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Privatizing the Liquor Market

12:05 PM, Nov 4, 2011 • By ELIZABETH LOWELL and IKE BRANNON
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Economic theory and two century’s worth of observation tell us that the government cannot run a business nearly as effectively as a private owner, yet this inefficiency is used as a selling point by politicians defending the continued existence of state-run liquor stores.


Eighteen states still maintain some form of government monopoly over the sale of alcohol, for the ostensible reason that having government in charge makes it easier to deter drinking than if it were left in the hands of the big bad private market. However, there are signs that this club may lose a few members: Residents of Washington State will vote next Tuesday whether to privatize its wholesale and retail liquor market, the Pennsylvania legislature is currently debating its own liquor privatization initiative, and Virginia’s Governor Bob McDonnell may rekindle the debate in Virginia in 2012.

It is far past time we got rid of this antiquated system: a private market would give consumers better service, price competition and easier retail access while government could still deter alcohol abuse via taxes and sensible regulation.

1)    Avoiding government-induced inefficiency.

The experience of states with government-operated liquor stores and distribution outlets demonstrates the myriad problems with government-operated businesses. In a competitive market, liquor retailers and distributors have an incentive to operate efficiently and keep costs low, whereas government monopolies face no such incentive. This inefficiency comes at a high price to consumers and taxpayers.

The Pennsylvania Liquor Control Board (PLCB) provides a striking example of the inefficiency of government liquor monopoly. The PLCB is the exclusive wholesaler and retailer of wine and spirits in Pennsylvania. It has trouble managing both operations (which are separate for no good reason), according to a recent audit report. In 2010, the PLCB’s new $66 million Enterprise Resource Planning System led to widespread inventory shortages and hoarding in retail stores. To compensate, the PLCB overrode the system and ordered over one million cases of excess inventory. Unable to reduce the inflow of alcohol into distribution centers, the PLCB instead ordered $500,000 worth of trailers without temperature controls to handle thousands of extra cases. Cases of wine and champagne sizzled in 100 degree heat. The Washington State Liquor Control Board has also suffered from liquor mismanagement. Miscalculations on the part of its state-run distribution center led to liquor shortages in 2009 and overpayments to trucking companies in 2010.

Pennsylvania’s inventory management fiasco offers just one example of its inefficiently operated alcohol market. According to the Commonwealth Foundation, a Pennsylvania think tank, the PLCB spends $90,000 per store in advertising at the same time that it is also ostensibly “discouraging” alcohol consumption.

The contradictory nature of advertising alcohol while also trying to control alcohol consumption shows the hypocrisy of state alcohol monopolies. State legislators rail against alcohol abuse while gladly spending the proceeds from alcohol sales and setting higher and higher revenue goals. State liquor officials tout alcohol abuse programs while writing proud press releases about sales records, a special promotion, or a store opening. Nevertheless, the Commonwealth Foundation notes that 45 percent of residents in Philadelphia and surrounding counties illegally purchase alcohol outside of the state. And who can blame them? Average wine prices are lower in all six border states, while average spirit prices are lower in three of its six border states.

2)    Reducing alcohol consumption.

Evidence continues to accumulate that restricting alcohol distribution through government monopoly does not decrease alcohol abuse.

Opponents of liquor privatization maintain that state-run liquor stores discourage liquor consumption by making alcohol less available while effectively restricting distribution to minors. The Centers for Disease Control and Prevention’s Task Force on Community Prevention Services advises against the privatization of alcohol sales, explaining that privatization tends to increase the number of outlets, as well as days and hours of sale, and increases per capita alcohol consumption.

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