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"The Freer the Markets, the Better the Booze"

Leonard Gilroy
September 15, 2008, 12:40pm

From the Daily Pennsylvanian:
As they say, you can put lipstick on a pig - but it'll still be a pig. Pennsylvania's Liquor Control Board is using a whole lot of lipstick. The Board, which regulates alcohol sales, recently announced a $3 million effort to revamp the image of Pennsylvania's state-run liquor stores. By improving service, the Board hopes to disguise what is a giant state monopoly. We commend the Board for making these changes, but the state shouldn't be using tax money to do better in the liquor business. Pennsylvania needs to privatize its liquor stores and let the free market work. The idea isn't new. Many state leaders - most notably former Governor Tom Ridge - have attempted to reform the liquor system. But every time someone tries to bring the state's liquor laws into the 21st century, politicians come forward to defend the status quo. Meanwhile, Pennsylvania residents are forced to pay higher prices because officials in Harrisburg can't grasp basic economics. As a monopoly, Pennsylvania's liquor stores don't face any competition, so they can charge large mark-ups. In states that don't have socialist liquor systems, private liquor shops must compete for customers. This forces stores to lower prices and offer a wider selection of drinks. Selling off state-run liquor stores to private companies would offer Pennsylvania residents the benefits of competition, while raising funds for legitimate government projects. Evidence also shows that privatization doesn't lead to massive increases in underage drinking. In the end, it boils down to one principle: The freer the markets, the better the booze.
I'll drink to that! As we reported in our Annual Privatization Report 2008, State Senator Robert Wonderling has taken the lead on this issue and has offered a proposal to modernize the Commonwealth's antiquated system, getting the state out of the alcohol business:
[Wonderling] introduced Senate Bill 1273 to privatize Pennsylvania's state liquor monopoly. Pennsylvania is one of 18 "control" states where the state government controls the sale of alcohol products. While control states like Michigan only control alcohol sales at the wholesale level (allowing private operators to run retail stores), the Commonwealth controls the sale of spirits, wine and fortified wine, at both the retail and wholesale levels. Wonderling's bill is expected to be heard in the Senate Law and Justice Committee in the fall of 2008.
Reason's testimony in the Senate Majority Policy Committee last spring in Harrisburg discusses the benefits of privatizing the PA Liquor Control Board:
Privatization of the LCB would likely benefit the consumers of Pennsylvania through increased choice and lower prices. Drinking age adults in neighboring states are entrusted to responsibly shop for beer, wine, and spirits in stores that are convenient, offer greater choices, and lower prices. Why shouldn't Pennsylvanians? Private stores have more freedom and flexibility to innovate and be more responsive to the customer–store hours and locations will be driven by market demand, likely offering more and tailored options than centrally owned and operated entities. The benefit of eliminating the government's monopoly of wine and spirits is that independent but regulated private sector businesses are forced to compete on price, quality, and choice. Privatization of the LCB would also likely benefit the state's financial outlook in two ways. First, ongoing revenues will not be negatively impacted. Taxes on wine, beer, and spirits don't go away with privatization. Those revenues will continue to flow, if not go up, with increased sales. Any revenues that are collected from licensing bars and restaurants will also continue to flow into the Commonwealth's coffers. In addition, a new form of revenue will be generated through privatization—licensing of new retail stores. Given that the Commonwealth will remain the regulatory body (even with divestiture) the LCB could serve as the licensing body for new retail establishments. Further, private establishments also pay income and property taxes representing additional revenue streams to the state and local governments.
Reason has a study in the works on ending state alcohol monopolies that will explore these themes in depth. The study should be released later this fall--stay tuned. » Reason's Annual Privatization Report 2008 » Reason's Privatization Research and Commentary

Leonard Gilroy is Director of Government Reform


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