Four weeks ago, citizens in British Columbia’s neighbour, Washington State, voted to get their state government out of the liquor business (see: Initiative 1183 passes, ending state's experiment in alcoholic socialism). The voters directed that the state end its 78 year monopoly on liquor sales and shift its resources to enforcing the state’s liquor, health and public safety laws. BC’s government would be wise to look south and consider what Washington is doing and how they are doing it. The end result in Washington will be that consumers will pay less for liquor, more jobs will be created in the private sector, enforcement of liquor laws will increase and, perhaps most importantly, the state will make more money from the sale of liquor than it did under the monopoly.
BC is currently a monopoly province for liquor sales and it has been for 90 years following the repeal of prohibition when a “government control” system was created. The provincial government still maintains almost complete control over the liquor business by doing the following:
- Controls 100% of the wholesale liquor business through the BC Liquor Distribution Branch (LDB), which employs about 10% of direct government employees and costs $300 million per year to run.
- Controls prices at the wholesale level by imposing fixed LDB fees, LDB markups and taxes on all liquor products.
- Following an aborted attempt to privatize about 10 years ago, the province now severely limits competition through price fixing at the retail level. It does so by preventing the negotiation of wholesale prices for liquor to licensees such as private retail liquor stores, restaurants and bars. Instead it sets minimal discounts (e.g. 0% for restaurants and 16% for private licensee retail stores) off the full retail price that is fixed in government liquor stores.
- Further limits competition in the retail space by refusing to issue any new private store licenses and by imposing anti-competitive rules, such as distance separation requirements, onto the existing ones.
- Operates a slow and inefficient distribution system under which it typically takes 2 weeks to deliver a product from a warehouse in Richmond to a licensee in Vancouver.
- Imposes extremely high LDB fees, LDB markups and taxes upon anyone bringing liquor into BC from outside the province.
These factors contribute to the fact that BC’s liquor taxation and regulatory system is one of the most archaic and outdated in the world. As a result, BC consumers are faced with extremely high retail prices, the hospitality and tourism sectors are stifled by uncompetitive business practices, and job creation and economic activity are restricted. Alberta modernized and privatized its system in 1993. Washington has been modernizing its system over the past few decades and, with the recent vote, will complete its modernization and privatization in 2012.
Washington state’s approach is instructive because its reform measures complete the transition from a post-prohibition “government control” structure and remove the conflict of interest that is inherent in a system where government both sells liquor and is also supposed to regulate it in the public interest. Instead, Washington will move to a modern regime where the state can focus on regulation. Specifically, Washington’s reforms will do the following:
- Eliminate the state monopoly on liquor distribution and remove government from the wholesale liquor business (resulting in a onetime cash infusion to the state from the sale of its distribution warehouses).
- Establish a licensing and fee structure for liquor sales through the private sector that will generate about 50% more money for the state than the existing state liquor stores generate, while maintaining or reducing prices for consumers (Alberta intended to maintain its liquor revenues when it privatized but, in fact, saw revenues increase).
- Sell off existing government liquor stores (which will also result in a onetime cash infusion to the state).
- Restore competition to the retail market by removing wholesale price controls and permitting volume discounts for retailers purchasing wine and spirits.
- Enhancing liquor safety enforcement and limiting licenses to responsible vendors.
BC could easily learn from the privatization experiences in both of its neighbours and create a liquor regulation and taxation regime that is one of the best in the world. Both Washington and Alberta have proven that the removal of government from the liquor business will reduce consumer prices, increase selection, create jobs and economic activity, and increase government revenue. It’s time for BC to join the modern world of liquor regulation, just like our neighbours have done!
This chart illustrates some of the major differences between BC and its neighbours in respect of liquor regulation.