Why Have a Retail Alcohol Monopoly?

Paper presented at an International Seminar on Alcohol Retail Monopolies, Harrisburg, Pennsylvania, August 19-21, 2001

Robin Room
Centre for Social Research on Alcohol and Drugs, Stockholm University, Sveaplan, 106 91 Stockholm, Sweden

The fundamental justification for an institution like a retail alcohol monopoly is that there are important tasks it can accomplish better than private interests could. The North American retail monopolies and most of the Nordic ones were set up at the conclusion of a period of alcohol prohibition. In the legislation in the U.S. states, their primary goal was usually stated in terms of "promoting temperance", which we might interpret into modern terms as minimizing the harms from drinking. Secondary but important goals were setting up and maintaining an orderly retail market in alcoholic beverages (especially important in the immediate aftermath of prohibition), and providing revenue to their government (Room, 1993).

Experience has shown that there are other means besides a government retail monopoly to accomplish these secondary goals. In particular, a licensing and excise taxation system for producers, importers and retailers has proved to be a reasonable way of maintaining an orderly market and providing revenue. So the fundamental rationale for maintaining a state monopoly of the retail sales of alcohol is in terms of the public order and public health benefits which it can bring.

We are in a better position today than legislators were 70 or more years ago to quantify the harmful effects of alcohol consumption. In terms of net damage to the health of the drinker him- or herself, measured in disability-adjusted life-years (DALYs), a WHO study estimates that alcohol is responsible for 10.3% of all DALYs in the "established market economies" like western Europe and north America. This is about the same magnitude as the DALYs attributable to tobacco smoking (11.7%), and much more than the 2.3% of DALYs in those countries attributed to illicit drug use (Murray and Lopez, 1996). New estimates in this tradition, with a stronger empirical basis, will be published in the World Health Report for 2002.

Two things are noteworthy about this estimate. First, it is an estimate of net health effects, that is, it is the net adverse effects after an allowance for beneficial heart-protective effects of drinking are subtracted out. Second, it includes only the effects on the drinker him- or herself. Thus it does not include the "externalities" of drinking, the adverse effects of drinking on others – on the family, on friends and acquaintances, and on strangers. These externalities are the greatest source of social concern about drinking in our societies, and the most compelling justification in ethical terms for the government’s intervention in the market. Economic cost studies in the cost-of-illness tradition include some aspects of these externalities in their calculations, although the effects on family life and in work life -- two areas where the potential adverse effects of drinking are well recognized -- are difficult to quantify in dollar terms. In societies like ours, heavy drinking is associated with about 40-50% of all violent crime; a reasonable estimate is that it plays a causal role in about one quarter of crimes of violence (Room and Rossow, forthcoming). Alcohol also has a substantial responsibility for traffic casualties in our societies, being associated with about 30% of North American traffic deaths, with a causal role in maybe 15%, and somewhat less in the Nordic countries.

The burden of disease, disability, crime, and social problems attributable to drinking alcoholic beverages is thus very large. There are plenty of instances in modern societies where governments intervene actively in the retail market for commodities where a much smaller burden is at stake. One example is the prescription system for medications, which is essentially a rationing scheme, where the state puts the regulation of individual consumption of the commodities in the hands of the medical and pharmacy professions. Other examples are the
systems of control on chemicals which are environmental toxins or which are precursors to illicit drugs.

The fundamental justification for a government retail monopoly is that it occupies a field which otherwise would be occupied by private interests in competition with each other. The key to a monopoly’s effectiveness as an instrument of the government’s public order and public health aims, then, is the ways in which the monopoly’s occupation of the field holds down the rates of alcohol-related problems.

There are a number of ways in which this can occur, and in which, in fact, this has tended to occur in the case of the Nordic and north American monopolies (Her et al., 1999).

(1) Because of the lack of competition, and as a matter of government policy, the number of retail stores tends to be much lower than in a privatized market. When the retail level was privatized in Alberta, the number of liquor stores rose from 204 to 639 three years later (Mackenzie and Giesbrecht, forthcoming). In terms of location, internal layout, staffing patterns, and lack of clustering, government stores are also less likely to be focal points for neighbourhood disruption and crime, as is often found with systems of private stores (Gruenewald, 1993; Scribner et al, 1995; Alaniz et al., 1998). It is notable that the U.S. studies associating clustering of liquor stores with crime rates in a neighbourhood have all been carried out in states with a license rather than a monopoly store system. With a government retail monopoly, alcohol is more likely to be sold in separate locations from other
commodities, which also tends to keep the level of purchases down (Wagenaar and Langley, 1995).

(2) For the same reasons, the opening hours of government monopoly stores tend to be shorter than the hours of private retail stores. The simple fact of fewer hours of opening can mean lower levels of sale and of problems from drinking (Grover, 1999). When the state alcohol retail stores in Sweden were recently opened on Saturdays on a trial basis, the consumption in the trial districts rose by 3% (Norström and Skog, 2001). The issue of which hours the stores are open can also be important in terms of crime and disruption from drinking. Given the rhythms of life in societies like ours, much of the trouble from drinking occurs late at night, particularly on weekends. Those who drink after midnight and
before 11 a.m. are several times as likely as those drinking mainly in the evening to report their drinking has caused interpersonal, legal and work problems (Dawson, 1996). Drinking at unsociable hours often involves drinkers who do not do much planning ahead, and trouble from the drinking can be discouraged if no liquor store is open when supplies
run out.

(3) As an integrated single corporation with a duty of social responsibility, a state monopoly system can be more effective than a fragmented and competing private retail market in enforcing legislated limits on sales. Thus the Liquor Control Board of Ontario, the provincial monopoly store system, has been quite proud of its energetic and effective program in refusing sales to those who are under age or who are already intoxicated when they try to make a purchase (Goodstadt and Flynn, 1993).

(4) In line with their duty of social responsibility, government retail monopolies are typically more restrained in sales promotions than would be true for a privatized retail market.

(5) Perhaps the most important, but the most difficult to quantify, is the effect which comes simply from the absence of private interests on the scene. This is often thought of in terms of on-the-scene pressure on the customer to purchase from small business proprietors and their sales staff. But perhaps more important in modern polities are the pressures which private interests, once created and legitimized, bring to bear on the political and legal systems.

It is not that government agencies themselves do not have agendas of self-preservation, and sometimes also of expansion, which find expression in the political arena. But by the fact of their provenance, the expression of these agendas is muted, compared with the pressures and clamour that private market actors routinely generate in pursuit of their economic interests. Since the alternative to a monopoly in the countries we are considering is a licensing system, which itself tends to restrict competition to the benefit of the private interests thus licensed, the private interests rapidly develop considerable political expertise and clout. For example, not long after Iowa privatized its stores on a revenue-neutral basis, the new private store owners succeeded in forcing a reduction of the state’s alcohol taxes, to make their businesses more profitable. Alberta, which also privatized on a revenue-neutral basis, has been constrained by pressures from the private store owners to construe "revenue neutral" in the way most disadvantageous to the province’s revenues -- in terms of nominal dollars without attention to inflation or growth in sales (Mackenzie and Giesbrecht, forthcoming). A retail monopoly system performs a function in the market which otherwise would be performed by diverse and competing private interests. These interests tend to play an important role in the politics of alcohol issues, and in efforts to use the legal system to protect and promote private interests. In the long run, forestalling the creation of these private interests, with the changes they would eventually bring, may be the most important function of a retail alcohol monopoly.

The promotion of public order and public health thus provide the basic justification for the existence of government retail monopolies. As I have discussed, there are a number of ways in which a government retail monopoly tends to hold down rates of social, health and casualty problems caused by drinking. Basically, by limiting or eliminating competition in off-premise retail sales of alcohol, a government monopoly makes it possible to hold down the overall level of alcohol sales, and can also particularly affect drinking patterns most closely associated with social and health harm. By keeping private interests out of the retail store level, a government monopoly also changes the contours of the political arena in which alcohol policy is debated. The balance between the private pleasure from drinking, on the one hand, and the private and public harms from it, on the other, can be determined by the interests of the broad public rather than the interests of commerce.


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