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Will States Toast Liquor Privatization in 2012?

Reviewing the landscape for divesting state alcohol monopolies

Leonard Gilroy
February 3, 2012

Despite the end of Prohibition many decades ago, taxpayers and consumers in over a dozen states today still rely on outdated state bureaucracies that retain monopoly control over the sale and/or distribution of distilled spirits (liquor). Not only is it difficult to justify government-run liquor enterprises as a core function of government—they clearly aren't, since most states don’t have them—but worse, these systems tend to act like the monopolies they are by limiting product choice and making liquor more expensive and less convenient for consumers. However, recent moves by Washington State and Ohio to privatize their liquor monopolies may be upsetting the apple cart and setting the stage for additional states to follow suit.

For context, at the end of Prohibition, 32 states opted to regulate liquor through the issuance of wholesale and retail licenses to private wholesalers and retailers, effectively creating a regulated, private liquor market. Meanwhile, 18 other states (and Montgomery County, MD) opted to place liquor wholesaling and/or retailing functions in the hands of government as a means to "control" spirits sales and distribution and encourage temperance and responsible consumption. [Click here for a map of control states prepared by the National Alcohol Beverage Control (ABC) Association].

Apparently not envisioned in the early post-Prohibition discussions were some inconvenient truths that have emerged:

  1. Nearly all “control” states have government control of distribution and/or retail sales of spirits, while beer and wine sales occur in private regulated markets. Well over half of the pure alcohol sold in the U.S. comes via beer and wine though, so how much so-called “control” do the control states really have if they’re only covering a slice of the total alcohol market? If beer and wine can be regulated by government but sold and shipped privately in those states, why not spirits?
  2. Having the state in both the position of alcohol regulator and alcohol distributor/retailer creates an inherent conflict of interest.
  3. Another obvious conflict of interest lies in the diametrically opposed goals of promoting temperance and moderation while at the same time trying to maximize revenues for the state from the sales of the products you’re supposedly trying to control.
  4. Taking aside the question of whether or not it is appropriate for government to try and promote temperance in the first place, it is laughable to argue that selling and distributing alcohol is a core function of government. Government doesn’t operate porn shops, tobacco stores, commercial pharmacies, or medical marijuana dispensaries, so what’s so special about liquor? Liquor distribution and sales are business enterprises best suited for businesses, with government in the role of oversight.

Accordingly, no state has shifted to government monopolization of alcohol wholesale and retail functions since Prohibition. Rather, the direction of change has moved entirely in one direction—towards privatization—albeit slowly. Up until 2011, there were only three major shifts in state control systems since Prohibition. Two states—Iowa and West Virginia—privatized their retail operations over two decades ago while retaining a spirits wholesale monopoly, and more recently Maine signed a 10-year contract with a private operator for its wholesale spirits monopoly. Beyond those major moves, a number of the “control” states—including Utah, Oregon, Vermont, Mississippi and Montana—already contract with private liquor stores operators instead of running them in-house, so paradoxically there’s already a lot of privatization going on under the surface of the “control” states.

The year 2011 brought further change, with major structural changes and privatization announced in two control states—Washington State and Ohio:

In addition to Washington State and Ohio, there are several other states where ABC privatization could potentially advance in 2012:

Time will tell whether all, some or none of the above states will follow in Washington State and Ohio’s lead. Nonetheless, advocates of limited government nationwide should toast the national liquor privatization push as a hopeful sign that well-entrenched, anachronistic government enterprises and activities can indeed be dismantled and privatized with strong public support.

Leonard Gilroy is the director of government reform at Reason Foundation.

Leonard Gilroy is Senior Managing Director, Pension Integrity Project &
Director of Government Reform

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