Don’t Blame Capitalism for Washington State’s Liquor Privatization “Failure”

by Michelle Minton on July 24, 2012 · 7 comments

in Deregulate to Stimulate, Features, Odds & Ends, Property Rights

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There is no alternative way, so far discovered, of improving the lot of the ordinary people that can hold a candle to the productive activities that are unleashed by a free enterprise system

~Milton Friedman

Proponents of privatizing Washington State’s liquor sales said that such a change would benefit consumers, businesses, and the state coffers. Ending the state monopoly on liquor, they said, would increase the number of places where alcohol could be purchased and reduce prices as retailers competed for patrons. However, upon looking at what has happened since liquor sales were privatized in the state, some voters are beginning to regret their support of the initiative and doubt the benefits of private enterprise.  Along with the increase in the places Washington State residents can buy liquor, residents saw significant increases in the prices of alcohol. As a result, many in Washington are reportedly hopping the boarder to buy their booze in Idaho and Oregon and some are pointing to the situation as evidence that free markets do not benefit consumers as so many argued in the push to privatize.

However, as the Oregonian editorial board pointed out in their article published last Sunday, it is important to point out to folks that capitalism and privatization are not to blame for the increasing prices of Washington’s booze. Taxes and fees—meant to make up for revenue that would be lost to the state and other businesses—are the root cause for the increasing prices and are the reason Washingtonians have been robbed of the benefits of free enterprise.

“…Washington distributors pay the state 10 percent of sales for their first two years of operation and 5 percent for subsequent years. Retailers pay 17 percent of sales to the state, and taxes that were in place before the adoption of I-1183 remain. These include a levy of $3.77 per liter and a retail sales tax of 20.5 percent.

Also at play, says Smith, is a floor for distributors’ state contributions. They’re on the hook for generating $150 million in state revenue by March 31, 2013, and they’ll have to pony up any portion that isn’t covered by their 10 percent-of-sales contribution. Early estimates suggest they may come up short, says Smith, which might also be a factor in pricing.

Then there’s the matter of turning a profit, which requires a further markup.”

As a result of lawmakers attempting to make up for lost revenue through fee-collection, they have incentivized patrons to buy their booze in other states—losing the entire amount of tax revenue they would have otherwise received.  On the bright side, some of these taxes and fees will sunset in subsequent years. After two years the distribution tax will be halved and the $150 million revenue requirement only applies to the 2013 deadline. But that may be little comfort to the consumers experiencing sticker-shock in Washington right now.

Other states considering privatization would be wise to learn from Washington’s mistakes. As for Washington: Rather than blame the flawed privatization legislation, it’s time for Washington business owners and residents to focus on removing the taxes, fees, and any other artificial price-altering statutes so that they can truly have a private liquor market.

Paul Sand July 24, 2012 at 3:30 pm

“As a result, many in Washington are reportedly hopping the boarder to buy their booze in Indiana and Oregon…”

That’s a long hop.

Susan Franklin July 25, 2012 at 12:25 pm

Last time I looked, Indiana doesn’t border Washington…a typo that bad makes the article unreadable.

Anon July 25, 2012 at 12:49 pm

“As a result, many in Washington are reportedly hopping the boarder to buy their booze in Indiana and Oregon”
I stopped reading after this. If the author can’t bother to get basic US geography correct, why should we believe any other statements she makes?

get it right July 26, 2012 at 11:53 am

The error that Mr Friedman and other free market advocates make is categorizing the activities of state agencies such as the Oregon Liquor Control Commission as being in the “liquor selling business.” This is absolutely wrong. The laws passed by the Oregon Legislature establishing the OLCC clearly states one of the two main objectives is to GENERATE REVENUE. Therefore the control of liquor sales must be correctly viewed as merely a revenue generating mechanism. Revenue, I might add, that is spent entirely in and for the betterment of the residents of the state.

To call out the Washington Legislature for merely maintaining that a stable source of revenue is ludicrous.

Lauri Malone July 27, 2012 at 11:16 am

Thankfully, alcoholic beverages are an optional purchase. Not like, say, toilet paper.

It says Idaho. P’raps they changed it after the comments?

Susie July 27, 2012 at 8:44 pm

The article did say Idaho

Michelle Minton July 29, 2012 at 6:10 am

I try my best to write error-free articles and blogs every time, but I’m not perfect (obviously). This time I made a mistake; it happens now and then and I feel bad every time. If you read my work regularly, you know that about once every two weeks I do an alcohol regulatory roundup, detailing regulation changes in all the states. I was working on one those when I stopped to write this blog and some wires must have got crossed. Most writers have editors–I have great ones here at CEI who usually catch this sort of goof, but since this is a *blog post* and not an article there was no editor to double check. If you think that typo is enough to invalidate the entire blog, so be it. On the other hand, you can chalk it up to me being human, finish reading the whole thing, do some research, and then decide if the argument has validity.

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