Well externalities are usually subjective anyway.

The way I’d do it is have a banding system, sort of like car tax is now. Band A = low tax, band whatever (depends what the scale is) = lots of tax.

Every pub/club/drinking establishment (distinction is now so blurred as to be pointless) starts in the middle and every year moves up or down depending on its previous performance. Things that move you up would be aspects like a good record on violence, whether you serve a particular minority subculture (eg: live music – if original rather than cover bands), the extent to which you serve a community (village pubs), ownership of the pub etc. Things that move you down would be things like violence, drug dealing on premises, too many kids, playing mainstream chart music, complaints from local residents, being a corporate chain (the purpose is to encourage competition not monopolies) etc.

So essentially the system is used to encourage diversity, responsability and serving the community rather than soulless chain rubbish.

Weatherspoons directly employ their managers, as far as I’m aware, which means that it’s more comparable (from the corporate perspective) to something like Holiday Inn. There’s a 3-ring binder on How To Run A Weatherspoons (as distinct from how to run a pub).

And there’s huge variation between specific cellars. Some WSp’s I just won’t drink in at all; 10 real ales which all taste like eggs and are 4 degrees too warm, or (indeed) lager temperature, which is just as bad. On the other hand, the Coronet on Holloway Rd. is well worth a visit, because the range is the same as any other WSp, the prices are low to reflect the bargaining power of huge corporate blocks, and the two guys who run the cellar there happen to be really good cellarmen. The beer’s well kept and that makes it worth while.

I don’t have a problem with WSp as a business model. If someone can franchise a good pub, more power to them. But IME they haven’t done that; they’ve franchised a bad pub, and a few of their managment staff happen to have done good things with that model.

(I suppose, if we’re running with your cornershop analogy, they’re Tesco Expresses…)

Because Hackney borough contains, three or four miles from me, a bunch of very violent, very heavily crime-ridden night clubs, the Hackney licensing committee have defined anyone who has a music license as a night-club; which means that you become subject to completely different levels of regulation and no-notice undercover inspections.

I was going to ask about that after reading your website. Presumably the logic from LB Hackney’s point of view is that since pubs can now have late licenses, if they didn’t have the exception then a shonky would-be nightclub operator would open as a ‘pub’, but then would operate in exactly the same way as the ‘club-regulated’ types next door. Which is a pain, but understandable.

Dreamingspire’s point is interesting: the collapse of the property market (and in particular, the market for urban new flat conversions) might well bring the value of a pub-as-a-pub closer in line to the value of a pub-as-property-play, which could only be a good thing…

So the chav meat market that causes lots of drunken violence and town centre disorder pays a lot more tax and license fees than the local pub that acts as an unofficial community centre.

Much as I wish it wasn’t, this is too subjective a judgement to work for a national policy. The new licensing laws as they exist now devolved power to local council licensing committees precisely to deal with this kind of variation; so that local government could identify trouble spots and place conditions on their license to force them to improve or sink.

The result is that I can’t get a live entertainment license. Because Hackney borough contains, three or four miles from me, a bunch of very violent, very heavily crime-ridden night clubs, the Hackney licensing committee have defined anyone who has a music license as a night-club; which means that you become subject to completely different levels of regulation and no-notice undercover inspections. The building inspections would cost (me!) over 7k a year which prices me out of the live music market, because of the sins of a bunch of people who aren’t even in my business sector. Night club != pub: equally, wine bar != pub, and gastro-pubs are often borderline.

It is also an unfortunate truth that VDEs are more “efficient” than real pubs. In a vertical drinking establishment you take out the chairs and tables, which encourage “home-like” social interactions, and replace them with pedestal tables which maximize the number of people you can fit in, which in turn maximizes your potential business in terms purely of volume. One is trying to achieve two different things; I’m trying to run a pub, they’re running an extremely expensive alcohol delivery system.

BluePillNation @18:

I had an depressing, but interesting conversation a while ago at a Greene King pub in Oxford where the landlord was talking about how Wetherspoons had set up a deal with Greene King IPA at 99p a pint for a period and how Greene King’s own pubs couldn’t match it – madness.

I’ve known a brewery-tied publican undercut by the local cornershop because the tied price they had to pay for beer from the brewery which owned them was higher than the market price by such a large margin. Greene King are also famously one of the worst brewery abusers of the tie, before the property tycoons moved in.

The pub had years ago been a centre of local life, but went downhill under a succession of grotty landlords and then closed. Its keep fingers crossed time now for the new people…

This also highlights one of the trade aspects I didn’t discuss here; I touched on it back at my place because the article was twice as long there. During the keg revolution something similar occurred to what’s happened with the property traders, but at the retail end of the trade rather than at the wholesale end.

There was an existing problem, particularly in depressed urban areas such as the northern mill towns, or Clerkenwell in London, with very very bad landlords. One of the advantages of keg beer to the breweries was that the bad landlords couldn’t really fuck it up.

However, this had an unanticipated side-effect. Keg beer made the pub trade viable for someone who wasn’t a publican. A publican is a craftsman; real ale involves several physical skills, a lot of experience-based judgment and a fairly deep love of beer as an art. Or it had better, since you regularly end up soaked in the stuff. A keg lager publican can be the same kind of businessman as a corner-shop owner or an investment banker; someone whose interest is purely units sold, profit margin, bottom line. The breweries started it with the tie, teaching people to think a pub was a shop, but bad publicans moved in and took over the trade in the 70s and 80s, because they could ignore the fact that they didn’t know what the hell they were doing. They could pretend pubs worked like a Blockbuster video rental.

This is what gave rise to the completely split pub industry we have today; a small but growing percentage of CAMRA members and other enthusiasts who see pubs as an economic and social identity in their own right, and on the other hand a dominant but currently flailing group of operators who see pubs as an inefficient corner shop.

Change the licensing laws and tax on booze to reflect the different externalities.

So the chav meat market that causes lots of drunken violence and town centre disorder pays a lot more tax and license fees than the local pub that acts as an unofficial community centre.

Also, thanks for re-explaining the situation. Nothing new then. Big money uber alles.

…in that your pub is run as a freehouse, run well, was bought relatively cheaply because the council (all credit to them) refused permission for flats conversion, and yet still barely generates a profit.

Hmmm. Not entirely; I may have been unclear. Firstly, we don’t own the freehold; we rent the lower two floors of a building the upper three floors of which are flats we don’t have access to. Secondly, as I noted in the case study my pub is heavily encumbered with capital debt due to having had to rebuild the floor, the cellars, the loos and the entire bar area from a burnt-out shell. We only opened three years ago.

My free cash-flow profit is between £20 and £30 thousand a year. If I was a free-house publican who was running this business without the capital encumberance, then after paying my own salary, and continual investment in the infrastructure and processes of the business, I’d still be clearing 20kpa on current trade. Typically, the ‘profit’ (in a tied pub) is the only remuneration a publican gets, as they are not paid a salary by the tie owner. Directly employed landlords (such as those who work for Weatherspoons) are in a different situation.

Margins in this trade are quite narrow. One reason the tie is so bad is that it artificially raises the purchase price of goods sold to the publican through a legally mandated monopoly: this increases profit margin for the tycoon. Normal market functions establishe the price the landlord can sell at, therefore any increase of profit margin to the tycoon is a loss the landlord cannot recoup. This is a self-reinforcing spiral, particularly once the owner (property tycoon) has no vested interest in the pub trade at all: unlike brewers, who do benefit from the existence of pubs.

For an independent small business, £20kpa free cashflow profit is not “barely generating”, after only 3 years of trading. By comparison with a potential one-off ROI of say half a million from a property sale, these are not good numbers for a multi-national accountant to see. But if I was running this place as my own business and seeing figures like that I’d be more financially secure than I or my father have ever been. I would, in fact, be laughing all the way to the bank. In five years of that I’d be able to buy another pub.

Then there’s the growth factor. When I took over the job we were generating free cashflow profits of about 12kpa. Once this recession ends, I imagine we will be able to get turnover rising quicker, and should hopefully be delivering between 40 and 50kpa profit by the time the amortizations have run their course and those profits become “real”.

I can see that plenty of pubs that are lossmaking under the tie system would be profitable if they were independent establishments *owned by their proprietors*, but I can’t see how they’d be capable of generating enough income to cover the (not inflated – at least, no more so than rents and prices of all property are inflated) cost of inhabiting the buildings they inhabit.

Because if the landlord is making a profit he won’t be forced to sell the business. If a landlord chooses to sell up for flats because he wants a bigger, but once-only, return then that would represent a ‘natural business failure’. A pub would have shut, for natural market reasons. What I’m highlighting here is the way British law and a traditional hang-over from earlier days permitted property magnates to deliberately engineer the loss of thousands of pubs whose operators had no wish to sell up. And how the government, through the RICS, permitted employees of the property magnates to regulate and control this process from behind a smoke-screen of anti-competitive law.

I’m still confused by this bit:
Pubs which, run as freehouses, would provide more than adequate profit for the publican are ruined as businesses by the tie

…in that your pub is run as a freehouse, run well, was bought relatively cheaply because the council (all credit to them) refused permission for flats conversion, and yet still barely generates a profit.

I can see that plenty of pubs that are lossmaking under the tie system would be profitable if they were independent establishments *owned by their proprietors*, but I can’t see how they’d be capable of generating enough income to cover the (not inflated – at least, no more so than rents and prices of all property are inflated) cost of inhabiting the buildings they inhabit.

I hadn’t actually admitted which pub I run explicitly before. It was a bit heat-of-the-moment but I decided I’d post the comment anyway, as I’m increasingly convinced that JQP is never going to say anything that I’m not prepared to have attached to my real name. Internet paranoia dies hard, and I served my apprenticeship in places like ASR.

As with John B, while that remains the economic case not a lot will change. Perhaps it is true that there are benefits to the wider community…..so the trick is to try and work out how those benefits can be captured (as with all positive externalities) byt the producers.

The only way I can see is to rescind the capitalist system; it will always be easier for a very large capital conglomerate to manipulate a market than it is for a guy who wants to run a good pub.

The point of this article was to illustrate the manner in which “worth more as flats than businesses” was a, not self-fulfilling, but deliberately engineered prophecy. The people who wanted it to be true have used the tie to make it true.

What might be done is the legal striking down of the tie as a monopolistic practice, but it won’t be done because ‘privilege’ means ‘private law’.

If this is true of pubs, then presumably it is also true of other entertainment venues such as cinemas and sports grounds. Is JQP saying that they’re next?

Well, since there are also less than half the number of cinemas in Britain that there were in the 1950s, and a third less than there were in the 1970s; and since school playing fields and other urban sports facilities have been disappearing at a similar rate, yes, there are parallels to be drawn. However, the cinemas were always a cartel industry, which brewing and taverning were not: and sports grounds were mostly either charity gifts or government controlled, and therefore subject to the forces of short-term thinking (and rapidly increasing population pressure!) since the 60s.

But; in neither case could this analysis be applicable because in neither industry is there an explicitly extra-market, anti-competitive legal instrument enforced and regulated by employees of the cartel.

Or is there something missing here, such as changing consumer tastes (and public health considerations) leading to a reduction in demand, which JQP seems to treat as fixed?

Er, no I don’t: “the vast majority of publicans in Britain between 1750 and 1950 would have an active local competition between brewers for their custom: also, bear in mind that a good deal more beer was brewed and drunk at that time.” The nature of my concern is that the astonishing rate of pub closure does not reflect changing demand, it reflects an explicitly anti-competitive and economically destructive industrial cartel enshrined in law. Pubs which, run as freehouses, would provide more than adequate profit for the publican are ruined as businesses by the tie: unrealistic rent, monopoly supply clauses and zero maintenance or development investment; since that last clause is considered to be the publican’s problem. That’s the point.

Within the (independent) company I work for, which runs four pubs, we have three that are rapidly growing (less rapidly since February) and one that is steadily, over a five-year curve, failing. It’s failing primarily because of decreased local demand, and can be seen as a “natural” economic failure. It’ll close next year, we think. It will be demolished and turned to flats by the freeholder, a company known as “$foo Builder’s Merchants”; a property speculator who bought it from a pubco at the height of the boom and have permission for a redevelopment.

None of the other pubs were successful businesses when run tied; we’re just lucky we could afford them when pubcos sold them off at inflated rates. They are all successful now they are run independently.

Perhaps JQP would care to explain why there are just as many pubs in my neck of the woods (London W2) as there were in the 1980s. Is his “property development” logic magivally suspended in inner London? If so, why?

I don’t have accurate regional breakdown numbers, but I do have experiential evidence of the trend within inner London: I pass in excess of 25 boarded pubs, all of which were open five years ago, on my journey to work.

In the last 10 years, I’ve mainly lived and worked in North and East London, areas that are famously deprived economically such as Leyton, Walthamstow and Holloway. This may well be some of the difference. I may, as someone else suggested here, also be using a different definition of ‘pub’; mine would not include All Bar One, for example.

JohnB @2:

If pubs added value, then it’d make sense for someone like you to buy a house, or a derelict pub, or some other kind of building, get the licenses, and reopen one, completely outside the tied system.

“make sense”.

Okay, several things:

1) I and most people have no capital stake, so we have to borrow. I currently run a debt-encumbered pub, which had to be rebuilt after a major fire several years earlier. Ammortization and depreciation on the (floor, bar, cellars, toilets, etc) turn a £25-30kpa free cashflow profit into an account-book profit of £0. I’ve got another 7 years to work before I’m free of those considerations. Entering this trade heavily encumbered is bad.

This does not, of course, apply to huge capital speculator firms whose core business is property trading anyway. In a land-market boom, they can outbid real publicans, pay over market rate if they have to: then wait, and sell the pub as land when the market rises. Massively inflated housing boom, remember? Also, exploitative laws placing unrealistic constraints on business operators (i.e. the tie) driving down the values of businesses until they meet the rising value of land. It’s a scam, as I say in the article.

2) This does happen but it takes unusual circumstances. The pub I manage is like that: the building stood derelict for 5 years because council had put a planning control on it. Eventually the builder’s merchants bought it and wanted to put in flats roof to cellar; the council said they couldn’t, it had to remain a pub. Otherwise, this would have been gone, and you don’t often see me congratulating a Labour council. This place was purpose-built in the 1840s and has been a pub ever since, bar the burnt-out years. It is now a thriving business. It was a failing one when the “mysterious fire” happened, at which point it was a tied house.

the quality of beers on offer at all ends of the market has increased massively even over the 15 years I’ve been drinking in pubs, which probably reflects the decline of the traditional tied system.

Mostly it reflects the work of CAMRA to re-develop an independent, that is competitive, brewing industry. It hasn’t helped the pub trade enough to offset the destruction wrought by the tie system in the hands of people who don’t need pubs at all (land speculators have no a priori use for pubs. Brewers did at least have that).

Claude @3:

Positive: drinking dens have ceased to be almost male-exclusive, league of gentlement-style places with lots of blokes turning round to look who’s coming in each time the front door opens . Contemporary drinkeries cater for a female crowd too.

My pub is a real ale haven with 16 hand taps. Yes, we get a lot of exactly the people you think. We also stock varying, imported beers, unusual tap lagers and Belgian beer on draguth, real ciders and a fair wine list. We get a lot of female custom. We are a traditional pub; no piped music, no Sky sports, no fruit machines. This makes us almost unique in our local market. People come to talk.

John B@4:

I don’t know if you’re in London, but if you are within striking distance come try mine. You can tell everyone if I practice what I preach

Rich @5:

but the value here is not necessarily apparent to the publican or the land owner, but to the community at large

Typically it is apparent to the publican, as he is part of the local community. It typically isn’t apparent to the corporate accountant in London head office; or indeed in New York head office in some cases.

Thank you for catching that part of my argument. The other part is that the vast majority of the pubs closed in the last 15 years were not natural business failures. They were part of a streamlined process for turning functioning business into chunks of real-estate for cashing in on an artificially inflated housing boom.

As with John B, while that remains the economic case not a lot will change. Perhaps it is true that there are benefits to the wider community…..so the trick is to try and work out how those benefits can be captured (as with all positive externalities) byt the producers.

No, I don’t know how this might be done.