Red States’ ‘Weird Government Monopoly’

Posted: 6 September 2010 by Little Alex in National News
Tags: , , , , , , , , , , , ,

Utah, Alabama, Idaho and six other states in the Union have a monopoly on alcohol.

M.S. at The Economist‘s “Democracy in America” blog wrote on “the peculiar issue of state liquor monopolies” today

Nine of the nineteen alcohol beverage control states maintain a very direct monopoly on the good:

There are nine states in the union where the government maintains a direct monopoly on the sale of hard liquor. These lonely outposts of American socialism are not the country’s most liberal states; they’re mainly conservative ones, including three of the seven most conservative states, Utah, Alabama and Idaho. They also include one state that’s becoming gradually less conservative, and may be about to give up its liquor monopoly: Virginia.

Ever since the end of prohibition in 1934, to buy a bottle of Kentucky bourbon in the state of Virginia, you’ve had to go to a government-run ABC (Alcoholic Beverage Control) store.

First, They Came for the Booze

The resistance against opening up the marketplace is, of course, that government seek to extract more money taxing as a direct middleman than indirectly via taxation:

Republican Governor Bob McDonnell is trying to privatise the system, but is running into opposition in the legislature, because the state liquor monopoly is an important source of government revenue. (Just like in Soviet Russia!) The state makes at least $230m a year from the ABC stores, $110m from taxes and $120m in profit. For a sell-off plan to stay revenue-neutral, it would have to sharply raise taxes on alcohol, including a new tax on alcoholic drinks in restaurants and bars.


Some experts think it’s impossible for the state to make as much from taxes as it does from its sales monopoly, the Washington Post‘s Rosalind Helderman reported last month. Maryland has liquor prices nearly as high as Virginia’s, but made just $25m in excise taxes last year. A study by the Distilled Spirits Council of the United States found liquor taxes in Virginia would have to reach five times the average in privatised states to keep the revenue stream at current levels. The Post‘s Steven Pearlstein disagreed, hazarding that by recapturing revenues from customers who currently buy out-of-state, increasing sales, raising taxes to make up for private-sector “efficiency savings”, raising taxes on bars and restaurants to make up for new wholesale discounts, and sunsetting liquor licenses after ten years so it can charge new license fees, the state could conceivably earn its $230m and still leave $75-100m of after-tax profit for retailers and distributors. But that plan seems considerably more aggressive than the private liquor enterprises pushing for privatisation would like. (Mr Pearlstein also noted that private distributors would pay corporate income tax on profits, but others have countered that the distributors that move into the market will likely be headquartered in other states.)

Of course, “this entire argument seems nuts”, M.S. notes because the central question ought to be: “What on earth is the government doing in the liquor sales business in the first place?”

There’s not even the weak reasoning to propose that alcohol is a “public good”, but he speculates that the lesser access to alcohol—because of government’s inability to provide in a manner that meets the genuine demand—could be a modern-day prohibition-lite:

Virginia has just 0.6 liquor stores per 10,000 inhabitants, compared to a national average of 3.2. Research indicates that alcohol consumption in ABC states is 16-20% below that in decontrolled states, and there’s some evidence that incidence of drunk-driving crashes and fetal alcohol syndrome may be lower as well. And, indeed, some Virginians apparently object to privatising the ABC stores on the grounds that this will lead to more alcohol consumption and hence more crime.

Government agents pride themselves on generating revenue toward the state apparatus and probably just see this route as more politically expedient that raising taxes and licensing fees. Of course, the immediate downfall is—as M.S. noted—“that for any normal good, that kind of argument would be grossly outweighed by the increased efficiency, productivity and social utility of free-market enterprise”.

He added that “it’s not clear that more and cheaper liquor provides greater utility”, but the more indirect downfall is much more obvious, reasonable scrutiny: If I want to open a liquor store in Idaho and find a cheap, efficient distributor, what justifies the government in using violent force to shut my establishment down? What justifies locking me up for an obviously non-violent crime? What justifies them locking me up for doing the exact same thing the government claims to do, outright? Why is it reasonable to stop this line of reasoning past alcohol and violently prevent open entry into the market for actual public goods like banking, dispute resolution, social dilemma, etc.?

Leave a Reply

Please log in using one of these methods to post your comment: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s