Thursday, August 30, 2000
The Halifax Herald Limited

A toast to liquor privatization

By Brian Lee Crowley

In its spring budget, the government of Nova Scotia promised that it would “get out of the retail and wholesale liquor business, provided such a move makes good sense for taxpayers.” The government won’t say what conclusion it’s coming to about whether it does make sense, because its own internal examination of the issue is still underway. But if the newest evidence from Alberta is any indication, getting the government out of the liquor business will be a great boon to both consumers and taxpayers.

According to Peter Holle of the Frontier Centre public policy institute in Winnipeg, once the private sector took over, the industry took off. Albertans now enjoy more choice, more convenience and more investment in the liquor business. Revenues to the provincial treasury have remained the same, despite lower taxes per bottle. Alarmist predictions of dire social consequences have proven, well, alarmist.

In Alberta, the government decided to maintain its liquor tax revenue at a flat level. Although per capita consumption has remained about the same, a near tripling of outlets (from 304 to 840) has allowed the government to raise the same revenue while lowering the tax per bottle. To keep revenues constant, it has had to reduce taxes four times.

Not only is the number of outlets up, but so is the number of communities served by liquor stores (from 151 to 219), putting the lie to the argument that smaller communities won’t be served unless government maintains its monopoly. The reverse is the case: where there is a market, businesses will have an incentive to serve it. Under the monopolistic Nova Scotia liquor commission, if they don’t think your community warrants an outlet, tough. Selection is far better in the stores as well, as the number of products sold in Alberta outlets has risen from 3,325 to 16,701, and the average number of products offered for sale in each outlet has also risen by nearly a third. Stores stay open later to serve their customers.

Perhaps most importantly for job-hungry Nova Scotians, full-time jobs in the industry went from 950 to 4000.

Here’s the catch, and the reason why you can expect the trade unions to fight this change tooth and nail: in Alberta average wages paid to liquor store workers declined from $13 an hour to about $8, the wage paid in the competitive retail sector, such as grocery stores.

Did more choice and diversity in the industry mean a lot more drinking? No. Average liquor consumption per capita has risen a mere 1.7% since privatization. And the government cracked down hard on drunk driving, which has declined by half since 1991. This is government at its best, allowing much more social freedom while containing the negative consequences.

Consistent with the pattern of privatization in other industries, the private liquor business created a financial windfall for Alberta. The government initially took in $82 million from selling assets, more than three times the actual cost of privatizing, which included $17 million in severance packages for employees. But $100 million in private capital investment followed. The businesses that sell liquor pay business, property and income taxes, having lost the free ride of escaping normal taxation due to government ownership.

A significant difference between Alberta’s effort and Nova Scotia’s plans is that this province may privatize the wholesale and distribution end as well, whereas Alberta kept these functions in government hands. The pervasive benefits of competition and entrepreneurial energy can then be realized across the board in the liquor industry. In fact, what will likely happen is that we will be able to eliminate many of those wholesale costs altogether, because existing food distribution businesses, such as Sobeys or Superstore or Pete’s Frootique, would be able to add these product lines to their existing distribution network quite cheaply.

So if Alberta is any guide, here’s the trade-off we’ll be facing if the government follows through on its promises: four times the employment, five times the product selection, lower liquor prices, many new tax-paying businesses, longer service hours. In other words, a consumer and taxpayer bonanza versus preserving a handful of protected jobs that pay way over the odds at the expense of consumers and taxpayers throughout the province.

All the old arguments in favour of the tired old monopoly system do not stand up to scrutiny. Yes, alcohol is a dangerous substance, but so too are drugs, cigarettes, guns, poisons and a host of other things that we as a society quite properly regulate very strictly. That doesn’t mean that we should have to buy our pharmaceuticals or smokes from a top heavy, costly and indifferent public monopoly at the cost of jobs, investment and consumer satisfaction. Buying a bottle of wine shouldn’t be any different. Cheers.

Brian Lee Crowley is president of the Atlantic Institute for Market Studies, a Halifax-based public policy think tank. E-mail: BrianLeeCrowley@aims.ca