Imagine that your local grocery store is suddenly owned by the state. All the store’s products and prices are set by central planners; who control when deliveries are made and which goods are sent to what stores. These stores routinely stock out-of-date products no one wants and refuse to carry new products customers do want. Planners also determine where stores are built, often placing them in remote locations.
This may seem like a description of the Soviet Union in 1960. But it’s a situation Americans purchasing liquor face in nearly a quarter of the states today. People who buy whiskey, rum, and other spirits from government monopolies have to deal with arbitrarily high prices, surly clerks, limited selection, and out-of-the-way locations.
Government control of alcohol sales and distribution is a legacy of Prohibition. Previously, breweries and distilleries often either owned bars (with what were called “tied houses”) or offered saloon owners extremely favorable loans in return for exclusivity rights. The drafters of post-Prohibition alcohol laws decided to ban tied houses, replacing them with a “three-tier system” requiring that owners of bars and liquor stores buy from distributors instead of dealing directly with breweries, wineries, or distilleries.
Seventeen states and Montgomery County, Maryland, go farther and have government involved in alcohol sales and distribution. Utah has the most stringent laws, mandating that nearly all beer, wine, and spirits be sold in state-run stores. Pennsylvania has state monopolies on wine and spirit sales and distribution. An additional nine states and Montgomery County have government monopolies of liquor sales and distribution, while four more have privately run liquor stores but government liquor distribution monopolies. The remaining two states have strict control over licenses for private liquor stores.
There have been some recent moves towards privatization. West Virginia and Washington state sold their liquor stores in the past decade. But Washington’s privatization was botched, as the state imposed taxes on spirits of $35 per gallon—seven times the national average, according to the Tax Foundation. Liquor stores couldn’t absorb these high taxes, so consumers flock to Idaho and Oregon for their booze when they can. As for the Washington Liquor Control Board—it is now the Liquor and Cannabis Board.
Governments that control the sale and distribution of alcoholic beverages say it’s necessary to fulfill their Prohibition-era mandate to restrict alcohol consumption. But a 2012 Mackinac Center report by Michael LaFaive and Antony Davies measured alcohol-related deaths by state and found that lightly regulated “license” states tended to have lower alcohol-related death rates than highly regulated “control” states. Eight of the 10 states with the lowest alcohol-related death rates are license states.
Economist Bruce Yandle once contended that Prohibition was the result of a coalition of “Baptists and bootleggers”—devout Christians morally opposed to alcohol consumption and criminals wanting to reap big profits from high-price booze. Because control states don’t restrict liquor sales, but actively encourage them through advertising, most religious voices (except in Utah) have been quiet in the privatization debate. Instead, the primary supporters of government liquor stores are the bureaucracies running these stores and the unions that represent store workers.
In Alabama, for example, the state government has proposed slashing drivers’ license offices as a cost-cutting measure. Troy University economist Daniel J. Smith discovered that in 21 Alabama cities, the state proposed eliminating a drivers’ license office but keeping the state liquor store firmly in place.
Take the case of Pennsylvania, the only state besides Utah with a government monopoly on wine sales. Pennsylvania has always had a free market in beer, with the unusual twist that buyers had to purchase it by the 24-bottle case. If a consumer only wanted a six-pack, he or she had to go to a bar, which would sell it for a hefty surcharge. The Pennsylvania Liquor Control Board (PLCB) has ruled that a “case” now has only 12 bottles and has allowed some supermarkets to sell six-packs by legally declaring them bars, with the areas selling beer physically separated by barriers from the rest of the store. If you go to a Pennsylvania Wegmans and want to buy a pizza and a six-pack, the PLCB has declared that you must make two trips to checkouts.
The PLCB has tried unusual methods to thwart privatization. In 2009, they set up “wine kiosks” in supermarkets, which were allowed to sell wine provided that customers stare into a screen (monitored by PLCB officials in Harrisburg), allow their drivers’ licenses to be scanned, and pass a breathalyzer test. The kiosks were awarded in a single-source bid to a company whose two major investors had contributed $400,000 to the campaign of Democratic governor Ed Rendell. The machines frequently broke down, sometimes shutting for a month at a time. Shortly before they were removed in 2011, the Pennsylvania auditor general’s office reported that the kiosks, far from being moneymakers, had cost the PLCB $1.2 million over two years.
Lew Bryson, author of Pennsylvania Breweries and a longtime critic of the PLCB, says Pennsylvania state stores are reasonably competent at delivering the products of large wineries and distilleries but quite poor at selling products from their smaller, more innovative rivals. The state stores, he says, “are like pretty good convenience stores. But they’re not Whole Foods.”
The central planners in Pennsylvania who determine where state stores are located often put them in places the market would shun. A 2014 editorial in the Lancaster Intelligencer Journal, which called the PLCB “Prohibition’s last bad idea,” observed that “the state runs unprofitable liquor stores in rural areas as a customer service, then urges their managers to find more ways to sell more booze. Then Pennsylvania puts state police on the roads to fine people who have been drinking it.”
For 30 years, Republican governors in Pennsylvania have seen their efforts to privatize the alcohol business blocked by a Democratic state legislature. In 2014 Republicans captured both houses of the legislature for the first time in decades and passed a bill privatizing the PLCB. The bill was vetoed by Democratic governor Tom Wolf, who has proposed that the management of the PLCB be (somehow) private, while the stores and its employees remain firmly under government control. Members of the Union of Food and Commercial Workers enthusiastically backed Gov. Wolf’s proposal, in part because it would guarantee all jobs at Pennsylvania state liquor stores for 20 years.
Alcohol privatization is also an issue in Montgomery County, Maryland, the only county with government control. All elected officials in the county, which controls sales of liquor and distribution of all alcohol, are Democrats.
Justin McInerny, owner of Capital Beer and Wine in Bethesda, Maryland, freely expresses his frustration with having the county government deliver beer and wine. Victory Brewing, a well-regarded craft brewery in Parkesburg, Pennsylvania, sells 47 brands of beer. Montgomery County allows sales of only four of them.
Government bureaucracy, McInerny says, also blocks spontaneity. Suppose someone comes into his store on a Monday asking for “the special wine they had in Sonoma” on their honeymoon for a weekend party. If his store were in the District of Columbia, McInerny could call a Virginia distributor and ask for a delivery. But in Montgomery County, that distributor has to call the Department of Liquor Control’s central warehouse, where a purchase order is placed. The wine is sent to the warehouse, marked up by 25 percent, and then delivered during the regular weekly delivery, which could be as many as seven business days after the original order is placed. Flexibility is impossible when the state controls alcohol distribution.
The Montgomery County liquor monopoly will be vigorously debated in the Maryland legislature’s 2016 session, because the state’s comptroller, pro-business Democrat Peter Franchot, has endorsed a bill that would allow private distributors to compete against the Department of Liquor Control. Montgomery County, Franchot charged in a November op-ed in the Washington Post, has “a Prohibition-era system that eliminates competition, charges higher prices, offers fewer product choices and increases burdens on small businesses. The county alcohol monopoly amounts to nothing more than a consumer tax, charging prices considerably above market rates at the expense of residents and small businesses.”
Peter Franchot is correct. Conservatives should have a vigorous debate over the size and scope of government. But we can all agree that selling and distributing beer, wine, and spirits is not a proper function of the state.
Martin Morse Wooster is a frequent contributor to Mid-Atlantic Brewing News and American Brewer.
