Back in the 1920s, Al Capone was a notorious gangster and bootlegger who ran the streets of Chicago. He rose from being a street thug to becoming an underworld mob boss when he took advantage of the era of alcohol prohibition in the US in the 1920 and 1930s when the production, importation, transportation and sale of alcohol was outlawed.
Capone made tonnes of money smuggling illegally imported alcohol into the US, in defiance of the ban, wresting control of the lucrative illicit market. He was, at the height of his reign and terror, named America’s most wanted gangster by the federal government.
The idea behind the Volstead Act of 1919 — which outlawed the production and sale of alcohol — was ostensibly to minimise the harm that alcohol consumption was doing to society.
However, prohibition had the opposite effect. It drove the once legal and flourishing trade in alcohol underground and ceded it to a ruthless criminal underworld led by Capone.
In New York, the prohibition meant that another gangster, Charles “Lucky” Luciano, would rise up the underworld circles to become the most feared underworld boss in his city at age 34.
According to historians, Luciano, who also had close ties to Capone, introduced the concept of “organised crime” when he got all mafia bosses around the table to urge them to work together instead of fighting over turf and in the process, formed a board of directors among the crime families.
After the introduction of the prohibition, the US government watched in horror as the prohibition decimated not just the alcohol industry and its value chain, but associated industries as well, resulting in a jobs bloodbath.
It is estimated that prohibition cost the federal government just over $11bn in lost tax revenue ($140bn in today’s terms, or R2.4 trillion) while more than 1,000 people a year died from drinking unsafe alcohol.
Christopher Snowdon, head of lifestyle economics at UK think-tank the Institute of Economic Affairs, said during a recent webinar in SA that one of the damaging things prohibition does is erode respect for the law.
When people don’t believe a policy is justifiable or fair, they do not feel very bad about disobeying it.
He said the word “scofflaw” was invented in the US in the 1920s to describe people who were ignoring the prohibition.
“The law of prohibition was a very unpopular policy and when people don’t believe a policy is justifiable or fair, they do not feel very bad about disobeying it. They feel that they are being pushed on to the black market rather than their choosing to break the law — they feel like they have no choice,” he said.
“The respect for the law especially during a public health pandemic, especially when you are relying on goodwill and co-operation of citizens, is eroded when you start bringing in prohibitions that are seen as widely unfair and unnecessary.”
Snowdon said history has taught us that prohibition always makes matters worse. “That’s the whole lesson from history which we keep failing to learn,” he said.
Back at home, when the government prohibited alcohol sales at the end of March, reports of pineapples and yeast flying off the shelves came to the fore as soon as April, and by May, police in the Eastern Cape reported unfortunate fatalities as a result of people consuming unsafe home-brewed alcohol.
In those two months, the alcohol industry value chain also lost more than 100,000 jobs.
Let us explore the facts in weighing and deciding whether the ban is justifiable.
The legal alcohol industry recorded sales of R137bn in 2019, amounting to 3% of nominal GDP. It provides jobs either directly or indirectly to a million people. The industry contributed R51bn in direct and indirect taxes.
The industry also supports agriculture by purchasing locally produced raw materials inputs such as hops, malted barley, apple concentrate and maize.
At South African Breweries (SAB), our value chain is wide-reaching and incorporates a total of 3,739 suppliers of which 1,345 are SMMEs, supporting in excess of 140,000 jobs. In addition, our business sources agricultural inputs from more than 1,277 farmers of whom 757 are emerging farmers. The longer we are unable to operate, the bigger the ripple effect will be.
The township economy, which is reliant on legal liquor outlets, is on the brink of bankruptcy. The alcohol industry has asked the government to defer R5bn in excise and custom duties due for the months of July and August until it is allowed to trade again. This is a loss of valuable revenue to the fiscus at a time the finance minister predicts a R300bn revenue shortfall.
Research and learnings from the previous ban shows that prohibition of the legal sale of alcohol leads to exponential growth in the production of illicit alcohol.
Euromonitor’s Illicit Alcohol Research Review indicated that illicit trade in alcohol was valued at almost R13bn in 2017, relating to roughly 50 million litres of absolute alcohol, which represents 15% of the total alcohol market in the country.
While at SAB we support policies and measures for reducing pressure on the public health-care system, it is clear that the alcohol sales ban does not work.
The government must work with the alcohol industry to phase in the return of legal alcohol sales under a well-regulated, controlled and safe environment; or we risk ceding a huge chunk of this valuable industry to a local version of Al Capone.
According to Dr Westley Clark, the dean’s executive professor for public health and psychology at Santa Clara University in the US, “strategies that focus on single solutions actually do more harm than good. If we are going to get through this pandemic, we need the participation of all sectors of the economy, including government.”
Prohibition of alcohol sales comes with its consequences, and relying on this and similar strategies is shambolic, and cannot be regarded as a silver bullet strategy at a time like this.
This pandemic, and other similar challenges in the future, require a holistic approach without avoiding the complexity of the problem.
Ndlovu is the director of regulatory and public policy at SA Breweries.