The advantages of privatizing government liquor stores
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Hey there, time traveller!
This article was published 15/12/2012 (3750 days ago), so information in it may no longer be current.
CALGARY — When Ontario opposition leader Tim Hudak recently released a position paper that mused about reforming how Ontarians buy their beer, wine and spirits, the usual nonsensical non sequiturs were quickly offered up by those opposed to private liquor stores.
I’ll get to the myths about private booze shortly. In general though, state-owned enterprises almost invariably mean losses for taxpayers, consumers or both.
A good example of the latter is the Liquor Control Board of Ontario, which runs the Ontario government liquor stores.
In 2011, Ontario’s provincial auditor general, Jim McCarter, expressed amazement at how the LCBO doesn’t drive a tougher bargain with suppliers and demand cheaper wholesale prices. As McCarter told the Toronto Star, “A WalMart would certainly go back to their supplier and say: Would you sell it to us cheaper?”
That lack of attention to cutting deals for consumer is unsurprising. When state-owned businesses are sheltered from true competition, they face no pressure to offer competitive prices since the consumers have no other option but to buy from their stores.
There are many reasons why Ontarians shouldn’t buy the myths about liquor store privatization.
One fable is that if Ontario privatized liquor stores, the provincial treasury would lose billions in revenue. The LCBO regularly touts how it transfers $1.6 billion to the provincial treasury. In public interviews, its communications staff hint that such revenue would be at risk if the LCBO was shuttered.
That’s false. A government can keep the liquor mark-up without owning retail stores.
This is exactly what occurred in Alberta. After Alberta privatized every single government liquor store by the spring of 1994, Alberta’s government kept its mark-up (sales tax) in place. In total, between privatization and the end of this budget year, Alberta’s treasury will have reaped $10.5 billion in such markups, including an estimated $700 million this year.
Another myth about government liquor stores is that they will have better selection than private retailers.
Actually, whether government or private, individual store selection will vary. But in terms of overall provincial selection, in Alberta, product selection has exploded since privatization.
There are now more than 18,200 varieties of beer, wine and spirits available in Alberta. That compares to just 2,200 products before privatization.
Competition has also increased in Alberta. Just prior to privatization, Alberta had 208 government liquor stores and 65 private retailers.
Nineteen years later, Alberta has 1,313 private liquor stores and another 93 general merchandise stores that can carry alcohol beverages (usually in small towns). All those stores can import whatever they want through a wholesaler (no government bureaucrats need approve) and all set their own prices.
On prices across Canada, they fluctuate widely depending on a province’s mark-ups and taxes on alcohol. However, when I compared Alberta to British Columbia in a 2002 study, and subtracted taxes and markups in both provinces, Alberta’s system was far better for consumers on price and selection.
I have seen more recent studies that try to argue that Alberta has high prices. But such surveys invariably ignore Alberta’s big box stores and their cut-rate prices.
Critically, those big-box liquor stores guarantee no retailer or wholesaler — unlike the LCBO’s approach — can have fat margins. Competition in Alberta is too intense. That’s great for consumers.
There’s another myth circulated by anti-competition, anti-private liquor store opponents: that private retailing of beer, wine and spirits will lead to more alcohol abuse or to more crime.
That is incorrect. A 2009 study by the Frontier Centre compared Saskatchewan (dominated by government liquor stores) and Alberta. It found no link between private retail stores and an increase in crime, based on two reports from Calgary Police Services.
That study also found that the number of drinkers increased faster in Saskatchewan and Quebec (up 5.2 per cent and nearly 10 per cent respectively) between 1994 and 2004, when compared with Alberta (up by 3.1 per cent).
In Alberta, the prohibition on beer, wine and spirits began in 1916 courtesy of a referendum but that was reversed in 1924. That year, the first government liquor stores were created.
Seventy years later, Albertans returned the province to the state it was pre-1916, where private liquor stores were the norm.
Alberta’s liquor privatization has made consumers better off through lower prices, convenience because of vastly higher numbers of stores — and in dramatic contrast to Ontario, a larger selection. Also, social problems and crime are no worse. But in Ontario, and weirdly for a province where many people likely despise Prohibition-era prudishness, the approach to selling booze, wine and spirits is still that of circa 1924.
Mark Milke is a senior fellow with the Fraser Institute.