Last Thursday I participated in a liquor policy panel at the University of Regina, organized by the Frontier Centre. Also on the panel were Simon Enoch (Canadian Centre for Policy Alternatives), Bev Robertson (Owner, Bushwakker Brewing Company), and Greg Hanwell (Marketing Partner, Beer Bros. Gastropub and Deli). The panel discussion was very fruitful, and I’d like to thank all who participated. It is unfortunate that the SLGA was unable to send a representative, but Mr.Enoch presented a stronger defense of the status quo in Saskatchewan than I’d expect from SLGA representatives (though I disagree with his position).
Unfortunately, the audio recording of the event did not turn out. Instead, I’ve posted a copy of my opening remarks below:
What strikes me the most about research on the effects of regulations and taxes on alcohol consumption is how much we know intuitively that we cannot prove. As in most difficult public policy areas, a serious lack of data is a big part of the problem. But another equally important problem is that it’s difficult to figure out how to use the data that we actually do have available. Because of this, the relevant literature paints a picture that doesn’t fully capture the complexities of human behaviour. To illustrate this, I’ll start by telling you what we don’t know, statistically speaking.
First, we don’t know to what degree having more liquor stores leads to the adverse effects associated with alcohol abuse. While there is a simple correlation between the density of liquor stores and crime and alcohol consumption, we don’t actually know what the causal link between these facts is. Even the studies most critical of easy access to liquor point out that there is certainly some self-selection at play. Low availability of liquor is a reflection of societal attitudes towards liquor consumption. People who vote for restrictive liquor laws are likely not frequent alcohol consumers. For instance, the fact that Utah has restrictive liquor laws probably has more to do with the fact that a large portion of the population consumes little to no alcohol, rather than vice versa. Moreoever, liquor store owners are more likely to open shop in areas where there is high demand for liquor. While having a large number of liquor stores probably does lead to higher alcohol consumption, we don’t know how much of a factor it is.
Second, we don’t have a very good idea of how responsive consumers are to liquor prices. Most of the studies on the topic have relied on poor, limited data. Some recent studies have attempted to use better data sources, but the authors of those studies freely admit that there is much research to be done. Incidentally, the two studies that have called into question the research methods of previous studies seem to corroborate points I will be making later on. We do know that beer is the least elastic type of alcohol, and liquor is the most elastic. We just don’t know the magnitudes.
While the big picture studies are problematic, there are some narrow studies that have given us much better insight into how people respond to liquor prices. It’s important to note that different people respond to these policies in different ways. Here are some examples of how these differences play out:
- A recent study measured the impact of price on malt liquor consumption. Malt liquor consumption is heavily skewed towards the homeless, poor people, and students. The study found that malt liquor consumption is the least elastic of all types of liquor. In other words, increasing the price doesn’t lead to noticeable reductions in consumption.
- Occasional drinkers are most responsive to liquor prices. Given that drinking a glass of wine a day is healthy, liquor taxes actually act as a tax on healthy drinking.
- Studies show that high liquor prices lead consumers to cross borders to get cheaper alcohol. Torontonians go to Buffalo; Ottawans go to Quebec; people in Saskatchewan and Manitoba go to Montana and North Dakota.
What studies haven’t focused on, but we all know from experience, is that high liquor prices lead people – particularly students – to pre-drink cheaper alcohol at home before going to bars. We also know that many students will rack up credit card debts to support their student lifestyle, regardless of the price of alcohol. After all, you only go to university once – or most people, anyways.
A related, and very troubling, report on tobacco taxes in New York State provide an example of how unresponsive low income people can be to sin taxes. Low income smokers in New York spend 25% of their incomes on cigarettes. While the state has seen a greater reduction in smoking than other states – which is influenced by many other factors – the unintended harm to low income smokers is immense. Alcohol taxes, like cigarette taxes, do significant harm to low income people who simply refuse to alter their lifestyles.
Another thing we do know is that the price of one type of alcohol has an effect on people’s consumption of other types of alcohol. If beer is expensive, people will often drink vodka instead. Even if the prices of both are simultaneously increased, vodka consumption could still increase as beer drinkers switch to vodka.
Alcohol restrictions also have an impact on drug usage. Having a higher legal drinking age is associated with greater marijuana usage. The same goes for cigarettes. Statistically, people who both smoke and drink have been shown to smoke more when liquor prices are high.
Knowing all this, let’s take a look at the reasons that opponents of liberal liquor policies use to justify the publicly controlled liquor distribution systems (including SLGA).
- Government liquor monopolies generate significant revenue.
- Government liquor monopolies keep prices low.
- Government liquor monopolies reduce the availability of liquor.
- Government liquor monopolies advertise in a socially responsible manner.
Now let’s look at these one by one:
- Liquor revenue increased from $404.8 million in 1992 (pre-privatization) to $683.5 million in 2010). Because governments are inefficient at running businesses, private liquor stores pay more in tax revenues than government liquor stores make in profits.
- Not only is this untrue, but it conflicts with the first goal. Monopolies maximize revenue by keeping prices higher than in a competitive market.
- This is true. However, it is difficult to determine what the effect of this is. Does it mean that more people need to drive rather than walk to get more beer after they’ve had a few drinks? If that’s the case, might they take the further step of simply driving to the bar? There are many ways this can play out, and they vary by person.
- Studies have shown that “socially responsible” liquor advertising is not effective at reducing alcohol consumption. Drinking is culturally ingrained – and it’s not just Hollywood that is encouraging the drinking culture. Alcohol has been an important part of virtually all societies. In fact, recent anthropological evidence suggests that the development of agriculture was driven by the desire to ferment alcohol. Alcohol was literally the catalyzing force in creating communal life.
So what can we do to cut down on problem drinking and associated harms?
- Reduce taxes on beer. Beer is relatively inelastic, so tax increases don’t do much to reduce consumption. Moreover, beer is less harmful than liquor. High liquor taxes and low beer taxes is a reasonable compromise.
- Reform the off-sale system. Rather than requiring bars to brew beer, issues licenses on an even playing field with current off-sales.
- Allow off-sale outlets to purchase direct from vendors, rather than through the SLGA.
- Direct all liquor taxes to a harm reduction fund dedicated to spending that mitigates the social costs of alcohol. If alcohol taxes are meant to ameliorate problems associated with alcohol, that should be their only function. They should not be a cash cow used to boost general government revenues.
- Reform taxi licensing system to reduce drunk driving. If you want to crack down on drunk driving, there need to be far more cabs on the streets.