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Privatizing the Liquor Market

12:05 PM, Nov 4, 2011 • By ELIZABETH LOWELL and IKE BRANNON
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Apparently, the CDC does not consider beer or wine to be intoxicating; most state alcohol control board stores control only hard liquor, and where there are fewer hard alcohol stores there tend to be more stores selling beer and wine. Hard liquor, even after adjusting for alcohol content, only accounts for about 30 percent of all pure alcohol consumed. During Virginia privatization hearings, it became clear that while monopoly states have fewer hard liquor outlets, the total number of alcohol outlets in those states is actually higher. Thus, the monopoly states seeking to control alcohol consumption don’t actually control much of anything. To the extent that availability matters, states that regulate private markets do a better job of controlling alcohol availability.

Not surprisingly, recent studies and evidence from states that have privatized their liquor sales indicate no negative impact. Antony Davies and John Pulito conducted comprehensive studies in which they ranked states according to their degree of control over alcohol. They found no relationship between state control over the alcohol market and underage drinking, and actually found that the states with the most stringent controls had DUI fatality rates that significantly exceeded those in states with less stringent controls. Matthew Brouillette, president of the Commonwealth Foundation, testified that New Jersey has two-thirds the population of Pennsylvania and three times the number of liquor stores but one-third the number of alcohol related traffic fatalities.

Washington State has over 20,000 residents per liquor store, as compared to a national average of fewer than 4,500. The inconvenience and hassle factor that comes from having fewer stores does not produce any quantifiable societal benefits.

Geoffrey Segal and Geoffrey Underwood show in a study for the Reason Foundation that deregulation in Iowa and West Virginia did not lead to increased alcohol consumption, underage drinking, or drinking and driving. Privatization increased the number of outlets, but decreased the number of products sold per outlet; purchases of alcohol simply became distributed over a greater number of stores.

The reality is that discouraging alcohol consumption is a separate issue from privatizing the sale of liquor. States that want to decrease alcohol consumption should simply raise the price of alcohol by increasing taxes. Furthermore, increasing the penalties for distribution to minors or for driving under the influence provides the most effective alcohol abuse deterrent, and Washington’s privatization bill does double the penalties for distribution to minors. By privatizing liquor stores, the Washington Liquor Control Board can direct resources away from management (or mismanagement) and instead concentrate on enforcement of liquor distribution laws. 

3)    Generating state revenue.

Defenders of the state monopoly over the liquor business argue that government markup and state alcohol taxes raise revenue for the state. Yet privatizing liquor distribution and sales would allow states to collect alcohol and sales taxes without incurring the expense of operating their own stores and paying government employees. In addition, it would generate added funds through the auctioning of existing stores and distribution centers, the sale of liquor licenses and inventory, and the collection of additional business income tax and real estate tax revenue. Since the private sector can operate liquor stores efficiently and profitably, the government can sell retail liquor licenses at a price that reflects the profits the private sector could derive.

Washington State’s Office of Financial Management estimates that the privatization initiative would increase local government revenue between $186 and $227 million and increase state revenue between $216 and $253 million over six years, without accounting for the additional revenue that the state would gain by selling its 166 existing state liquor stores.

Privatizing liquor stores doesn’t prevent states intent on keeping prices high from imposing large taxes. Privatization raises money for the state, reduces government-induced waste, and makes these taxes transparent rather than swallowing them under “government markup.”

Increasing government inefficiency is never the answer to any problem. If we wanted to deter smoking, for example, we could require all cigarettes to be bought from one sole shack in North Dakota. We don’t because people will smoke regardless of our admonitions and the inconvenience imposed—they just won’t buy cigarettes from the government. The same rationale applies to alcohol.

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