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Bacon's Rebellion

Election Night a Mixed Bag for ABC Privatization

Washington State ballot measures fail, but Pennsylvania elects pro-privatization governor

Leonard Gilroy
November 5, 2010

Though ABC privatization wasn't on the ballot in Virginia this week, election results in two other states bring a mix of good and bad news to supporters of Gov. McDonnell's plan to end the state's archaic liquor monopoly.

First, the bad news from Washington State is that voters rejected two separate ballot measures that would have privatized the state's liquor monopoly. Initiative 1100 (I-1100)—which would have privatized the Washington State Liquor Control board's retail and wholesale operations, ended the state's 51.9% alcohol markup, repealed a ban against volume discounts for alcohol and eliminated the mandatory use of wholesalers/distributors—was defeated by a narrow 52-48% margin after an unholy alliance of major brewers, various national beer and wine wholesaler associations and public employee unions outspent the Yes campaign by millions in a cynical attempt to scare voters that the sky would fall with privatization.

Mutual interest in self-preservation created this temporary marriage of convenience. Public employee unions obviously don't like measures that eliminate taxes and state government jobs, no matter how sensible the proposal from a taxpayer standpoint. Major beer producers have no interest in ceding the slightest ground to competition, prompting the industry to reject vociferously the commonsense notion that it makes no sense to treat spirits any differently from beer or wine.

And since I-1100 would have effectively made optional the use of wholesalers and distributors, it's no wonder these players mobilized forces nationally to snuff the measure, even though most retailers would have still needed to use them in a post-privatization environment. After all, outside of the Costcos and Safeways of the world (key proponents of I-1100), few retailers would have had the ability to go pick up spirits from the various manufacturers themselves and deliver them to their outlets themselves.

Ironically, Big Beer and their wholesaler/distributor allies—folks that produce and distribute a product that accounts for about half of alcohol consumed in the U.S. but over two-thirds of binge drinking and alcohol-related  harm, according to a 2007 article in the American Journal of Preventative Medicine—embraced the moniker "Protect Our Communities" for their anti-privatization campaign, which espoused bogus claims that children, jobs and public safety would be severely threatened if voters were to (gasp!) allow spirits to be sold the same way as beer and wine. "Protect Our Profits" (in the case of beer and wine) or "Protect Big Government" (in the case of public employee unions) would have been less appealing, but far more honest names for the anti campaign.

As another indication of the threat to the status quo posed by I-1100, wholesaler interests hedged their bets by placing another measure, Initiative 1105 (I-1105), on the ballot that would privatize the state's spirits monopoly while preserving a mandatory wholesale tier. Though defeated by a 63-37% margin on Tuesday, it's reasonable to expect that at least some of the 37% of supporters voted for I-1105 over I-1100, siphoning off key votes that could have put I-1100 over the top.

Still, despite being outspent by millions and having a competing ballot measure on the same topic, it's fairly remarkable how close I-1100 came to passing in a state not known for its free market, limited government sensibilities. What should not be remarkable to Virginians is the heavy influence of the wholesalers in the debate, given the prominent role of the state's beer and wine wholesalers in fostering enough discontent in the General Assembly over Gov. McDonnell's ABC proposal to delay consideration until at least the next regular legislative session.

If recent media reports are accurate, the irony is that industry actors like the Virginia Wine Wholesalers Association—which contributed funds to the anti-privatization effort in Washington State demonizing privatized spirits sales—may end up being perfectly fine with privatized spirits retail in Virginia so long as they get either franchise protections for themselves or preservation of the state ABC wholesale monopoly. Those may be trade-offs policymakers are willing to make, though a recent Richmond Times-Dispatch editorial makes the sound point that, "If wholesaler middlemen provide the invaluable service they say they do, then they will thrive in an open marketplace. If they don't thrive, then the Assembly has no business propping them up in the first place."

The brighter news from Tuesday's election came out of Pennsylvania in the form of Governor-Elect Tom Corbett. Like Gov. McDonnell before him, Corbett made privatization of the Pennsylvania Liquor Control Board's (PLCB) spirits monopoly an explicit plank in his campaign platform, recently stating that, "Given the current economic climate in Pennsylvania, state government can no longer be in the liquor store business. We need to move our state out of the 19th century and refocus state government on its core functions and services for our residents."

Like Gov. McDonnell in Virginia, Corbett realized that Pennsylvanians aren't necessarily keen on being overtaxed by state monopolies. And like McDonnell, Corbett will likely face a challenging road to privatization given the historical entrenchment of the PLCB, the Pennsylvania Turnpike and other powerful political bodies in that state. After all, just two years ago their state legislature walked away from a $12.8 billion offer on the table for a 50-year lease of the Turnpike championed by current Gov. Ed Rendell.

Though the politics of ABC privatization are inherently tricky in both states, there is certainly strength in numbers. Gov-Elect Corbett would do well to learn some lessons from the McDonnell team's considerable work thus far in developing, communicating and adapting a workable privatization plan. And for the McDonnell team, it's fortuitous to discover a kindred spirit in a nearby state with similar political winds at his back. Given the power of the bureaucracy and the tenacity of industry opponents of ABC reform, it may end up taking the combined strength of two popular governors to begin shutting down a few of the 18 remaining, antediluvian state-run liquor monopolies that seem more appropriate for Venezuela than they do 21st Century America.

Leonard Gilroy is Director of Government Reform at Reason Foundation and Senior Fellow for Government Reform at the Thomas Jefferson Institute for Public Policy. This column was originally published at Bacon's Rebellion.


Leonard Gilroy is Director of Government Reform


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