Islamic world was attaching great expectations with Pakistan and, in time of need, “we will protect this bulwark by sacrificing of lives”.
Following is the interview in full detail:
Ummat: You have been accused of involvement in the attacks in New York and Washington. What do you want to say about this? If you are not involved, who might be?
Usamah [Osama bin Laden]: In the name of Allah, the most beneficent, the most merciful. Praise be to Allah, Who is the creator of the whole universe and Who made the earth as an abode for peace, for the whole mankind. Allah is the Sustainer, who sent Prophet Muhammad for our guidance. I am thankful to the Ummat Group of Publications, which gave me the opportunity to convey my viewpoint to the people, particularly the valiant and true Muslim people of Pakistan who refused to believe in lie of the demon.
I have already said that I am not involved in the 11 September attacks in the United States. As a Muslim, I try my best to avoid telling a lie. I had no knowledge of these attacks, nor do I consider the killing of innocent women, children, and other humans as an appreciable act. Islam strictly forbids causing harm to innocent women, children, and other people.
Such a practice is forbidden ever in the course of a battle. It is the United States, which is perpetrating every maltreatment on women, children, and common people of other faiths, particularly the followers of Islam. All that is going on in Palestine for the last 11 months is sufficient to call the wrath of God upon the United States and Israel.
There is also a warning for those Muslim countries, which witnessed all these as a silent spectator. What had earlier been done to the innocent people of Iraq, Chechnya, and Bosnia?
Only one conclusion could be derived from the indifference of the United States and the West to these acts of terror and the patronage of the tyrants by these powers that America is an anti-Islamic power and it is patronizing the anti-Islamic forces. Its friendship with the Muslim countries is just a show, rather deceit. By enticing or intimidating these countries, the United States is forcing them to play a role of its choice. Put a glance all around and you will see that the slaves of the United States are either rulers or enemies of Muslims.
The US has no friends, nor does it want to keep any because the prerequisite of friendship is to come to the level of the friend or consider him at par with you. America does not want to see anyone equal to it. It expects slavery from others. Therefore, other countries are either its slaves or subordinates.
However, our case is different. We have pledged slavery to God Almighty alone and after this pledge there is no possibility to become the slave of someone else. If we do that, it will be disregardful to both our Sustainer and his fellow beings. Most of the world nations upholding their freedom are the religious ones, which are the enemies of United States, or the latter itself considers them as its enemies. Or the countries, which do not agree to become its slaves, such as China, Iran, Libya, Cuba, Syria, and the former Russia as received.
Whoever committed the act of 11 September are not the friends of the American people. I have already said that we are against the American system, not against its people, whereas in these attacks, the common American people have been killed.
According to my information, the death toll is much higher than what the US government has stated. But the Bush administration does not want the panic to spread. The United States should try to trace the perpetrators of these attacks within itself; the people who are a part of the US system, but are dissenting against it. Or those who are working for some other system; persons who want to make the present century as a century of conflict between Islam and Christianity so that their own civilization, nation, country, or ideology could survive. They can be any one, from Russia to Israel and from India to Serbia. In the US itself, there are dozens of well-organized and well-equipped groups, which are capable of causing a large-scale destruction. Then you cannot forget the American Jews, who are annoyed with President Bush ever since the elections in Florida and want to avenge him.
Then there are intelligence agencies in the US, which require billions of dollars worth of funds from the Congress and the government every year. This funding issue was not a big problem till the existence of the former Soviet Union but after that the budget of these agencies has been in danger.
They needed an enemy. So, they first started propaganda against Usamah and Taleban and then this incident happened. You see, the Bush administration approved a budget of 40bn dollars. Where will this huge amount go? It will be provided to the same agencies, which need huge funds and want to exert their importance.
Now they will spend the money for their expansion and for increasing their importance. I will give you an example. Drug smugglers from all over the world are in contact with the US secret agencies. These agencies do not want to eradicate narcotics cultivation and trafficking because their importance will be diminished. The people in the US Drug Enforcement Department are encouraging drug trade so that they could show performance and get millions of dollars worth of budget. General Noriega was made a drug baron by the CIA and, in need, he was made a scapegoat. In the same way, whether it is President Bush or any other US president, they cannot bring Israel to justice for its human rights abuses or to hold it accountable for such crimes. What is this? Is it not that there exists a government within the government in the United Sates? That secret government must be asked as to who made the attacks.
Ummat: A number of world countries have joined the call of the United States for launching an attack on Afghanistan. These also include a number of Muslim countries. Will Al-Qa’idah declare a jihad against these countries as well?
Usamah: I must say that my duty is just to awaken the Muslims; to tell them as to what is good for them and what is not. What does Islam says and what the enemies of Islam want?
Al-Qa’idah was set up to wage a jihad against infidelity, particularly to encounter the onslaught of the infidel countries against the Islamic states. Jihad is the sixth undeclared element of Islam. The first five being the basic holy words of Islam, prayers, fast, pilgrimage to Mecca, and giving alms Every anti-Islamic person is afraid of it. Al-Qa’idah wants to keep this element alive and active and make it part of the daily life of the Muslims. It wants to give it the status of worship. We are not against any Islamic country nor we consider a war against an Islamic country as jihad.
We are in favour of armed jihad only against those infidel countries, which are killing innocent Muslim men, women, and children just because they are Muslims. Supporting the US act is the need of some Muslim countries and the compulsion of others. However, they should think as to what will remain of their religious and moral position if they support the attack of the Christians and the Jews on a Muslim country like Afghanistan. The orders of Islamic shari’ah jurisprudence for such individuals, organizations, and countries are clear and all the scholars of the Muslim brotherhood are unanimous on them. We will do the same, which is being ordered by the Amir ol-Momenin the commander of the faithful Mola Omar and the Islamic scholars. The hearts of the people of Muslim countries are beating with the call of jihad. We are grateful to them.
Ummat: The losses caused in the attacks in New York and Washington have proved that giving an economic blow to the US is not too difficult. US experts admit that a few more such attacks can bring down the American economy. Why is al-Qa’idah not targeting their economic pillars?
Usamah: I have already said that we are not hostile to the United States. We are against the system, which makes other nations slaves of the United States, or forces them to mortgage their political and economic freedom. This system is totally in control of the American Jews, whose first priority is Israel, not the United States. It is simply that the American people are themselves the slaves of the Jews and are forced to live according to the principles and laws laid by them. So, the punishment should reach Israel. In fact, it is Israel, which is giving a blood bath to innocent Muslims and the US is not uttering a single word.
Ummat: Why is harm not caused to the enemies of Islam through other means, apart from the armed struggle? For instance, inciting the Muslims to boycott Western products, banks, shipping lines, and TV channels.
Usamah: The first thing is that Western products could only be boycotted when the Muslim fraternity is fully awakened and organized. Secondly, the Muslim companies should become self-sufficient in producing goods equal to the products of Western companies. Economic boycott of the West is not possible unless economic self-sufficiency is attained and substitute products are brought out. You see that wealth is scattered all across the Muslim world but not a single TV channel has been acquired which can preach Islamic injunctions according to modern requirements and attain an international influence. Muslim traders and philanthropists should make it a point that if the weapon of public opinion is to be used, it is to be kept in the hand. Today’s world is of public opinion and the fates of nations are determined through its pressure. Once the tools for building public opinion are obtained, everything that you asked for can be done.
Ummat: The entire propaganda about your struggle has so far been made by the Western media. But no information is being received from your sources about the network of Al-Qa’idah and its jihadi successes. Would you comment?
Usamah: In fact, the Western media is left with nothing else. It has no other theme to survive for a long time. Then we have many other things to do. The struggle for jihad and the successes are for the sake of Allah and not to annoy His bondsmen. Our silence is our real propaganda. Rejections, explanations, or corrigendum only waste your time and through them, the enemy wants you to engage in things which are not of use to you. These things are pulling you away from your cause.
The Western media is unleashing such a baseless propaganda, which make us surprise but it reflects on what is in their hearts and gradually they themselves become captive of this propaganda. They become afraid of it and begin to cause harm to themselves. Terror is the most dreaded weapon in modern age and the Western media is mercilessly using it against its own people. It can add fear and helplessness in the psyche of the people of Europe and the United States. It means that what the enemies of the United States cannot do, its media is doing that. You can understand as to what will be the performance of the nation in a war, which suffers from fear and helplessness.
Ummat: What will the impact of the freeze of al-Qa’idah accounts by the US?
Usamah: God opens up ways for those who work for Him. Freezing of accounts will not make any difference for Al-Qa’idah or other jihad groups. With the grace of Allah, al-Qa’idah has more than three such alternative financial systems, which are all separate and totally independent from each other. This system is operating under the patronage of those who love jihad. What to say of the United States, even the combined world cannot budge these people from their path.
These people are not in hundreds but in thousands and millions. Al-Qa’idah comprises of such modern educated youths who are aware of the cracks inside the Western financial system as they are aware of the lines in their hands. These are the very flaws of the Western fiscal system, which are becoming a noose for it and this system could not recuperate in spite of the passage of so many days.
Ummat: Are there other safe areas other than Afghanistan, where you can continue jihad?
Usamah: There are areas in all parts of the world where strong jihadi forces are present, from Indonesia to Algeria, from Kabul to Chechnya, from Bosnia to Sudan, and from Burma to Kashmir. Then it is not the problem of my person. I am helpless fellowman of God, constantly in the fear of my accountability before God. It is not the question of Usamah but of Islam and, in Islam too, of jihad. Thanks to God, those waging a jihad can walk today with their heads raised. Jihad was still present when there was no Usamah and it will remain as such even when Usamah is no longer there. Allah opens up ways and creates loves in the hearts of people for those who walk on the path of Allah with their lives, property, and children. Believe it, through jihad, a man gets everything he desires. And the biggest desire of a Muslim is the after life. Martyrdom is the shortest way of attaining an eternal life.
Ummat: What do you say about the Pakistan government policy on Afghanistan attack?
Usamah: We are thankful to the Momin and valiant people of Pakistan who erected a blockade in front of the wrong forces and stood in the first file of battle. Pakistan is a great hope for the Islamic brotherhood. Its people are awakened, organized, and rich in the spirit of faith. They backed Afghanistan in its war against the Soviet Union and extended every help to the mojahedin and the Afghan people. Then these are very Pakistanis who are standing shoulder by shoulder with the Taleban. If such people emerge in just two countries, the domination of the West will diminish in a matter of days. Our hearts beat with Pakistan and, God forbid, if a difficult time comes we will protect it with our blood. Pakistan is sacred for us like a place of worship. We are the people of jihad and fighting for the defence of Pakistan is the best of all jihads to us. It does not matter for us as to who rules Pakistan. The important thing is that the spirit of jihad is alive and stronger in the hearts of the Pakistani people.
Sunday, November 25, 2012
The Alcohol Industry's Plan to Give America a Giant Drinking Problem
Industry giants are threatening to swallow up America's carefully regulated alcohol industry, and remake America in the image of booze-soaked Britain.
By Tim Heffernan
November 24, 2012 | Washington Monthly
England has a drinking problem. Since 1990, teenage alcohol consumption has doubled. Since World War II, alcohol intake for the population as a whole has doubled, with a third of that increase occurring since just 1995. The United Kingdom has very high rates of binge and heavy drinking, with the average Brit consuming the equivalent of nearly ten liters of pure ethanol per year.
It’s apparent in their hospitals, where since the 1970s rates of cirrhosis and other liver diseases among the middle-aged have increased by eightfold for men and sevenfold for women. And it’s apparent in their streets, where the carousing, violent “lager lout” is as much a symbol of modern Britain as Adele, Andy Murray, and the London Eye. Busting a bottle across someone’s face in a bar is a bona fide cultural phenomenon—so notorious that it has its own slang term, “glassing,” and so common that at one point the Manchester police called for bottles and beer mugs to be replaced with more shatter-resistant material. In every detail but the style of dress, the alleys of London on a typical Saturday night look like the scenes in William Hogarth’s famous pro-temperance print Gin Lane. It was released in 1751.
The United States, although no stranger to alcohol abuse problems, is in comparatively better shape. A third of the country does not drink, and teenage drinking is at a historic low. The rate of alcohol use among seniors in high school has fallen 25 percentage points since 1980. Glassing is something that happens in movies, not at the corner bar.
Why has the United States, so similar to Great Britain in everything from language to pop culture trends, managed to avoid the huge spike of alcohol abuse that has gripped the UK? The reasons are many, but one stands out above all: the market in Great Britain is rigged to foster excessive alcohol consumption in ways it is not in the United States—at least not yet.
Monopolistic enterprises control the flow of drink in England at every step—starting with the breweries and distilleries where it’s produced and down the channels through which it reaches consumers in pubs and supermarkets. These vertically integrated monopolies are very “efficient” in the economist’s sense, in that they do a very good job of minimizing the price and thereby maximizing the consumption of alcohol.
The United States, too, has seen vast consolidation of its alcohol industry, but as of yet, not the kind of complete vertical integration seen in the UK. One big reason is a little-known legacy of our experience with Prohibition. From civics class, you may remember that the 21st Amendment to the Constitution formally ended Prohibition in 1933. But while the amendment made it once again legal to sell and produce alcohol, it also contained a measure designed to ensure that America would never again have the horrible drinking problem it had before, which led to the passage of Prohibition in the first place.
Specifically, the 21st Amendment grants state and local governments express power to regulate liquor sales within their own borders. Thus, the existence of dry counties and blue laws; of states where liquor is only retailed in government-run stores, as in New Hampshire; and of states like Arkansas where you can buy booze in drive-through liquor marts. More significantly, state and local regulation also extends to the wholesale distribution of liquor, creating a further barrier to the kind of vertical monopolies that dominated the United States before Prohibition and are now wreaking havoc in Britain.
Since the repeal of Prohibition, such constraints on vertical integration in the liquor business have also been backed by federal law, which, as it’s interpreted by most states, requires that the alcohol industry be organized according to the so-called three-tier system. The idea is that brewers and distillers, the first tier, have to distribute their product through independent wholesalers, the second tier. And wholesalers, in turn, have to sell only to retailers, the third tier, and not directly to the public. By deliberately hindering economies of scale and protecting middlemen in the booze business, America’s system of regulation was designed to be willfully inefficient, thereby making the cost of producing, distributing, and retailing alcohol higher than it would otherwise be and checking the political power of the industry.
When these laws were passed, America was a century closer to its English roots, and lawmakers remembered very clearly the effects that a vertically integrated alcohol industry had on pre-Prohibition America (and that it still has in the UK today). In the 1920s, Americans had learned the hard way that flat out banning drinking empowered the likes of Al Capone and was, on balance, unworkable. But it made no sense either to go back to the world of pre-Prohibition America, in which big, politically powerful liquor producers owned their own saloons and were therefore free to pour cheap booze into communities coast to coast, sweetening the doses with enticements ranging from rebates on drinks to cash loans, and frequently tolerating in-bar gambling and prostitution.
And so, for eighty years, the kind of vertical integration seen in pre-Prohibition America has not existed in the U.S. But now, that’s beginning to change. The careful balance that has governed liquor laws in the U.S. since the repeal of Prohibition is under assault in ways few Americans are remotely aware of. Over the last few years, two giant companies—Anheuser-Busch InBev and MillerCoors, which together control 80 percent of beer sales in the United States—have been working, along with giant retailers, led by Costco, to undermine the existing system in the name of efficiency and low prices. If they succeed, America’s alcohol market will begin to look a lot more like England’s: a vertically integrated pipeline for cheap drink, flooding the gutters of our own Gin Lane.
Amoment’s thought makes it obvious that alcohol is different from, say, apples. Apples don’t form addicts. Apples don’t foster disease. Society doesn’t bear the cost of excessive apple consumption. Society does bear the cost of alcoholism, drink-related illness, and drunken violence and crime. The fact that alcohol is habit forming and life threatening among a substantial share of those who use it (and kills or damages the lives of many who don’t) means that a market for it inevitably imposes steep costs on society.
It was the recognition of this plain truth that led post-Prohibition America to regulate the alcohol market as a rancher might fetter a horse—letting it roam freely within certain confines, neither as far nor as fast as it might choose.
The UK, by contrast, spent most of the last eighty years fussing with the barn door while the beast ran wild. It made sure that every pub closed at the appointed hour, that every glass of ale contained a full Queen’s pint, that every dram of whiskey was doled out in increments precise to the milliliter—and simultaneously allowed the industry to adopt virtually any tactic that could get more young people to start drinking and keep at it throughout their lives. It is no coincidence that one of the first major studies to prompt a shift in Britain’s approach to liquor regulation, published in 2003, is titled Alcohol: No Ordinary Commodity.
The UK’s modern drinking problem started appearing in the years following World War II. Some of the developments were natural. Peace reigned; people wanted to have fun again; there was an understandable push toward relaxing wartime restrictions and loosening puritan attitudes left over from the more temperance-minded prewar years.
But other changes were happening that deserved, but did not get, a dose of caution. As the nation shifted to a service and banking economy, and from agricultural and industrial towns to modern cities and suburbs, social life moved from pubs to private homes and shopping moved from the local grocer, butcher, and fishmonger to the all-in-one supermarket. In the 1960s, loosened regulations led to a boom in the off-license sale of alcohol—that is, store-based sale for private consumption, as opposed to on-license sale in public drinking establishments. But whereas pubs were required to meet certain responsibilities (such as refusing to serve the inebriated), and had their hours of operation strictly regulated (for example, having to close their doors temporarily in the afternoon, to prevent all-day drinking), few limits were placed on off-licenses.
Supermarkets, in particular, profited from the new regime. They were free to stock wine, beer, and liquor alongside other consumables, making alcohol as convenient to purchase as marmalade. They were free, also, to offer discounts on bulk sales, and to use alcoholic beverages as so-called loss leaders, selling them below cost to lure customers into their stores and recouping the losses through increased overall sales. Very quickly, cheap booze became little more than a force multiplier for groceries.
When the supermarkets themselves subsequently underwent a wave of consolidation, the multiplier only increased. Four major chains—Tesco, Sainsbury’s, Asda, and Morrisons—now enjoy near-total dominance in the UK, and their vast purchasing power lets them cut alcohol prices even further. Relative to disposable income, alcohol today costs 40 percent less than it did in 1980. The country is awash in a river of cheap drink, available on seemingly every corner.
Part of the problem, too, was that Britain’s “tied houses”—drinking establishments that are owned by liquor producers—have remained, in one form or another, a dominant part of the country’s drinking landscape. From the time brewing industrialized in the late 1700s, brewers were permitted to operate their own pubs, which they owned outright or whose owners signed exclusive retail agreements with them in exchange for inventory discounts, no-interest loans, and other assistance. The result of this system, which also existed in the U.S. before Prohibition, was a glut of pubs, since each brewer needed its own tied house in a given neighborhood, and a race to the bottom ensued, with each pub competing to offer lower prices and lure customers in with extras like gambling and prostitutes. The problem of this beer-fueled mayhem—of the lager louts smashing up storefronts, beating up foreigners, and glassing one another—became so acute in the 1980s that Parliament finally acted to break up the tied houses, passing legislation in 1991 known as the Beer Orders.
But intense industry lobbying quickly watered down these reforms, and the result was a bitter farce. In the end, brewers were allowed to keep many of their tied houses, and wound up effectively controlling the rest through exclusive retail agreements and other corporate maneuvers. Some brewers simply split in two, with one side retaining the brewing operations and the other responsible for sales. Many other brewers instead sold off their brewing operations and repurposed themselves as giant landlords-cum-barkeepers, while continuing to enjoy exclusive—and lucrative—relations with their former partners. The Beer Orders thus had the unintended consequence of actually catalyzing comprehensive conglomeration and vertical integration, as a handful of giant firms snapped up thousands of independent pubs. This “rationalization” of the industry delivered economies of scale previously unknown, and soon drinkers in England found that booze was even easier to come by than it had been before. Far from vanquished, the lager lout had entered his heyday.
In the United States, the problem so far has not been one of vertical integration like that found in the UK. Here, the story so far has been mostly about horizontal integration—of one brewer buying another.
To be sure, the typical American beer drinker might have a hard time realizing the extent of horizontal consolidation that has already occurred. The shelves of your average gas-station convenience store offer not just Bud and Busch and Miller and Coors but Stella and Hoegaarden and Shock Top and Rolling Rock. At any decent grocery, Kirin of Japan sits beside Boddingtons of Ireland, Peroni of Italy beside Pilsner Urquell of the Czech Republic. Basses shadow Red Hooks in the lea of Goose Islands. Blue Moon shines down on it all.
But all is not as it appears. Two giant companies— Anheuser-Busch InBev and MillerCoors—own, bankroll, produce, control, or have distribution rights to all of these brands and hundreds more. The truly independent brewers in the nation—there are about 2,000 of them, from tiny local outfits to national brands like Samuel Adams—account for just 6 percent of the market.
Almost all the rest belongs to Anheuser-Busch InBev and MillerCoors, which now together capture nearly 80 percent of beer sales in this country. Smaller conglomerates including Pabst, Heineken, and Diageo (owner of Guinness) take up much of the remainder, but even this doesn’t capture how consolidated the market has become. Pabst, for example, does not brew its own beer: that process is contracted out to Miller.
The market forces that eventually led to this massive consolidation among American brewers took root in the mid-1970s with the passage of the Consumer Goods Pricing Act of 1975, which made it illegal for producers to set minimum prices for their goods at retail. This was ostensibly “pro-consumer” legislation: the practice of allowing producers to set their own prices limited certain types of price competition, and so could be viewed as “hurting” consumers in an economic sense. But, of course, in this case we’re talking about consumers of alcohol and not apples, and when it comes to alcohol, cheaper is not necessarily better.
No longer required to set across-the-board prices for their goods, breweries learned that they could manipulate the much smaller wholesalers to extract more favorable terms, brand support, and profit by offering lower prices to those that did their bidding. The threat of higher prices could be used to force a wholesaler to drop competing brands. Conversely, lower prices might be offered to a wholesaler who promised to push a given brand more forcefully. This ability to use pricing to “discriminate” among wholesalers gave producers another valuable return: detailed knowledge of their wholesalers’ acceptable margins. That could be used to extract profit right up to the maximum feasible limit.
Something of a countertrend to consolidation seemed to appear in the 1980s, which saw a boom in small independent craft brewers. Examples include the founding (among others) of such well-known brands as Sierra Nevada (1980), Sam Adams (1984), and Harpoon (1986). Smaller brands and brewpubs added to the mix. But few of these brewers succeeded in gaining significant market share, or even in maintaining their independence. Since big brewers had been freed up to use price discrimination to reward and punish wholesalers, they could passively pressure wholesalers into keeping competitors—particularly small, independent brewers—off the market. Meanwhile, after the election of Ronald Reagan, the Justice Department cut back sharply on enforcement of U.S. antitrust law, setting in motion an unparalleled period of consolidation across virtually all American industries, including the beer industry.
In 1980, forty-eight breweries served the fifty states, and the largest of them had only a quarter of the market. Today, again, the market is overwhelmingly dominated by two: Anheuser-Busch InBev and MillerCoors.
Here’s how it went down:
Stroh Brewery Company, founded in 1850, entered the 1980s as the eighth-largest brewery in the nation. But after a sleepy first 130 years, during which it marketed a single brand, director Peter Stroh had come to recognize that “it’s either grow or go.” Released from antitrust constraints by the new Reagan regime, grow they would. In 1981, Stroh bought Schaefer, a big New York regional, and moved to seventh. Two years later, Stroh took over Schlitz, leaping and to fourth place. By the mid-’90s, the company had also swallowed up Augsburger and G. Heileman, then the fifth-largest brewer in America.
Coors, famously secretive in its business dealings, began the Reagan era as the fourth-largest brewer in America, with a reputation for high quality and an almost chic image in the vast East Coast market as a great beer you could only buy west of the Mississippi. Then, in 1981, Coors crossed the river, crashed through the East Coast, and hurdled across the Atlantic. In 1994, Coors purchased El Aguila in Spain and founded Jinro-Coors in South Korea. And in 1997, Molson, Foster’s, and Coors partnered to bring the Silver Bullet to Canada for the first time. Coors was now number three.
Miller entered the 1980s riding the tremendous success of its innovative Miller Lite brand. Already the second-largest brewer in America, the company set its sights on expanding, purchasing Jacob Leinenkugel in 1988, and in 1992 bought distribution rights to 20 percent of Canada’s Molson. Distribution rights to Foster’s and several other top imports followed later in the decade. With a market share of 21 percent, Miller had solidified its position as number two.
Anheuser-Busch, like Coors, was run by a family famous for its intensely private control of its business. The company entered the Reagan era as the number one brewer in America, and spent the next decade consolidating that position by leveraging its size, mostly via internal brand diversification, and by aggressively expanding its presence abroad. As the 1990s drew to a close, Anheuser-Busch remained by far the top brewer in the United States, with nearly 50 percent of the market, and one of the biggest brewers in the world. It is a testament to the size of the global beer market that even those eye-popping mergers left vast opportunities for other companies to play the same game. Three are of interest here:
In 1987, two of Belgium’s leading brewers, Artois and Piedboeuf, joined together as Interbrew. For fifteen years they quietly ate up dozens of other brands, and by 2001 they were the second-largest brewer on the planet.
In 1999, Brazil’s two largest brewers, Antarctica and Brahma, joined forces as AmBev, instantly dominating that country’s market and moving quickly to buy up smaller brands throughout South America.
And during the 1990s, South African Breweries, virtual monopolists at home with 98 percent of market, moved decisively into eastern Europe, Russia, India, and China, establishing a formidable position on three continents.
So the 1990s drew to a close with four major players in America and three abroad—seven giant brewing conglomerates for six billion people. The contest to own the world’s beer market had entered its endgame.
In 1999, Stroh was split up and sold off.
Six left.
In 2002, South African Breweries bought Miller, creating SABMiller.
Five left.
In 2004, Interbrew and AmBev merged, forming InBev.
Four.
In 2005, Coors and Molson merged to form Molson Coors.
Three.
In 2007, Molson Coors and SABMiller created the joint venture MillerCoors to produce and distribute their products in the United States as a single entity.
Two and a half.
And in 2008, in a blockbuster $52 billion deal, InBev bought Anheuser-Busch to form Anheuser-Busch InBev. At the stroke of a pen, half the U.S. beer industry came under the control of an even more powerful firm—one with a huge inventory of international brands ready to ride Budweiser’s coattails into the American market. Then, in June 2012, Anheuser-Busch InBev announced plans to pay $20 billion to acquire the 50 percent of Grupo Modelo that it does not already own.
Two.
And soon one?
Industry analysis have recently floated the idea that Anheuser-Busch InBev might purchase MillerCoors. But even in the lax antitrust environment that currently prevails, it is almost impossible to imagine a single company being allowed to control—overtly—80 percent or more of the domestic beer market. This means both Anheuser-Busch InBev and MillerCoors have, for all intents, reached the limit of their horizontal expansion. As in the UK, the only direction to go now is vertical, with the first target being the wholesalers—the second tier of the three-tier system.
Prior to the 2008 takeover, Anheuser-Busch generally accepted the regulatory regime that had governed the U.S. alcohol industry since the repeal of Prohibition. It didn’t attack the independent wholesalers in control of its supply chain, and generally treated them well. “Tough but fair” is a phrase used by several wholesale-business sources to describe their dealings with the Busch family dynasty. Everyone was making money; there was no need to rock the boat.
All that changed quickly after Anheuser-Busch lost its independence. The executives from InBev who took over the company did things quite differently. During the negotiations to buy Anheuser-Busch, InBev made it clear that the Busch family would have to go, and at the old headquarters in St. Louis other changes soon followed. Executive offices were literally torn out and replaced by an open floor with matching desks. The private-jet fleet was put on the block. Company cars disappeared. So did 1,400 jobs, retiree life insurance, and contributions to the employee pension plan. Managerial pay was reduced to equal or less than the average for similar jobs in other industries, with bonuses tied strictly to performance. Salaried workers lost little perks like free beer every month, and hundreds of staff BlackBerrys were recalled. Cost cutting was the new imperative.
Then, after eliminating everything it could at home, the new regime turned to squeezing more out of its increasingly nervous partners, the wholesalers. And, today, with only one remaining real competitor, MillerCoors, the pressure it can put on its wholesalers is extraordinary. A wholesaler who loses its account with either company loses one of its two largest customers, and cannot offer his retail clients the name-brand beers that form the backbone of the market. The Big Two in effect have a captive system by which to bring their goods to market.
Here’s how it works in practice. In 2011, Anheuser-Busch InBev (“A-B”) sent out a Wholesaler Family Consolidation Guide to each of its contractors. The language is blunt:
The introduction to the guide begins:
The guide emphasizes the last point: an aligned wholesaler is one who “shares the company’s long-term vision for how to operate successfully and grow business in conjunction with Anheuser-Busch InBev’s strategy.” So distributors are caught in an impossible bind: they either do the brewer’s bidding, including selling their businesses to favored “Anchor Wholesalers,” or they lose Anheuser-Busch InBev as a client.
And if the wholesalers try to push back? Anheuser-Busch InBev will get rough. In Arkansas, to take a prime example, a state inquiry revealed that the company was charging as much as $5 more per case (a huge margin against the average price of around $15) to some wholesalers, an obvious effort to run them out of business. In addition, through a second practice called reachback pricing, the company retroactively reset the value of its wholesale contracts once its wholesaler’s retail terms were known. The technique allowed it to reduce wholesalers’ profit margins. And when the state legislature took up a bill to make these practices illegal, Anheuser-Busch InBev filed a letter of protest “on behalf” of its wholesalers, in effect forcing those who disagreed with its practices to identify themselves if they chose to give the motion their public support.
Anheuser-Busch InBev’s efforts failed in this instance; the bill passed. But the door is open for similar behavior in other states. All that’s required is to get their legislatures to fall for familiar Chamber of Commerce arguments about regulation “hurting” businesses and consumers. Moreover, in some big states (notably California and New York, home to almost one in five Americans) brewers have already succeeded in finding loopholes that allow them to own wholesalers directly, giving them the chance to make vertical integration cut-and-dried rather than just a matter of strong-arm business practices. And given other trends toward consolidation at the retail level of American economy, there is, as we’ll see, every indication they will do just that.
For a long time, brewers weren’t interested in distribution, because distribution was a challenging, tight-margin enterprise. Those who did it had to manage hundreds or thousands of accounts, maintain a fleet of delivery trucks, store products in expensively refrigerated warehouses, get new stock onto shelves and remove the expired stuff daily (usually eating the cost as they did so), and, in some cases, maintain the taps at their contracted bars and restaurants. In short, they ran a very complex show. But with the emergence of national chain retail stores, much of the complexity and cost of distribution has been eliminated.
Just as England’s four major supermarkets now dominate alcohol sales there, so major all-in-one box stores, like Walmart and Costco, now dominate beer sales in the U.S. And these stores typically manage their own logistics, gathering inventory at centralized distribution centers and stocking all their shelves in a region from there. So it would be no big task for Anheuser-Busch InBev to run a fleet of trucks from its breweries to the big-box distribution centers—and that is precisely the plan. Anheuser-Busch InBev’s CEO Carlos Brito openly declared it to investment analysts from UBS in 2009, saying that the company was aiming at making 50 percent of its sales directly to retailers. (Aware that at least some people believe that this would or should be illegal under federal law, spokespeople quickly claimed that his statement was being misinterpreted.)
But to Anheuser-Busch InBev, as well as to MillerCoors, achieving de facto if not actual vertical integration is too tempting a goal to give up. Such control allows for the elimination, in literal, physical terms, of almost all competing brands on store shelves. And if eliminating middlemen leads to greater “efficiencies” and therefore lower costs, both companies can build the market for alcoholic beverages by manipulating prices and more aggressively marketing to consumers—which is exactly what happened, with obviously disastrous effects, in the UK.
And so the onslaught continues, by direct and indirect means, with few Americans having even the vaguest idea of what’s going on. In Ohio, for example, MillerCoors tried unsuccessfully to negate the contracts that its component companies, SABMiller and Coors, had already signed with distributors, with the goal of forcing them to renegotiate terms with the more powerful merged venture. In California, the state attorney general declared MillerCoors’s efforts at wholesaler exclusivity a violation of state law. In Illinois, Anheuser-Busch InBev stands accused by the state’s distributors of holding an illegal interest in a top Chicago-area wholesaler. If Anheuser-Busch InBev wins the case, now being heard by the Illinois Liquor Control Commission, the company may be emboldened to argue for similar rights in other states. (On October 31, after this article went to press, the Commission ruled in favor of Anheuser-Busch InBev, effectively permitting beer makers to self-distribute in Illinois.)
In fact, by exploiting existing weaknesses in some states’ commerce laws, Anheuser-Busch InBev owns fourteen distributorships in ten states (New York and California, as mentioned above, plus New Jersey, Ohio, Massachusetts, Colorado, Oregon, Oklahoma, Kentucky, and Hawaii) and is part owner of two more. The biggest beer producer in America, Anheuser-Busch InBev is now by volume the biggest beer distributor, too.
At times, the Big Two don’t even have to lead the fight. Costco spent $22 million last year in a successful ballot initiative campaign that allows them to stock their shelves directly from wholesale warehouses, effectively eliminating the protective inefficiencies of the second-tier distribution system. Such mutually beneficial efforts by big-box stores and the Big Two are no surprise: they all work on a high-volume, low-margin profit model. And though three-tier laws prohibit direct collaboration between them, it’s also no accident that in a March interview with the trade publication Beer Business Daily, Anheuser-Busch InBev Vice President Dave Almeida described in perfect detail how retailers can maximize their profits by replacing craft brews with “premium” beer—its term for its mass-produced light lager. Synergy: it’s coming to a store near you.
Horizontal integration of alcohol production. Vertical integration of distribution and retail. Loosened local regulations. National chain stores. Streamlined marketing. Volume pricing. Alcohol as an ordinary commodity. America resembles Britain more and more each passing day. How do you like them apples?
In recent years, the UK has started to reverse course as it struggles with its epidemic of alcoholism. After ten years of study and against vehement industry protest, a conservative, Tory-led Parliament now appears serious about passing reforms aimed at weakening vertical monopolies in the British alcohol industry and forcing the cost of drinking upward through minimum-price laws. Eighty years late, Great Britain is recognizing the hard-learned lesson that our forebears enshrined in the 21st Amendment: that alcohol truly is no ordinary commodity, and must be handled with care. We would do well to recall that wisdom ourselves.
By Tim Heffernan
November 24, 2012 | Washington Monthly
England has a drinking problem. Since 1990, teenage alcohol consumption has doubled. Since World War II, alcohol intake for the population as a whole has doubled, with a third of that increase occurring since just 1995. The United Kingdom has very high rates of binge and heavy drinking, with the average Brit consuming the equivalent of nearly ten liters of pure ethanol per year.
It’s apparent in their hospitals, where since the 1970s rates of cirrhosis and other liver diseases among the middle-aged have increased by eightfold for men and sevenfold for women. And it’s apparent in their streets, where the carousing, violent “lager lout” is as much a symbol of modern Britain as Adele, Andy Murray, and the London Eye. Busting a bottle across someone’s face in a bar is a bona fide cultural phenomenon—so notorious that it has its own slang term, “glassing,” and so common that at one point the Manchester police called for bottles and beer mugs to be replaced with more shatter-resistant material. In every detail but the style of dress, the alleys of London on a typical Saturday night look like the scenes in William Hogarth’s famous pro-temperance print Gin Lane. It was released in 1751.
The United States, although no stranger to alcohol abuse problems, is in comparatively better shape. A third of the country does not drink, and teenage drinking is at a historic low. The rate of alcohol use among seniors in high school has fallen 25 percentage points since 1980. Glassing is something that happens in movies, not at the corner bar.
Why has the United States, so similar to Great Britain in everything from language to pop culture trends, managed to avoid the huge spike of alcohol abuse that has gripped the UK? The reasons are many, but one stands out above all: the market in Great Britain is rigged to foster excessive alcohol consumption in ways it is not in the United States—at least not yet.
Monopolistic enterprises control the flow of drink in England at every step—starting with the breweries and distilleries where it’s produced and down the channels through which it reaches consumers in pubs and supermarkets. These vertically integrated monopolies are very “efficient” in the economist’s sense, in that they do a very good job of minimizing the price and thereby maximizing the consumption of alcohol.
The United States, too, has seen vast consolidation of its alcohol industry, but as of yet, not the kind of complete vertical integration seen in the UK. One big reason is a little-known legacy of our experience with Prohibition. From civics class, you may remember that the 21st Amendment to the Constitution formally ended Prohibition in 1933. But while the amendment made it once again legal to sell and produce alcohol, it also contained a measure designed to ensure that America would never again have the horrible drinking problem it had before, which led to the passage of Prohibition in the first place.
Specifically, the 21st Amendment grants state and local governments express power to regulate liquor sales within their own borders. Thus, the existence of dry counties and blue laws; of states where liquor is only retailed in government-run stores, as in New Hampshire; and of states like Arkansas where you can buy booze in drive-through liquor marts. More significantly, state and local regulation also extends to the wholesale distribution of liquor, creating a further barrier to the kind of vertical monopolies that dominated the United States before Prohibition and are now wreaking havoc in Britain.
Since the repeal of Prohibition, such constraints on vertical integration in the liquor business have also been backed by federal law, which, as it’s interpreted by most states, requires that the alcohol industry be organized according to the so-called three-tier system. The idea is that brewers and distillers, the first tier, have to distribute their product through independent wholesalers, the second tier. And wholesalers, in turn, have to sell only to retailers, the third tier, and not directly to the public. By deliberately hindering economies of scale and protecting middlemen in the booze business, America’s system of regulation was designed to be willfully inefficient, thereby making the cost of producing, distributing, and retailing alcohol higher than it would otherwise be and checking the political power of the industry.
When these laws were passed, America was a century closer to its English roots, and lawmakers remembered very clearly the effects that a vertically integrated alcohol industry had on pre-Prohibition America (and that it still has in the UK today). In the 1920s, Americans had learned the hard way that flat out banning drinking empowered the likes of Al Capone and was, on balance, unworkable. But it made no sense either to go back to the world of pre-Prohibition America, in which big, politically powerful liquor producers owned their own saloons and were therefore free to pour cheap booze into communities coast to coast, sweetening the doses with enticements ranging from rebates on drinks to cash loans, and frequently tolerating in-bar gambling and prostitution.
And so, for eighty years, the kind of vertical integration seen in pre-Prohibition America has not existed in the U.S. But now, that’s beginning to change. The careful balance that has governed liquor laws in the U.S. since the repeal of Prohibition is under assault in ways few Americans are remotely aware of. Over the last few years, two giant companies—Anheuser-Busch InBev and MillerCoors, which together control 80 percent of beer sales in the United States—have been working, along with giant retailers, led by Costco, to undermine the existing system in the name of efficiency and low prices. If they succeed, America’s alcohol market will begin to look a lot more like England’s: a vertically integrated pipeline for cheap drink, flooding the gutters of our own Gin Lane.
Amoment’s thought makes it obvious that alcohol is different from, say, apples. Apples don’t form addicts. Apples don’t foster disease. Society doesn’t bear the cost of excessive apple consumption. Society does bear the cost of alcoholism, drink-related illness, and drunken violence and crime. The fact that alcohol is habit forming and life threatening among a substantial share of those who use it (and kills or damages the lives of many who don’t) means that a market for it inevitably imposes steep costs on society.
It was the recognition of this plain truth that led post-Prohibition America to regulate the alcohol market as a rancher might fetter a horse—letting it roam freely within certain confines, neither as far nor as fast as it might choose.
The UK, by contrast, spent most of the last eighty years fussing with the barn door while the beast ran wild. It made sure that every pub closed at the appointed hour, that every glass of ale contained a full Queen’s pint, that every dram of whiskey was doled out in increments precise to the milliliter—and simultaneously allowed the industry to adopt virtually any tactic that could get more young people to start drinking and keep at it throughout their lives. It is no coincidence that one of the first major studies to prompt a shift in Britain’s approach to liquor regulation, published in 2003, is titled Alcohol: No Ordinary Commodity.
The UK’s modern drinking problem started appearing in the years following World War II. Some of the developments were natural. Peace reigned; people wanted to have fun again; there was an understandable push toward relaxing wartime restrictions and loosening puritan attitudes left over from the more temperance-minded prewar years.
But other changes were happening that deserved, but did not get, a dose of caution. As the nation shifted to a service and banking economy, and from agricultural and industrial towns to modern cities and suburbs, social life moved from pubs to private homes and shopping moved from the local grocer, butcher, and fishmonger to the all-in-one supermarket. In the 1960s, loosened regulations led to a boom in the off-license sale of alcohol—that is, store-based sale for private consumption, as opposed to on-license sale in public drinking establishments. But whereas pubs were required to meet certain responsibilities (such as refusing to serve the inebriated), and had their hours of operation strictly regulated (for example, having to close their doors temporarily in the afternoon, to prevent all-day drinking), few limits were placed on off-licenses.
Supermarkets, in particular, profited from the new regime. They were free to stock wine, beer, and liquor alongside other consumables, making alcohol as convenient to purchase as marmalade. They were free, also, to offer discounts on bulk sales, and to use alcoholic beverages as so-called loss leaders, selling them below cost to lure customers into their stores and recouping the losses through increased overall sales. Very quickly, cheap booze became little more than a force multiplier for groceries.
When the supermarkets themselves subsequently underwent a wave of consolidation, the multiplier only increased. Four major chains—Tesco, Sainsbury’s, Asda, and Morrisons—now enjoy near-total dominance in the UK, and their vast purchasing power lets them cut alcohol prices even further. Relative to disposable income, alcohol today costs 40 percent less than it did in 1980. The country is awash in a river of cheap drink, available on seemingly every corner.
Part of the problem, too, was that Britain’s “tied houses”—drinking establishments that are owned by liquor producers—have remained, in one form or another, a dominant part of the country’s drinking landscape. From the time brewing industrialized in the late 1700s, brewers were permitted to operate their own pubs, which they owned outright or whose owners signed exclusive retail agreements with them in exchange for inventory discounts, no-interest loans, and other assistance. The result of this system, which also existed in the U.S. before Prohibition, was a glut of pubs, since each brewer needed its own tied house in a given neighborhood, and a race to the bottom ensued, with each pub competing to offer lower prices and lure customers in with extras like gambling and prostitutes. The problem of this beer-fueled mayhem—of the lager louts smashing up storefronts, beating up foreigners, and glassing one another—became so acute in the 1980s that Parliament finally acted to break up the tied houses, passing legislation in 1991 known as the Beer Orders.
But intense industry lobbying quickly watered down these reforms, and the result was a bitter farce. In the end, brewers were allowed to keep many of their tied houses, and wound up effectively controlling the rest through exclusive retail agreements and other corporate maneuvers. Some brewers simply split in two, with one side retaining the brewing operations and the other responsible for sales. Many other brewers instead sold off their brewing operations and repurposed themselves as giant landlords-cum-barkeepers, while continuing to enjoy exclusive—and lucrative—relations with their former partners. The Beer Orders thus had the unintended consequence of actually catalyzing comprehensive conglomeration and vertical integration, as a handful of giant firms snapped up thousands of independent pubs. This “rationalization” of the industry delivered economies of scale previously unknown, and soon drinkers in England found that booze was even easier to come by than it had been before. Far from vanquished, the lager lout had entered his heyday.
In the United States, the problem so far has not been one of vertical integration like that found in the UK. Here, the story so far has been mostly about horizontal integration—of one brewer buying another.
To be sure, the typical American beer drinker might have a hard time realizing the extent of horizontal consolidation that has already occurred. The shelves of your average gas-station convenience store offer not just Bud and Busch and Miller and Coors but Stella and Hoegaarden and Shock Top and Rolling Rock. At any decent grocery, Kirin of Japan sits beside Boddingtons of Ireland, Peroni of Italy beside Pilsner Urquell of the Czech Republic. Basses shadow Red Hooks in the lea of Goose Islands. Blue Moon shines down on it all.
But all is not as it appears. Two giant companies— Anheuser-Busch InBev and MillerCoors—own, bankroll, produce, control, or have distribution rights to all of these brands and hundreds more. The truly independent brewers in the nation—there are about 2,000 of them, from tiny local outfits to national brands like Samuel Adams—account for just 6 percent of the market.
Almost all the rest belongs to Anheuser-Busch InBev and MillerCoors, which now together capture nearly 80 percent of beer sales in this country. Smaller conglomerates including Pabst, Heineken, and Diageo (owner of Guinness) take up much of the remainder, but even this doesn’t capture how consolidated the market has become. Pabst, for example, does not brew its own beer: that process is contracted out to Miller.
The market forces that eventually led to this massive consolidation among American brewers took root in the mid-1970s with the passage of the Consumer Goods Pricing Act of 1975, which made it illegal for producers to set minimum prices for their goods at retail. This was ostensibly “pro-consumer” legislation: the practice of allowing producers to set their own prices limited certain types of price competition, and so could be viewed as “hurting” consumers in an economic sense. But, of course, in this case we’re talking about consumers of alcohol and not apples, and when it comes to alcohol, cheaper is not necessarily better.
No longer required to set across-the-board prices for their goods, breweries learned that they could manipulate the much smaller wholesalers to extract more favorable terms, brand support, and profit by offering lower prices to those that did their bidding. The threat of higher prices could be used to force a wholesaler to drop competing brands. Conversely, lower prices might be offered to a wholesaler who promised to push a given brand more forcefully. This ability to use pricing to “discriminate” among wholesalers gave producers another valuable return: detailed knowledge of their wholesalers’ acceptable margins. That could be used to extract profit right up to the maximum feasible limit.
Something of a countertrend to consolidation seemed to appear in the 1980s, which saw a boom in small independent craft brewers. Examples include the founding (among others) of such well-known brands as Sierra Nevada (1980), Sam Adams (1984), and Harpoon (1986). Smaller brands and brewpubs added to the mix. But few of these brewers succeeded in gaining significant market share, or even in maintaining their independence. Since big brewers had been freed up to use price discrimination to reward and punish wholesalers, they could passively pressure wholesalers into keeping competitors—particularly small, independent brewers—off the market. Meanwhile, after the election of Ronald Reagan, the Justice Department cut back sharply on enforcement of U.S. antitrust law, setting in motion an unparalleled period of consolidation across virtually all American industries, including the beer industry.
In 1980, forty-eight breweries served the fifty states, and the largest of them had only a quarter of the market. Today, again, the market is overwhelmingly dominated by two: Anheuser-Busch InBev and MillerCoors.
Here’s how it went down:
Stroh Brewery Company, founded in 1850, entered the 1980s as the eighth-largest brewery in the nation. But after a sleepy first 130 years, during which it marketed a single brand, director Peter Stroh had come to recognize that “it’s either grow or go.” Released from antitrust constraints by the new Reagan regime, grow they would. In 1981, Stroh bought Schaefer, a big New York regional, and moved to seventh. Two years later, Stroh took over Schlitz, leaping and to fourth place. By the mid-’90s, the company had also swallowed up Augsburger and G. Heileman, then the fifth-largest brewer in America.
Coors, famously secretive in its business dealings, began the Reagan era as the fourth-largest brewer in America, with a reputation for high quality and an almost chic image in the vast East Coast market as a great beer you could only buy west of the Mississippi. Then, in 1981, Coors crossed the river, crashed through the East Coast, and hurdled across the Atlantic. In 1994, Coors purchased El Aguila in Spain and founded Jinro-Coors in South Korea. And in 1997, Molson, Foster’s, and Coors partnered to bring the Silver Bullet to Canada for the first time. Coors was now number three.
Miller entered the 1980s riding the tremendous success of its innovative Miller Lite brand. Already the second-largest brewer in America, the company set its sights on expanding, purchasing Jacob Leinenkugel in 1988, and in 1992 bought distribution rights to 20 percent of Canada’s Molson. Distribution rights to Foster’s and several other top imports followed later in the decade. With a market share of 21 percent, Miller had solidified its position as number two.
Anheuser-Busch, like Coors, was run by a family famous for its intensely private control of its business. The company entered the Reagan era as the number one brewer in America, and spent the next decade consolidating that position by leveraging its size, mostly via internal brand diversification, and by aggressively expanding its presence abroad. As the 1990s drew to a close, Anheuser-Busch remained by far the top brewer in the United States, with nearly 50 percent of the market, and one of the biggest brewers in the world. It is a testament to the size of the global beer market that even those eye-popping mergers left vast opportunities for other companies to play the same game. Three are of interest here:
In 1987, two of Belgium’s leading brewers, Artois and Piedboeuf, joined together as Interbrew. For fifteen years they quietly ate up dozens of other brands, and by 2001 they were the second-largest brewer on the planet.
In 1999, Brazil’s two largest brewers, Antarctica and Brahma, joined forces as AmBev, instantly dominating that country’s market and moving quickly to buy up smaller brands throughout South America.
And during the 1990s, South African Breweries, virtual monopolists at home with 98 percent of market, moved decisively into eastern Europe, Russia, India, and China, establishing a formidable position on three continents.
So the 1990s drew to a close with four major players in America and three abroad—seven giant brewing conglomerates for six billion people. The contest to own the world’s beer market had entered its endgame.
In 1999, Stroh was split up and sold off.
Six left.
In 2002, South African Breweries bought Miller, creating SABMiller.
Five left.
In 2004, Interbrew and AmBev merged, forming InBev.
Four.
In 2005, Coors and Molson merged to form Molson Coors.
Three.
In 2007, Molson Coors and SABMiller created the joint venture MillerCoors to produce and distribute their products in the United States as a single entity.
Two and a half.
And in 2008, in a blockbuster $52 billion deal, InBev bought Anheuser-Busch to form Anheuser-Busch InBev. At the stroke of a pen, half the U.S. beer industry came under the control of an even more powerful firm—one with a huge inventory of international brands ready to ride Budweiser’s coattails into the American market. Then, in June 2012, Anheuser-Busch InBev announced plans to pay $20 billion to acquire the 50 percent of Grupo Modelo that it does not already own.
Two.
And soon one?
Industry analysis have recently floated the idea that Anheuser-Busch InBev might purchase MillerCoors. But even in the lax antitrust environment that currently prevails, it is almost impossible to imagine a single company being allowed to control—overtly—80 percent or more of the domestic beer market. This means both Anheuser-Busch InBev and MillerCoors have, for all intents, reached the limit of their horizontal expansion. As in the UK, the only direction to go now is vertical, with the first target being the wholesalers—the second tier of the three-tier system.
Prior to the 2008 takeover, Anheuser-Busch generally accepted the regulatory regime that had governed the U.S. alcohol industry since the repeal of Prohibition. It didn’t attack the independent wholesalers in control of its supply chain, and generally treated them well. “Tough but fair” is a phrase used by several wholesale-business sources to describe their dealings with the Busch family dynasty. Everyone was making money; there was no need to rock the boat.
All that changed quickly after Anheuser-Busch lost its independence. The executives from InBev who took over the company did things quite differently. During the negotiations to buy Anheuser-Busch, InBev made it clear that the Busch family would have to go, and at the old headquarters in St. Louis other changes soon followed. Executive offices were literally torn out and replaced by an open floor with matching desks. The private-jet fleet was put on the block. Company cars disappeared. So did 1,400 jobs, retiree life insurance, and contributions to the employee pension plan. Managerial pay was reduced to equal or less than the average for similar jobs in other industries, with bonuses tied strictly to performance. Salaried workers lost little perks like free beer every month, and hundreds of staff BlackBerrys were recalled. Cost cutting was the new imperative.
Then, after eliminating everything it could at home, the new regime turned to squeezing more out of its increasingly nervous partners, the wholesalers. And, today, with only one remaining real competitor, MillerCoors, the pressure it can put on its wholesalers is extraordinary. A wholesaler who loses its account with either company loses one of its two largest customers, and cannot offer his retail clients the name-brand beers that form the backbone of the market. The Big Two in effect have a captive system by which to bring their goods to market.
Here’s how it works in practice. In 2011, Anheuser-Busch InBev (“A-B”) sent out a Wholesaler Family Consolidation Guide to each of its contractors. The language is blunt:
Do you share the same vision as A-B on issues of importance to the industry, including support on legislation that can affect our competitive position? …
Are you selling competitive products in a fellow A-B wholesaler’s territory?
The introduction to the guide begins:
We ask all wholesalers to use the guide’s self assessment tool to objectively consider their capabilities and goals. Wholesalers who aspire to be an Anchor Wholesaler can identify any gaps they have in these qualities and build a plan to address them. Some wholesalers might remain committed to their current market, but realize further acquisitions are not right for their business. Others might decide now is the best time to consider whether a sale is in their best interest.
There are many aspects of an aligned wholesaler, and an explicit focus on our portfolio of brands is paramount. Those who are aligned with us only acquire brands that compete in segments underserved by our current portfolio and that bring incremental sales, not brands that have a negative impact on the A-B portfolio.
The guide emphasizes the last point: an aligned wholesaler is one who “shares the company’s long-term vision for how to operate successfully and grow business in conjunction with Anheuser-Busch InBev’s strategy.” So distributors are caught in an impossible bind: they either do the brewer’s bidding, including selling their businesses to favored “Anchor Wholesalers,” or they lose Anheuser-Busch InBev as a client.
And if the wholesalers try to push back? Anheuser-Busch InBev will get rough. In Arkansas, to take a prime example, a state inquiry revealed that the company was charging as much as $5 more per case (a huge margin against the average price of around $15) to some wholesalers, an obvious effort to run them out of business. In addition, through a second practice called reachback pricing, the company retroactively reset the value of its wholesale contracts once its wholesaler’s retail terms were known. The technique allowed it to reduce wholesalers’ profit margins. And when the state legislature took up a bill to make these practices illegal, Anheuser-Busch InBev filed a letter of protest “on behalf” of its wholesalers, in effect forcing those who disagreed with its practices to identify themselves if they chose to give the motion their public support.
Anheuser-Busch InBev’s efforts failed in this instance; the bill passed. But the door is open for similar behavior in other states. All that’s required is to get their legislatures to fall for familiar Chamber of Commerce arguments about regulation “hurting” businesses and consumers. Moreover, in some big states (notably California and New York, home to almost one in five Americans) brewers have already succeeded in finding loopholes that allow them to own wholesalers directly, giving them the chance to make vertical integration cut-and-dried rather than just a matter of strong-arm business practices. And given other trends toward consolidation at the retail level of American economy, there is, as we’ll see, every indication they will do just that.
For a long time, brewers weren’t interested in distribution, because distribution was a challenging, tight-margin enterprise. Those who did it had to manage hundreds or thousands of accounts, maintain a fleet of delivery trucks, store products in expensively refrigerated warehouses, get new stock onto shelves and remove the expired stuff daily (usually eating the cost as they did so), and, in some cases, maintain the taps at their contracted bars and restaurants. In short, they ran a very complex show. But with the emergence of national chain retail stores, much of the complexity and cost of distribution has been eliminated.
Just as England’s four major supermarkets now dominate alcohol sales there, so major all-in-one box stores, like Walmart and Costco, now dominate beer sales in the U.S. And these stores typically manage their own logistics, gathering inventory at centralized distribution centers and stocking all their shelves in a region from there. So it would be no big task for Anheuser-Busch InBev to run a fleet of trucks from its breweries to the big-box distribution centers—and that is precisely the plan. Anheuser-Busch InBev’s CEO Carlos Brito openly declared it to investment analysts from UBS in 2009, saying that the company was aiming at making 50 percent of its sales directly to retailers. (Aware that at least some people believe that this would or should be illegal under federal law, spokespeople quickly claimed that his statement was being misinterpreted.)
But to Anheuser-Busch InBev, as well as to MillerCoors, achieving de facto if not actual vertical integration is too tempting a goal to give up. Such control allows for the elimination, in literal, physical terms, of almost all competing brands on store shelves. And if eliminating middlemen leads to greater “efficiencies” and therefore lower costs, both companies can build the market for alcoholic beverages by manipulating prices and more aggressively marketing to consumers—which is exactly what happened, with obviously disastrous effects, in the UK.
And so the onslaught continues, by direct and indirect means, with few Americans having even the vaguest idea of what’s going on. In Ohio, for example, MillerCoors tried unsuccessfully to negate the contracts that its component companies, SABMiller and Coors, had already signed with distributors, with the goal of forcing them to renegotiate terms with the more powerful merged venture. In California, the state attorney general declared MillerCoors’s efforts at wholesaler exclusivity a violation of state law. In Illinois, Anheuser-Busch InBev stands accused by the state’s distributors of holding an illegal interest in a top Chicago-area wholesaler. If Anheuser-Busch InBev wins the case, now being heard by the Illinois Liquor Control Commission, the company may be emboldened to argue for similar rights in other states. (On October 31, after this article went to press, the Commission ruled in favor of Anheuser-Busch InBev, effectively permitting beer makers to self-distribute in Illinois.)
In fact, by exploiting existing weaknesses in some states’ commerce laws, Anheuser-Busch InBev owns fourteen distributorships in ten states (New York and California, as mentioned above, plus New Jersey, Ohio, Massachusetts, Colorado, Oregon, Oklahoma, Kentucky, and Hawaii) and is part owner of two more. The biggest beer producer in America, Anheuser-Busch InBev is now by volume the biggest beer distributor, too.
At times, the Big Two don’t even have to lead the fight. Costco spent $22 million last year in a successful ballot initiative campaign that allows them to stock their shelves directly from wholesale warehouses, effectively eliminating the protective inefficiencies of the second-tier distribution system. Such mutually beneficial efforts by big-box stores and the Big Two are no surprise: they all work on a high-volume, low-margin profit model. And though three-tier laws prohibit direct collaboration between them, it’s also no accident that in a March interview with the trade publication Beer Business Daily, Anheuser-Busch InBev Vice President Dave Almeida described in perfect detail how retailers can maximize their profits by replacing craft brews with “premium” beer—its term for its mass-produced light lager. Synergy: it’s coming to a store near you.
Horizontal integration of alcohol production. Vertical integration of distribution and retail. Loosened local regulations. National chain stores. Streamlined marketing. Volume pricing. Alcohol as an ordinary commodity. America resembles Britain more and more each passing day. How do you like them apples?
In recent years, the UK has started to reverse course as it struggles with its epidemic of alcoholism. After ten years of study and against vehement industry protest, a conservative, Tory-led Parliament now appears serious about passing reforms aimed at weakening vertical monopolies in the British alcohol industry and forcing the cost of drinking upward through minimum-price laws. Eighty years late, Great Britain is recognizing the hard-learned lesson that our forebears enshrined in the 21st Amendment: that alcohol truly is no ordinary commodity, and must be handled with care. We would do well to recall that wisdom ourselves.
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