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September 30, 2009
Booze Prohibition -- 80 Years On
Never underestimate the ability of vested interests to protect their monopoly or near-monopoly positions. For a good example, consider the state of the booze industry in Canada.
In Ontario, a strike by Liquor Control Board of Ontario (LCBO) employees almost occurred in the middle of summer following union concerns about an increasing number of part-time employees. Meanwhile, in New Brunswick last May, allegations arose about possible collusion between New Brunswick’s liquor board and its suppliers.
Last winter in Saskatchewan, the opening of two private specialty wine stores set off a public relations campaign by the government union warning about the “dangers” of private wine or beer sales. Apparently being able to buy your favourite shiraz or sauvignon blanc would be a clear and present danger.
These events highlight the curious nature of alcohol policy in Canada. With the exception of Alberta, every province has a government monopoly on the importation, distribution, and retail sale of alcohol. While some provinces make small allowances for private retailing, all retailers still receive their product from the government wholesaler. That creates an uneven playing field where government retailers always have the upper hand.
This antiquated system, a product of the post-Prohibition era, needs to change. Yet any discussion of reform is typically met with a hostile response from government unions. They fear losing their privileged status and above-market wages. After new specialty wine stores opened in Saskatchewan, the Saskatchewan Government and General Employees’ Union (SGEU) launched a media blitz. The union claimed that private liquor stores lead to more crime, increased consumption, “social harms,” expensive products, and less government revenue.
These advertisements were provocative but most if not all of the SGEU claims were exaggerated, misleading, or incorrect.
For instance, alcohol sold at private outlets is not more expensive. Following its retail privatization in 1993, Alberta’s prices have generally been less expensive than other provinces. As with any other product, increased competition creates incentives for businesses to meet consumer demand. However, the price of alcohol is heavily dependent upon government markups and taxes, which operate independently of whether retail and distribution is monopolized or open to competition.
Likewise, retail monopolies do not create more government revenue than private retailers. Of the four western provinces along with Ontario and Quebec, Alberta is tied for the highest in terms of dollars raised from alcohol per capita, ahead of those with retail and distribution monopolies.
Another myth promulgated by government unions is that there is a relationship between safe communities and public liquor stores. Wrong.
Contrary to SGEU advertisements, a government monopoly has not made Saskatchewan safer. Instead, Saskatchewan has had the highest rate of impaired driving of any province every year since 1993. By contrast, in the decade following privatization, Alberta’s impaired driving rate declined by a higher percentage than any other province– 73 per cent. That compares to a 47 per cent decline for Saskatchewan and an average 50 percent for Canada. In addition, citizens of Saskatchewan report higher rates of alcohol-related harm than nearly all other provinces, including Alberta.
Also, although retail privatization led to more stores and more product selection in Alberta, it initially correlated with a decrease, rather than an increase, in sales and consumption. Consumption levels depend heavily on historical and demographic factors—not whether the retailer is public or private. Most of this should be self-evident. A unionized employee at a government store cannot stop the average university student from drinking irresponsibly any more than can a private sector employee.
Thus, Saskatchewan’s government monopoly on the retail and distribution of alcohol cannot be justified in terms of economic efficiency or social harms.
This reality should lead to some sensible “post-Prohibition” reforms. First, since government monopolies don’t prevent harm, provincial governments should recognize their role is in regulating alcohol-related harm—and that has nothing to do with wholesaling or retailing. Countless European countries recognized this fact decades ago.
Second, provinces should open up their retail and distribution monopolies to competition. This would allow the economy’s best practitioners in supply chain management and retail to enter the business and serve customer demand.
Finally, if government insists on selling alcohol, they should introduce a taxation regime that treats public and private organizations alike. That’s as opposed to the current wholesale monopoly practice in provinces like Saskatchewan that forces private retailers to purchase alcohol from the government at the same price as consumers.
If Canada’s provinces want to get past Prohibition and develop evidence-based alcohol policy, these reforms would be a useful start.