19 July 2005

Drunk talk

Typical situation. Government has its mucky fingers all over an industry and comes to the realization that something is wrong. Government then forms a commission consisting of industry bigwigs to undertake extensive review of the problem at considerable taxpayer expense. Commission comes up with some reasonable ideas as well as some not so satisfactory suggestions. Government decides to "review the recommendations," which means anything reasonable will not be occurring. While politicians normally try to conceal their power, in Ontario the government entity responsible for the alcohol monopoly is actually called the Liquor Control Board of Ontario (LCBO). The Ontario government decided this Prohibition-era state-owned company was in need of some change, and set the old cogs in motion.

The resulting report actually acknowledges that having 3 monopolies controlling a retail market is not in the best interest of consumers, which can only be realized through open, competitive markets. Bravo. Unfortunately, here's where paternalism rears its ugly head. Alcohol is no ordinary consumer good, as individuals cannot consume it rationally. Thus the recommendations made by the report are more in line with achieving some sort of "social optimum" and are as follows:

* maintain the same number of retail outlets as under the current system through a licensing system that will maximize government revenue
* have strict requirements on sales and regulated opening hours
* a minimum price policy
* require complete monitoring of alcohol by the government over all stages of production

While only the third of these recommendations directly affects the price of alcohol, the others all work raise the price indirectly. Using license fees means that retailers must pay the government for the right to sell alcohol. The government-granted monopoly system results in too few retail outlets, so keeping the number of outlets the same results in shortages. Adhering to the strict regulations and monitoring guidelines also raise the cost of production and therefore prices.

If you're expecting anything resembling a competitive market as a result of this report, don't hold your breath. While the recommendations would at least move prices in the right direction, the response by the Liberals has been typical of those holding state power. They will not be selling the LCBO, and they will not be allowing corner stores into the market to provide competition. As they seem to believe, the public interest is best served by the status quo. So while I can purchase a "2-4" of Labatt Ice for $16 when I'm getting my groceries in upstate NY, the same case of beer would be costing me $33(US) in Ontario, and it would require me to make a separate trip to the beer or liquor store. Thankfully the NY government hasn’t gone to the same lengths to serve the public interest.


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