Why do most provinces still run Soviet-style liquor stores?

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Appeared in the Calgary Herald and Vancouver Sun

Anyone who recently visited Alberta for the 100th anniversary of the Calgary Stampede might have noticed something unusual about the province: not a single government liquor store.

Alberta does have a plethora of private stores, unlike say, Ontario, where I once drove around Cambridge for what seemed forever to find any shop, government or private, to buy wine for a dinner with relatives.

If you’re lucky, your politicians will one day imitate Alberta. To that end, here’s how Alberta’s private sector model came about.

On September 2, 1993, Steve West, the cabinet minister in the Ralph Klein government responsible for the Alberta Liquor Control Board (ALCB), announced that all government liquor stores were soon to be shut down or sold.

Two days after West’s press conference, the Alberta Liquor Control Board closed the first government liquor store, in the village of Empress. By March 5, 1994, only six months after privatization was announced as policy, Alberta’s last government liquor store was shuttered.

Alberta’s 1993 privatization move was a reversal to the historical norm. Back in 1906, liquor products could be legally sold by the private sector but Albertans voted to ban that in a 1916 referendum. That wiped out the businesses that held the 320 wholesale and retail liquor licences then in existence.

By 1924, after it was clear Prohibition had failed, Albertans voted to reverse the earlier ban. But the government awarded itself control of the sector and created the Alberta Liquor Control Board (ALCB) and its subsequent government stores.

Fast-forward to 1993. Before privatization, everything was centrally controlled. Prices were set by the ALCB, all items had to be ordered from a government warehouse, and there were only 2,200 products available (ones chosen by bureaucrats).

At the time, 803 liquor retailers existed in Alberta. That included 208 government liquor stores, and 503 hotels and 65 private retailers.

Post-privatization, eighteen years later, there are now 1,959 private enterprises in the retail end of the liquor business, including hotels, rural agency stores, wine boutiques and others; they set their own prices. Meanwhile, product selection has exploded to over 17,000 varieties of beer, wine and spirits.

Alberta’s government still regulates the sector—you can’t be a criminal and open up a liquor store for example. That and other sensible regulations still apply. But there is no restriction on the number of stores allowed in Alberta; that number is determined by competition.

On the wholesale side, any enterprising importer can bring in a product, stock it in the privately-run warehouse operated by Connect Logistics near Edmonton, pay a stocking fee, and hawk the item to any retailer.

So is Alberta’s model successful? It’s not perfect. For instance, supermarkets should be allowed to stock beer, wine and spirits inside rather than be forced to build stand-alone stores. Also, it is unreasonable to demand retailers order from one centrally-controlled warehouse instead of importing directly from whomever and wherever they choose. (The government could collect its mark-up at the point of sale instead.)

Beyond that though, when I compared Alberta’s model to BC’s system in a 2002 study, and subtracted taxes and markups in both provinces, I found Alberta’s system was far better for consumers on price and selection.

A 2003 study by University of Alberta economist Douglas West (no relation to Klein’s cabinet minister) published by the Fraser Institute found that Alberta’s prices increased slightly after privatization, about four per cent initially. However, he also found prices fell between 1996 and 2000, this after more stores meant more competition on price.

A 2009 study by the Frontier Centre compared Saskatchewan and Alberta and punctured some myths. It found no link between private retail stores and an increase in crime—this based on two reports from Calgary Police Services. That study also found that the number of drinkers increased faster in Saskatchewan and Quebec (up 5.2 per cent and nearly 10 per cent respectively) between 1994 and 2004, when compared with Alberta (up by 3.1 per cent).

One objection to privatization is the myth that governments forego revenues if they don’t own liquor stores. Nonsense. Provincial governments can and do apply markups to products regardless of whether they own the stores. Alberta’s government collected $402-million in liquor mark-ups in the year before privatization and $700-million last year. In total, $9.9 billion in such markups has accrued to provincial government coffers since 1994.

By March 1994, when Alberta’s last government liquor store closed, the Soviet Union’s model of government retail and price-setting had already been dead for three years. In 2012, it’s overdue for other provinces to drop their Soviet-style pricing on beer, wine and spirits, and their ancient Prohibition-era model where governments still run liquor stores.

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