Sober second thoughts on liquor privatization

Lessons from Alberta
August 1, 2002

In late July, the British Columbia government announced it was going to slowly phase out government liquor stores and privatize warehousing and distribution. There are no compelling reasons for the move beyond the ideological and symbolic: breaking the union, creating new opportunities for private sector profit-making, and divesting of all "non core" government activities. But the BC government's move comes nearly a decade after a similarly questionable move in Alberta, and at a time when ideological arguments in favour of privatization and deregulation are under serious scrutiny.

"Why should the government be involved in selling liquor," the rhetoric goes. But maybe it's time to ask, "Why not?" The privatizers traditionally claim that government has no business in business. The Catch-22, however, is that, if the privatizers have their way, governments get stuck with only the unprofitable enterprises, fuelling the private-sector acolytes' claim that, "See, we told you government can't run anything."

In September 1993, Ralph Klein's government suddenly announced that it was privatizing Alberta's retail liquor operations (while retaining its wholesale monopoly and implementing a liquor tax). Since that time, there have been two academic studies of this policy (one of which I co-authored). Give or take some emphases, the findings in both studies are actually quite similar.

Price: Both studies found that the average retail price of liquor rose immediately after privatization, even when considering inflation. That situation remains pretty much the same today.

Distribution and Availability: Both studies also reported a rapid rise in retail liquor outlets, operating longer hours and more days of the week. The number of stores rose from 204 ALCB (Alberta Liquor Control Board) stores at the time of privatization in September 1993 to 628 in April 1996, rendering them second only to gophers as the most prominent feature on the prairie landscape. Like gophers, however, many of these stores were also fragile. Low profit margins and low capitalization meant that many of the smaller operators became road-kill.

Selection: Overall, the total selection of liquor throughout Alberta may have increased since privatization. But in practical terms, selection for consumers has actually declined. There may be a few high-end stores carrying some previously unavailable rare items, but most stores today carry mainly standard brands and little stock. After all, small owners do not want to tie up capital in stock for long periods of time. By contrast, before privatization, every ALCB store carried the same large product line, while a large "Cadillac" store in each major centre stocked more exotic brands.

Social problems: Break-ins and robberies at liquor stores soared across the province after privatization. Liquor related offenses, such as assaults, also increased in Calgary and Edmonton. And investigations found an increase in ease of access to liquor for minors.

Wages and Employment: The studies agree there are more workers in liquor retail, but they work fewer hours, have fewer benefits, and lower salaries than did Alberta government workers. So workers, by and large, are not better off. However, as noted above, neither have the "savings" been passed on to consumers.

Moreover, alcohol is an addictive substance that should be regulated--a point over which there is little debate--and those we ask to enforce these regulations need to be paid well enough to make the often difficult task of front-line enforcement worth their while. Low pay generally means poor training and high staff turnover--not conditions conducive to tough regulatory enforcement. The presence of many small marginal stores exacerbates this problem.

Government Revenues: When the Klein government privatized liquor retailing in 1993, it promised to keep its annual take (drawn from taxes) "revenue neutral"--a phrase borrowed by the BC government in its announcement. In the last year before privatization, the Alberta government received remittances from liquor of $439 million. Since then, however, under pressure from the private liquor lobby, the government has lowered its tax rates on liquor four times, even as demand has increased. Thus, in 2000/01, government revenues from liquor amounted to only $468 million, or $29 million more than in 1992--a meager gain over the period in question given inflation and the large growth in sales. Also, keep in mind the government must now pay for increased regulation and enforcement out of this diminished revenue.

The bottom line is that liquor privatization in Alberta has led to higher consumer prices, more stores (but less genuine selection), marginalized workers, a host of social problems, and (in real terms) decreasing government revenues. All in all, given Alberta's experience in privatizing liquor, British Columbians might want to give the idea some sober second thought.

Trevor Harrison is an Associate Professor in sociology at the University of Lethbridge, and Research Director of Parkland Institute, an Alberta think tank.