Strategy

A toast to good economic sense

Another U.S. state votes down its liquor monopoly—and will profit as a result.

(Photo: Getty)

On Nov. 8, Washington voters chose by a wide margin to privatize liquor sales. It currently allows grocery and convenience stores to sell beer and wine, but is one of 18 American states that still runs either a chain of stores selling spirits, a monopoly wholesaler or both. By June, the stores will be sold, and retailers will order booze directly from manufacturers.

The state’s voters turned down a similar initiative just a year ago. What changed their minds? Was it a new provision preventing hard-liquor sales in convenience stores? Was it the US$23 million spent by initiative supporters, the bulk of which came from Costco? Or was it the PBS première of Ken Burns’s latest documentary, Prohibition?

The film expertly explained the 18th Amendment’s failure as a case of government overreaching its moral authority and practical capacity to control private behaviour. Prohibition thus became a defining moment in the evolution of the American social contract. As this ballot and a similar debate in Pennsylvania attest, the terms of that contract are still being negotiated.

Unfortunately, there’s no such debate here. Most provinces lack the democratic apparatus for citizen initiatives like Washington’s, though there’s little public conviction that alcohol sales need to remain nationalized.

But the overriding reason governments continue to monopolize liquor sales (even Alberta corners the wholesale trade) is economic: they’re a cash cow. The Liquor Control Board of Ontario, considered the largest retailer of alcoholic beverages in the western world, delivered $1.4-billion to the province last year (excluding liquor taxes). No wonder it rejected privatization in 2005 against its own experts’ recommendations.

This rationale is flawed, though. Washington’s Office of Financial Management predicts state revenues will grow by at least US$216 million over six years thanks to licence fees and business taxes, and municipal revenues will go up around $200 million. A 2000 University of Alberta study showed the province’s revenues were not hurt by privatization of liquor retailing, either. And as Prohibition illustrates, we’ve been through this debate. It’s time we acted on our conclusions.