B.C. Moves To Reform Liquor

Commentary, Role of Government, Frontier Centre

On July 24, British Columbia announced it will open up the retail liquor business and invite more private vendors to sell spirits to the public. The new policy has merits on its own, but even more important is its underlying principle.

Rick Thorpe, B.C.’s Minister of Competition, Science and Enterprise, is in the middle of what they’re calling a Core Services Review. It means looking at all the government’s operations to “identify the core roles of government in the economy.” In the case of liquor, the cabinet has correctly concluded that booze retailing is not a core government service.

This approach – separating the activity of operating or delivering a service from government’s most important role, regulating it – helps achieve a basic of good policy design. It clarifies the job of elected officials who, at the end of the day, oversee the machinery of government. It allows them to consider all delivery options — public, private or volunteer — on a level playing field, free from the bias involved in being one of the players. All government activity should be subject to that test.

While Thorpe’s Ministry has concluded otherwise, there are still many who see liquor retailing as a core role of government. Plenty of evidence suggests otherwise. Most of Europe and the United States, for example, leave this function to the normal marketplace. Québec and B.C.’s next-door neighbour also have a more modern attitude about liquor retailing. Any corner store can sell domestic beers and wines in La Belle Province.

In 1993, Alberta sold its provincial liquor stores and licensed private vendors to operate the service. Customer service promptly skyrocketed. Within two years, the number of outlets tripled and the number of products quadrupled, with operating hours expanded. The story in Manitoba was one of comparatively tepid reform. The Filmon government allowed a tiny opening to private wine retailers in 1994 that quickly revealed a hidden market, one that monopoly had suppressed. In Winnipeg, six private stores sell as much wine as the 22 Liquor Commission outlets, simply because they try harder.

Although the Alberta government had intended to make its exit out of liquor retailing revenue-neutral – it lowered taxes per bottle as the market expanded – the final tally proved a fiscal windfall. Income from direct liquor taxes stayed at about $450 million. But license fees and income taxes from the new retailers, revenue sources that did not exist when the Province owned the outlets, provided a new and thicker icing for the cake. The potential for increased income from liquor entrepreneurs must be alluring to the B.C. government, strapped for budget room by a succession of big-spending predecessors and the tariff-induced collapse of its biggest cash cow, softwood lumber.

Aside from a small increase in armed robberies, attributable to more stores open during longer hours, the only negative in the Alberta liquor reform turned out to be lower wages for liquor clerks. Average remuneration dipped from $13 an hour to $8, a level that, unsurprisingly, mirrored the wages available to other retail workers. On the positive side, however, many Alberta employees invested their severance packages to create thriving private outlets. Protecting these economic “rents” from objective market determinations of wage levels will nonetheless inspire an all-out effort in B.C. by government liquor retail employees to retain the public framework that saddles consumers with higher costs and less service.

The B.C. reforms still fall short. First, no single government liquor store will be sold until they conduct a “community by community analysis” to assess the impact. Besides opening the door to much political mischief, this soft policy implies that an open market may not serve the public’s needs better, a fear confounded by the experience in Alberta, where service expanded across the board when all publicly owned stores were closed. The chance that some government stores will stay open revives the same conflict of interest that bedevils broad swaths of Canadian public policy. The Province will directly compete with the people it is regulating.

The same problem is mirrored in an upcoming court case here in Manitoba. Several private wine stores are suing the Manitoba Liquor Commission for alleged unfair trade practices. Among the allegations a claim that the Commission, as the regulator, forces private wine retailers to reveal who their customers are. This information could be passed to government stores who could then attempt to sell them directly with discounts and other goodies, for example, comparatively over generous airmile bonuses. Such a basic conflict of interest could be avoided by having the government exit the retail sales business completely.

As far as they go, the planned reforms to the liquor trade in B.C. deserve high praise. The single most difficult task for politicians is letting go of their perceived power and influence. Forced by the province’s long brewing fiscal crisis to get government back to the basics, Gordon Campbell’s government is demonstrating an unusual level of courage by starting to shed its retail liquor operation, especially since they’re doing it for the right reason.