The Public Choice Lesson of Margarine. "I Can't Believe It Wasn't Legal to Sell Yellow Margarine"

The Wikipedia entry below on Margarine provides an excellent public choice lesson on rent-seeking by a special interest group that uses (hijacks?) the political process to enact legislation to protect that group (in this case the dairy industry) from the competition of more efficient or lower-cost rivals (in this case the margarine industry).  In this example, both of the groups are domestic producers (dairy and margarine), but the lesson would be exactly the same if it was the U.S. steel or tire industry seeking legislation (e.g. tariffs or quotas) to be protected from the competition of more efficient foreign rivals.  Here's the Margarine Lesson:

 

"Margarine can indicate any of a wide range of butter substitutes.  Margarine naturally appears white, or almost white, and by forbidding the addition of artificial coloring agents, legislators in some jurisdictions found that they could protect their dairy industries by discouraging the consumption of margarine. Bans on adding color became commonplace in the U.S., Australasia and Canada and, in some cases, those bans endured for almost 100 years. It did not become legal to sell colored margarine in Australia, for example, until the 1960s.

Canada.  Margarine was banned from 1886 until 1948 though this ban was temporarily lifted from 1917 until 1923 due to dairy shortages. Nevertheless, bootleg margarine was produced in the neighboring British colony of Newfoundland from whale, seal and fish oil by the Newfoundland Butter Company (which, in fact, produced only margarine) and was smuggled to Canada where it was widely sold for half the price of butter. The Supreme Court of Canada lifted the margarine ban in 1948 in the Margarine Reference.

In 1950, as a result of a court ruling giving provinces the right to regulate the product, rules were implemented in much of Canada regarding margarine's color, requiring it to be bright yellow or orange in some provinces or colorless in others.  By the 1980s, most provinces had lifted the restriction, however, in Ontario it was not legal to sell butter-colored margarine until 1995. Quebec, the last Canadian province to regulate margarine coloring, repealed its law requiring margarine to be colorless in July 2008.

United States. As early as 1877, the first states had passed laws to restrict the sale and labeling of margarine. By the mid-1880s, the U.S. federal government had introduced a tax of two cents per pound, and manufacturers needed an expensive license to make or sell the product.  Individual states began to require the clear labeling of margarine. The color bans, drafted by the butter lobby, began in the dairy states of New York and New Jersey. In several states, legislatures enacted laws to require margarine manufacturers to add pink colorings to make the product look unpalatable, but the Supreme Court struck down New Hampshire's law and overruled these measures in Collins v. New Hampshire, 171 U.S. 30 (1898).

By the start of the 20th century, eight out of ten Americans could not buy yellow margarine, and those that could had to pay a hefty tax on it. Bootleg colored margarine became common, and manufacturers began to supply food-coloring capsules so that the consumer could knead the yellow color into margarine before serving it. Nevertheless, the regulations and taxes had a significant effect: the 1902 restrictions on margarine color, for example, cut annual U.S. consumption from 120 million to 48 million pounds (60,000 to 24,000 tons). However, by the end of the 1910s, it had become more popular than ever.

The long-running rent-seeking battle between the margarine and dairy lobbies continued: In the U.S., the Great Depression brought a renewed wave of pro-dairy legislation; the Second World War, a swing back to margarine. Post-war, the margarine lobby gained power and, little by little, the main margarine restrictions were lifted, the most recent states to do so being Minnesota in 1963 and Wisconsin in 1967. Some unenforced laws remain on the books."

MP: It took almost 100 years for common sense and economic logic to prevail in the battle between the dairy industry and margarine producers, and that was a fight between two well-organized, well-funded, politically powerful domestic producers.  It will probably take a lot longer, if ever, for common sense and economic logic to prevail in the case of protectionist trade policy for foreign imports.  Reason? The two main groups who are adversely affected by protectionism: a) domestic consumers and b) foreign producers, are generally not well-organized or well-funded (domestic consumers) and not politically connected (foreign producers).