The Beer Store Publishes a Ridiculous Study of Possible Liquor Privatization Effects

The Beer Store has published a study of potential effects of privatizing alcohol sales in Ontario. The results are not surprising: it will bring nothing except gloom and doom. The study has been vetted by an economist Greg Flanagan, who confirmed that the conclusions are reasonable, and Ontario should indeed stick with its public system.

The study brings a number of consequences of such privatization:

  1. Prices will rise
  2. Government revenues will fall
  3. Selection will be reduced
  4. Alcohol will be more available to minors

Flanagan writes: “The public, and public policy makers, are well served with this type of fact-based informative research showing the reality of the trade-offs inherent in policy decisions regarding any restructuring of the retailing of beverage alcohol”.

First of all, let’s do away with credentials here. Economics is not like physics. For any opinion in economic policy, it is entirely possible to find a decorated scholar (up to and including a Nobel prize laureate) that will confirm your ideas as true and fact-based. The ideas can range from outright Marxist to extreme Anarcho-Capitalist – they all have a following of highly distinguished intellectuals.

Therefore, the value of Flanagan’s endorsement is pretty much negligible to say the least – no disrespect intended.

At the same time, we should leave aside the obvious objection that Beer Store is not, and cannot be an impartial side of the argument: it will be affected to the utmost degree should the policy changes be implemented. Such objection would amount to questioning the motivation without addressing the merits – so we can leave this to the various comment boards which are already full of messages to that effect.

But we do not need to appeal to ulterior motives. The arguments that the study brings are simply hilarious. Let’s start with those that claim that the prices will rise while selection will be reduced. Here they are, verbatim from page 24 of the report:

  1. more points of sale;
  2. increased distribution costs as liquor must be delivered to many more outlets;
  3. higher per unit selling costs as total liquor sales volume is spread over more selling outlets resulting in less volume sold per store;
  4. the requirement to fund new retailer margins; and
  5. higher marketing costs for liquor manufacturers and agents as hundreds of independent retailers must be contacted to get listings and retail shelf space

But wait a second! Are you sure we are talking about liquor? Nothing about these arguments is liquor-specific – they might as well apply to, say, alkaline AAA batteries that are commonly sold in corner stores. We must create a public distribution network for batteries at once! Consumers will have more choice (you’d be surprised how many types there are) and lower prices. Pretty much any consumer product sold in a convenience store will benefit from a public distribution if you listen to the Beer Store economists.

And why stop at convenience stores? We have too many car dealerships, too! We could bring the price of vehicles in Canada down by nationalizing and regulating car distribution – let’s get right on it!

But on a serious note, these arguments completely disregard the fact that alcohol could also be carried by larger outlets like Costco, No Frills,  and, who else, the Beer Store and LCBO. Because nothing says these networks could not keep functioning under an unregulated, market-based system. If they can deliver lower prices than convenience stores under monopoly rules (which is probably true) – they can keep selling under free market as well.

The prices in convenience stores are generally higher than in larger outlets precisely because of that – convenience. If you do not want to drive to Costco, you shop at your corner store. If you want cheaper products, you drive. It’s as simple as that.

Did the Beer Store researches include the costs incurred by consumers who have to drive larger distances to the nearest LCBO or Beer Store? Did they factor in a cost of lost business due to limited hours of government-regulated outlets? A time spent behind the wheel instead of with families and friends (and beer)? All these need to be offset against higher prices at convenient locations.

Then it gets better.

The government revenue, claims the report, will go down!

I cannot think of a better answer to that, than a resounding “so what?”. Because again, this can be said of any other industry in this country. You want to bring up government revenues? Let’s nationalize other distributions as well – oil, manufacturing, food, clothing – government revenues will skyrocket! If it is OK for the government to get its revenue from operating a business than we shouldn’t stop at LCBO – we can keep marching on all the way until we reach a fully Socialist state.

The only reason governments do not venture into business is that they have historically done a worse job than a free market. The past century has plenty of examples of that, beginning with drastically different state of affairs on both sides of the Berlin wall. So yes, government revenue will go down. And no, it’s not a bad thing. Consumers might be better off after all, as this revenue will go elsewhere instead.

As a side note, proponents of liquor privatization should also stop touting the exercise as revenue-neutral. The question of revenue is irrelevant to the topic; the only question is do we want the government to be in this business or not.

And finally, claims the report, government liquor stores are inherently better than private ones in refusing alcohol sale to minors.

This is especially interesting, since just a few pages earlier the report was trumpeting the fact that private stores are mostly small ones, while government stores are mostly large. If that is not an admission that we are comparing apples to oranges, then I don’t know what is. If we want a fair comparison, let’s compare small corner stores with small LCBO stores – like gas stations with LCBO license – and see if results are any different. And then compare large private stores with large government ones. Admittedly, it will be hard to find a jurisdiction where both kinds exist and are equivalent in size and environment.

On a separate note, if we are not happy with how convenience stores enforce age regulations, then the first thing we should do – before we even get into all this alcohol talk – is stop letting them sell tobacco. But we let them keep the cigarettes on the shelves, so this tells us that the situation is somehow acceptable. However, this is not an argument for alcohol privatization, as it can be countered that we don’t want to be making a bad situation worse.

The real problem with the “responsible sale” argument is that it promotes guillotine as a cure for dandruff. Yes, convenience stores may do a lousy job enforcing age regulations, denying service to minors and requiring IDs from everyone else. Who says there are no simpler solutions to this? Maybe just more enforcement or stiffer penalties would fix it, or at least bring to acceptable levels? Or another idea: in some states down south they ID everyone and enter the number in the system – so you cannot make the sale without an ID (and that includes everyone, even if they’re 70). Not saying that any of these solutions is the right one for Ontario, but it just doesn’t make any sense that having any issue with alcohol sales enforcement should lead straight to government monopoly.

We can go on and on, but these points are probably enough. If the above does not convince you that liquor sales should be privatized and deregulated in Ontario, then at the very least this should demonstrate that the debate will not be settled by marketing papers disguised as economic studies from the Beer Store economic gurus.

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