2010: The year of liquor privatization? 

Though Prohibition ended more than 75 years ago, many of the archaic alcohol regulations enacted upon repeal live on long past their usefulness. In eighteen American states, the government still controls the sale and distribution of liquor. That may be changing in at least three of them.

The state most likely to privatize liquor sales is Washington, where not one but two initiatives will appear on the November ballot. Both of these will end state distribution, but different businesses are backing each initiative. Large retailers like Costco back I-1100, which will allow large retailers to get bulk discounts on alcoholic beverages and pass the savings on to consumers. Additionally, it will allow retailers to purchase products directly from manufacturers, circumventing the distributors who currently profit from the state-enforced three-tier system in beer and wine.

Distributors are fighting back with their own initiative, I-1105, which will further entrench their role by bringing privatized liquor distribution into the three-tier system. Bulk discounts on beer and wine will be prohibited, resulting in higher prices for consumers.

Interestingly, it’s not clear what will happen if both initiatives pass. But adoption of I-1100 in particular will put pressure on Oregon. The state’s largest market, Portland, is right across the border from Washington. If prices or selection improve there, it will be hard to prevent consumers from driving a few minutes north for their shopping instead of patronizing Oregon’s stores. Though there are no formal plans in place for privatizing Oregon’s state-run system, Republican candidate for governor Chris Dudley has made the idea a central plank in his campaign. (Disclosure: I work as both a bartender and spirits promoter in Oregon.)

Virginia, too, is taking a close look at liquor privatization under Governor Bob McDonnell. His administration is considering four privatization plans, the most appealing of which would auction off licenses to sell hard liquor to raise money for transportation projects.

Opponents of privatization argue that it will lead to dangerous levels of alcohol consumption and loss of state revenue. The former claim doesn’t appear to have much merit, with results in control states roughly comparable to those with private sales. The latter is possible and depends on what new taxes states put in place and how much sales increase thanks to lower prices, greater selection, and increased numbers of retail outlets. In any case, the fact that the state can use its monopoly power to extract excess profits from consumers is not generally considered a valid reason for letting it take over retail markets.

In the long-run, consumers will benefit from getting the state out of the liquor business. Control state stores offer fewer products at higher prices than their freer neighbors. As interest in craft cocktails and boutique spirits has risen, so have complaints about the poor selections in control states. Government has never been as good as private, competing businesses at meeting consumer demands, and liquor is no exception to this rule.

About The Author

Jacob Grier

Jacob Grier is a writer based in Portland, Oregon. He authors the drink and policy weblog Liquidity Preference.
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