Core Business

Commentary, Crown Corporations, Frontier Centre

In recent years, thousands of plain folks have learned to make wine in their basements. What often started as a hobby has become a popular way of sidestepping the provincial liquor monopoly's taxes and markups. As more people have caught on, the marketplace has responded with an array of stores that offer customers inexpensive wine and beer kits, greater selection and free advice.

The mom-and-pop hobby stores have been so successful that the lumbering Manitoba Liquor Control Commission has felt compelled to act. So in June 1998 it began offering bulk wines to compete with the new cottage industry.

"Sales are on the rise. We're pleased," the Commission told a reporter this month. It revealed that sales had peaked at 300 cases a week during Christmas, a strong enough demand to justify continuing the venture.

This story is troubling to many reasonable people. Was the government monopoly trying to send a warning to the small fry? Why is a monopoly subsidized through tax exemptions and cheaper government capital competing with business people who have to pay full taxes and market rates for money? Is it appropriate in the modern 90s to involve government in a retail distribution activity?

For decades we've all heard the rationalizations for a liquor monopoly. It allows the government to restrict alcohol's demon influence on the soft-minded and the easily tempted. It protects our helpless kids. The slipperiest justification of them all is that the profits help pay for our "free" (never mind politicized and malfunctioning) healthcare system.

These worn out arguments obscure many realities. Young people still tipple. Consumers get hosed at the liquor commission and are mostly limited to what a handful of government buyers deems interesting. Allowing fewer outlets means longer line-ups and delays, especially during holidays. American studies show that this limitation makes problem drinkers drive longer distances and get into more accidents. And restricted access to distribution franchises offers politicians golden opportunites for favouritism and patronage.

The financial arguments are just as weak. As one visionary politician from New Zealand once remarked, any idiot can make money when he has a monopoly. But if the government were really interested in maximizing profits, it would drop the retail part of the operation. When Alberta did so in 1996, wages fell (slightly) to market levels and administrative costs, typical of any monopoly, were quickly squeezed out. Government revenues increased with more outlets, higher volume, greater selection and more convenient hours — all rewards of a normally functioning marketplace.

Which brings us back to the mom-and-pop hobby stores competing with a bureaucratic Goliath.

One of the central principles of high performance government is sticking to "core business". This means finding out what it can do best and limiting its activities beyond that. In general, it turns out that governments are good at "steering the boat", i.e. at defining overall policy and desired outcomes. They're not all that good at "rowing the boat", i.e. at implementing policy and delivering the outcomes. That is best left to outside parties in the voluntary or commercial sectors. Under this arrangement, policy makers still regulate, monitor and measure results.

Judged by this standard, the government has no proper role in operating retail liquor stores. It can achieve its objectives – the most revenue possible and public safeguards on the sale of alcohol — more successfully by setting tax rates and rules for service, and then getting out of the way.

In short, Goliath should hand the retail end of the liquor business to the mom-and-pops, among others, and focus on the government's main talent — collecting taxes.