Once you’ve studied a bit of public choice economics, you notice poorly designed institutions showing up in the strangest places. Like, for example, the classification of Bordeaux wines.
My plane reading today was Karen MacNeil’s Wine Bible, a lively 900 page tome that’s serving as my crash course in the wine industry. In an aside she describes how the region’s chateaux remain stuck with the same rankings they were given 150 years ago for a Paris fair. Prior to 1855, the wines were sold solely under the labels of the estates, which competed on the basis of quality and reputation. Then the French government demanded a formal system of classification. As described in a Slate article on the subject:
The Bordeaux Chamber of Commerce, which was putting together the Bordeaux display in Paris, decided to feature a list of the region’s best wines and asked Bordeaux’s Union of Brokers to draw one up. The brokers, to their eternal credit, compiled the rankings in the most sensible manner possible: on the basis of price. In their view, the market had already determined which Bordeaux wines were best, and the classifications needed to reflect the market’s judgment. (If this market-driven logic sounds terribly un-Gallic, that’s because it was un-Gallic: At the time, the British were still the main players in the Bordeaux wine market.)
Thus was born the notorious 1855 Classification for wines from the esteemed Médoc area. The four best were deemed the Premiers Crus (First Growths), the next group were the Deuxième Crus, etc., all the way down to Fifth Growths. In all, sixty-five estates were classified. However good an idea this seemed at the time, the system had a major flaw: it’s almost completely unrevisable. The entrenched chateaux have no interest in being threatened with demotion or competing with the approximately 200 unclassified Bordeaux winemakers known as Crus Bourgeois. As a result, the classification has only been changed once since the first few months of its founding. That was in 1973, when Baron Philippe de Rothschild succeeded in getting his Chateau Mouton-Rothschild upgraded from Second to First Growth after years of intense lobbying. The list has remained static ever since, despite suggestions for change. Again, from Slate:
If the rankings are to continue to have any meaning, they need to be revised to take account of the way fortunes have shifted in Bordeaux over the last 150 years. But merely creating a new hierarchy would not be enough; the classifications would need to be updated fairly regularly, and they would really be credible only if they were taken out of the hands of the châteaux owners and the French regulators. (The procedure for making changes to the classifications is utterly opaque; as best I can understand it, any change to a category—say, second growths—needs the unanimous consent of all the châteaux that are ranked in that particular category, and also the approval of the Institut National des Appellations d’Origine, or INAO, the regulatory agency that oversees French wine production.) If, for example, the job of classifying the wines were entrusted to a suitably illustrious group of critics, the results would almost certainly be an accurate reflection of reality and would carry substantial weight with the market. But that will never happen, and any attempt to make wholesale changes to the classifications would inevitably be subverted by politics. It took 20 years of tireless lobbying and horse-trading by Philippe de Rothschild to finally get Mouton its promotion, and it was universally agreed that Mouton deserved to be a first growth.
Fortunately, better informed markets have made the classifications increasingly irrelevant. So-called “Super Seconds” have come to command prices in line with the First Growths and can be just as good. (Or so I’ve read. With Premiers Crus starting off priced in the three digit range per bottle, my interest is going to be purely academic for a long time to come.) Meanwhile, lesser wines are judged more by their quality than their classification. The list lingers on as a harmless monument to silly regulation.