Government’s War on All-Ages Clubs
The State of California has declared war on all-ages nightclubs, and the costs of the anti-club war is pushing many of these venues to bankruptcy and extinction.
June 1, 2009
Fred Foldvary, Ph.D.
Economist

The government of the State of California has declared war on all-ages nightclubs, and now the recession and the costs of the anti-club war is pushing many of these venues to bankruptcy and extinction.

The war is being fought by California’s Department of Alcoholic Beverage Control (ABC). This attack on nightclubs is especially severe in San Francisco, which is the center of entertainment for the San Francisco Bay Area. The ABC imposes rigid rules on enterprises which make or sell alcohol. Once a business presents its plan to the ABC, it becomes almost impossible to make any change such as different hours of operation.

Nightclubs open to all ages are required to obtain much of their revenue from the sale of food rather than alcoholic drinks. Clubs that offer live music are legally categorized as restaurants. To the ABC, a firm is either a bar, with a minimum age of 21, or a restaurant for all ages. If the portion of revenue from food from a nightclub “restaurant” is too low, such as less than half the revenue, the venue is subject to large fines. The ABC has been also pushing these nightclubs to bankruptcy by canceling their liquor license.

Most Californians probably support the ABC, since they think it protects minors from being able to buy alcoholic drinks. But the costs that the ABC has been imposing on nightclubs have nothing to do with serving drinks to underage customers. The penalties are being applied for changing their initial business plan, such as opening an hour later, or for not getting enough of their revenue from selling food.

The complex rules and their fierce enforcement are making the firms hire attorneys to help them in hearings, which greatly multiplies the cost of dealing with the ABC. This is not an accident, since besides the bureaucrats, the beneficiaries of complex rules and tyrannical enforcement are lawyers. The legal lobby controls the state legislature, and keeps the law complex and incomprehensible so that their legal services remain in high demand.

Small businesses in California are being forced to pay many thousands of dollars in legal fees to protect themselves from the ABC tyrants. It is no coincidence that this is occurring during a deep recession and the state’ fiscal crisis. A major reason for California’s budget crisis is that the state’s bureaucrats are grossly overpaid. Their wages are higher than what they could fetch in the private sector, they have job security, and they get fat pensions. Their unions and political clout give them great political power. But with the state deficit of over $20 billion, finally the salaries and hours of labor of the bureaucrats are being cut, and they are angry. The state bureaucrats are fighting back and punishing the public by attacking helpless small business owners.

According to an article in the May 27 San Francisco Weekly (pages 37 and 39), nightclubs in San Francisco have been unable to afford to print flyers to announce events, and they are postponing needed repairs to bathrooms, as their revenue is being drained by legal fees.

The overly aggressive agents of the ABC are a hint of worse action to come from California’s bureaucrats. As their hours get cut and their wages get a bit less bloated, they will attack the public by shutting down small business, driving big business out of the state, and imposing fines and penalties on the public. The police could step up civil asset forfeiture, forcibly confiscating cars and houses on the mere suspicion that these are being used for drugs and prostitution. If the public refuses to increase taxes to pay for the bureaucracy’s high wages, the state bureaucrats will seize property and punish the public by shutting down its entertainment and by destroying jobs.

The California legislature is helpless to do anything about the War on All-Ages Clubs. They are under the thumb of a political alliance between government employee labor unions and the legal lobby. The state has become too large and too centralized for effective governance. So Californians will have to sit there watching helplessly as the bureaucrats they pay for become the enemy of the people rather than agents hired to serve the people.

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Fred Foldvary, Ph.D.
Economist

FRED E. FOLDVARY, Ph.D., is an economist and has been writing weekly editorials for Progress.org since 1997. Foldvary's commentaries are well respected for their currency, sound logic, wit, and consistent devotion to human freedom. He received his B.A. in economics from the University of California at Berkeley, and his M.A. and Ph.D. in economics from George Mason University. He has taught economics at Virginia Tech, John F. Kennedy University, Santa Clara University, and currently teaches at San Jose State University.

Foldvary is the author of The Soul of LibertyPublic Goods and Private Communities, and Dictionary of Free Market Economics. He edited and contributed to Beyond Neoclassical Economics and, with Dan Klein, The Half-Life of Policy Rationales. Foldvary's areas of research include public finance, governance, ethical philosophy, and land economics.

Foldvary is notably known for going on record in the American Journal of Economics and Sociology in 1997 to predict the exact timing of the 2008 economic depression—eleven years before the event occurred. He was able to do so due to his extensive knowledge of the real-estate cycle.