Prohibition, Smuggling, and the Underground Economy
Prohibition, Smuggling, and the Underground Economy
Week 3: POLI 1018 - Dean Antonio Boffa
Alcohol Myths Before Prohibition
Beer drinkers were believed to die of edema.
Alcohol was thought to turn blood into water.
Smelling alcohol could supposedly deform unborn children.
Bootleg wines were rumored to be made with cockroaches.
Alcohol was believed to give you a $25$-pound (25\text{-lb}) liver.
A drunk's brain could allegedly be used as a torch.
Is Alcohol Harmful?
The World Health Organization (WHO) estimates alcohol causes 3.3 million deaths per year globally.
The Centers for Disease Control (CDC) attributes 88,000 deaths per year in the United States to alcohol.
In 2006, the National Highway Traffic Safety Administration (NHTSA) estimated that 17,941 people died in alcohol-related collisions in the US, accounting for 40\% of total traffic deaths.
Among 20\text{-}39 year olds, alcohol-related deaths constitute 25\% of all deaths.
Course Outline for Today
Look at the history of Prohibition.
Examine its effects.
Learn a lesson in unintended consequences.
Discuss its repeal.
Understand that all prohibition is fundamentally about control.
Definition of Prohibition
Prohibition: The action of forbidding something, especially by law.
Specifically, in the US between 1920 and 1933, it was the prevention by law of the manufacture and sale of alcohol.
The Underground Economy
Also known as a black market, shadow economy, or clandestine market.
Defined as "a clandestine market or series of transactions that has some aspect of illegality or is characterized by some form of noncompliant behavior with an institutional set of rules."
It is not a single economy but encompasses activities that circumvent, escape, or are excluded from the institutional system of rules, rights, regulations, and enforcement penalties governing formal production and exchange.
Three major types of underground economies are identified:
Illegal Economy: Income produced by activities pursued in violation of legal statutes ("against the law"). Participants engage in the production and distribution of prohibited goods and services. Examples include drug trafficking, arms trafficking, and prostitution.
Unreported Economy: Economic activities that circumvent or evade institutionally established fiscal rules, codified in the tax code. This represents income that should be reported to tax authorities but is not. The "tax gap" is the difference between tax revenues due and collected. In the U.S., the overall economic activity could be around 2 trillion annually, with a "tax gap" of 450\text{-}600 billion. An example is asking, "Paying in cash?"
Informal Economy: Activities that bypass costs and legal contracts, such as commercial licensing, labor contracts, financial credit, and social security systems. It is characterized by a lack of barriers to entry and is not taxed or monitored by the government. Anyone can find something to do and earn income. Features include a lack of a stable employer-employee relationship, small-scale operation, and the usage of skills learned outside the formal education system. Examples include construction sites, lemonade stands, street vendors, and lawn cutting.
Other Terms for Underground Economy
Subterranean
Hidden
Grey
Shadow
Clandestine
Unobserved
Second
Parallel
Black
Bootlegging
Also known as rum-running.
The illegal business of transporting (smuggling) alcoholic beverages.
The term's origin comes from the practice of selling liquor from flasks kept in the boot leg.
U.S. Alcohol Consumption Trends
Historically, alcohol consumption underwent significant fluctuations.
Before Prohibition (e.g., late 19^{th} to early 20^{th} century): Consumption of all beverages (beer, spirits, wine) was relatively high, with peaks around 1910.
During Prohibition (1920-1933): There was a marked reduction in recorded per capita alcohol consumption. Graph data shows a sharp decline from pre-$1920$ levels, particularly for all beverages.
Post-Prohibition: Consumption gradually climbed again, though it did not immediately return to pre-Prohibition levels. By the 1970s and 1980s, consumption peaked again.
Australia: While not directly related to US Prohibition, Australian alcohol consumption has also shown historical trends, peaking around 1974\text{-}75 and then generally declining, with a recent slight rise for the first time in a decade.
Who Wanted Prohibition?
Rural areas: Strong support stemming from evangelical Protestant churches (Methodists, Baptists, Presbyterians, Disciples of Christ, Congregationalists, Quakers, Scandinavian Lutherans) who disliked Sunday drinking.
Women: Saw alcohol as a "vice" alongside prostitution, leading to men being kept from their homes and causing oppression.
Opposition: Primarily came from Catholics, Episcopalians, and German Lutherans.
Unspoken "and unlikely" Coalition: Racists, Progressives, Suffragettes, Populists, and Nativists.
Vice
A practice, behavior, or habit generally considered immoral, sinful, rude, taboo, depraved, or degrading.
Can also refer to a fault or negative character trait.
Women and Prohibition: Carrie Nation
Women were vocal proponents of Prohibition, arguing alcohol kept men out of their homes and led to spousal oppression.
Carrie Nation (Kansas, early 1900s): A prominent figure who grew tired of moral complaints and embarked on a campaign of destroying bars. She would march into saloons and smash bottles and bar fixtures with a hatchet. She was arrested approximately 30 times and paid her jail fines by selling souvenir hatchets.
Nation argued that alcohol was responsible for nearly all jail incarcerations, directly or indirectly.
She famously stated that saloons, with their pictures of naked women, stripped real women of everything: their husbands, sons, homes, food, and virtue.
The Temperance Movement in the US
Focused on moderation, initially, and then sought to curb the consumption of alcohol entirely.
Many groups associated with the Temperance Movement were also tied to the suffragette movement, highlighting social reform goals.
Propaganda often depicted a stark "Wet" (pro-alcohol, brewer's greed) versus "Dry" (anti-alcohol, protect mothers and children) dichotomy.
Volstead Act (National Prohibition Act)
The legislative act passed to enforce the 18^{th} Amendment.
Its three distinct purposes were:
To prohibit intoxicating beverages.
To regulate the manufacture, production, use, and sale of high-proof spirits for purposes other than beverages.
To ensure an ample supply of alcohol and promote its use in scientific research and in the development of fuel, dye, and other lawful industries.
Prohibition Era (1920\text{-}1933)
A nationwide constitutional ban on the production, importation, transportation, and sale of alcoholic beverages in the US.
The 18^{th} Amendment
Submitted in 1917 and approved in 1919.
Section 1: "After one year from the ratification of this article the manufacture, sale, or transportation of intoxicating liquors within, the importation thereof into, or the exportation thereof from the United States and all territory subject to the jurisdiction thereof for beverage purposes is hereby prohibited."
Section 2: "The Congress and the several States shall have concurrent power to enforce this article by appropriate legislation."
Only 2 states rejected it.
Alcohol Consumption During and After Prohibition
Prohibition reduced alcohol consumption but did not eliminate it.
Drinking itself was never illegal; only the manufacturing and sale of alcohol were outlawed.
Liquor purchased before Prohibition began could be served privately.
An illegal market quickly grew, estimated to reach about 66\% of pre-Prohibition levels.
Illegal stills became common, and large quantities of alcohol were smuggled from Canada.
Criticisms of Prohibition
Criminal gangs gained control of the beer and liquor supply in many cities.
It was perceived to cause an increase in crime.
It led to lower local government revenues, especially impactful during the Great Depression.
It was seen as an imposition of "rural" Protestant religious values on "urban" America.
Impact of Prohibition
Initial effects (often positive):
Consumption went down.
Liver cirrhosis rates decreased.
Rates of alcoholic psychosis declined.
Infant mortality rates decreased.
Negative impacts:
Government tax revenues significantly decreased, especially detrimental just before and during the Great Depression.
Public support for Prohibition dwindled every year it was in place.
Consumption climbed as underworld entrepreneurs got involved.
Illegal alcohol, often called "rotgut," was full of dangerous diseases.
Home still accidents became common and led to deaths.
Approximately 10,000 deaths can be attributed to wood alcohol (methanol) poisoning.
Crime and Enforcement:
Initial reduction in overall crime and public drunkenness.
Law enforcement was not strong enough to stop all liquor traffic, leading to "sting" operations (e.g., Eliot Ness).
Prisons became crowded, which paradoxically led to fewer arrests as the system struggled.
Organized Crime:
Bootlegging served as a gateway crime for many gangs.
These gangs expanded into prostitution, gambling rackets, narcotics, loan-sharking, extortion, and labor rackets, activities that persisted even after the 18^{th} Amendment was repealed.
Speakeasies
"Speak softly shops" where illegal alcohol was sold.
Became a major business activity for organized crime, with figures like Al Capone in Chicago and Lucky Luciano in New York City.
Local politicians and police were frequently bribed.
Wealthier individuals could find nicer places to drink.
The cocktail and cocktail party gained popularity among higher socio-economic groups.
The Cotton Club (Example of a Speakeasy)
An iconic speakeasy.
Owned by a gangster.
Featured black entertainment but had a strict "whites only" patron policy.
Publicly claimed "In Compliance with the 18^{th} Amendment - No Intoxicating Liquor Allowed on the Premises," a common facade.
Critics of Prohibition: Medical Professionals
Medical professionals were significant critics.
Alcohol was widely prescribed for therapeutic purposes.
Congress held hearings on the medicinal value of beer in 1921.
Physicians actively called for the repeal of Prohibition as it applied to medicinal liquors.
Between 1921 and 1930, doctors earned approximately 40 million dollars (40\text{M}) from whiskey prescriptions.
What Was Actually Prohibited?
The manufacture, importation, sale, and transport of alcohol for beverage purposes.
Not prohibited:
Consumers could stockpile wines and liquors before January 1920. Drinking was not illegal, only the production and sale.
Making wine and cider from fruit at home was permitted, but not beer. Up to 200 gallons (200\text{ gal}) of wine and cider could be made per year.
International Effects of Prohibition
Distilleries and breweries in Canada, Mexico, and the Caribbean flourished.
Their products were consumed by visiting Americans or smuggled into the US.
Rum-running was particularly prevalent in places like Windsor, Canada.
The U.S. government complained to the British about this activity.
Winston Churchill famously believed that Prohibition was "an affront to the whole history of mankind."
Takeover by the Mob and Gang Warfare
Prohibition led to significant gang warfare, particularly in Chicago.
Al Capone gained control by systematically eliminating rivals.
Gang violence reached its climax in events like the St. Valentine's Day Massacre.
Al Capone
Locally and nationally admired figure, despite his criminal activities.
Enforcement against him was difficult because gangs became wealthy enough to bribe underpaid and understaffed law enforcement personnel.
Gangs could afford expensive lawyers, further hindering prosecution.
Many citizens were sympathetic to bootleggers, and respectable citizens were drawn by the "romance" of illegal speakeasies.
Rival Gangs in Chicago
South Side Gang (Chicago Outfit): Led by Johnny Torrio ("The Fox") and Al Capone ("Scarface"), primarily Italian American.
North Side Gang: Led by "Bugs" Moran, primarily Irish American.
St. Valentine's Day Massacre
Target: "Bugs" Moran and his North Side gang.
Event: On February 14, 1929, 7 people were killed: 5 members of the North Side gang and 2 associates, in a garage.
Aftermath: Capone became more powerful and notorious, earning the moniker "Public Enemy Number 1." Moran faded into obscurity. The crime remains officially unsolved.
Capone himself was eventually arrested, not for gang violence, but for income tax evasion, and he died in jail from syphilis.
Was Prohibition a Failure? The "Noble Experiment"
Often called "The Noble Experiment," it is widely seen as a failure.
Reasons for perceived failure:
At least half the adult population still desired to consume alcohol.
Poor policing of the Volstead Act.
Contradictions, biases, and widespread corruption within law enforcement and political systems.
Lack of a specific ban on consumption created legal ambiguities and loopholes.
The Iron Law of Prohibition
A term coined by Richard Cowan in 1986.
States that "as law enforcement becomes more intense, the potency of prohibited substances increases." This means "the harder the enforcement, the harder the drugs."
Examples: Cocaine became more potent after 9/11 amid increased drug interdiction efforts. Marijuana also became more prevalent and potent as enforcement intensified.
Although some argue Prohibition did work by reducing consumption, the "Iron Law" points to unintended consequences regarding the nature of the illegal goods.
Can Morality Be Legislated?
A fundamental question raised by the failure of Prohibition is whether it is possible to legislate morality effectively.
Countries With Alcohol Prohibition Today
Afghanistan
Kuwait
Libya
Saudi Arabia
Sudan
Maldives
UAE (United Arab Emirates)
Yemen
Case Study: Qatar and Alcohol
Sharia Law: Alcohol is forbidden for Muslims, considered a "great sin and some profit," with "the sin is greater than the profit."
Two ways for non-Muslim residents to buy liquor:
Qatar Distribution Company (QDC): An alcohol store only open to permanent non-Muslim residents.
Restrictions: Requires a Residence Permit (RP) and a work contract for an extended period.
Employer Permission: A letter from the employer explicitly stating no objection to the employee drinking alcohol.
License to Drink: Requires the employer's letter, RP, and a deposit (approx. 300 dollars). An interview is conducted to attest the applicant is not Muslim.
Strict Rules: Breaking rules (e.g., giving alcohol to non-immediate family members) can result in losing the license.
Premises of 4- or 5-star international hotels: Alcohol can be purchased and consumed in these establishments, typically at significantly higher prices ().
Why Does Prohibition Work in Some Places and Not Others?
Key differences:
Serious repercussions: Where there are severe and consistently enforced penalties.
Citizen agreement: Where the citizens largely agree with the prohibition for religious or moral reasons, leading to genuine public compliance rather than widespread illicit activity.