privatization

Washington State Alcohol Intiative Takes on Three-Tier Mandates

by Angela Logomasini on November 2, 2011

in Features, Nanny State, Personal Liberty

Post image for Washington State Alcohol Intiative Takes on Three-Tier Mandates

Action this Election Day in Washington State may send tremors across America by cracking open the anti-consumer, anti-competitive alcohol regulations in that state.

Initiative #1183 strikes at the heart of a government-enforced three-tier system for distributing alcohol, which is common in most states. This system requires alcohol producers and importers to sell only to wholesalers, who in turn are the only source from which retailers may purchase their inventory. Most states also ban “vertical integration,” preventing any single company from owning and operating businesses in more than one tier.

These mandates benefit the middlemen — alcohol wholesalers — by ensuring they get a cut in the profits on every sale. But it’s bad for everyone else from consumers to small wine, spirits, and beer producers.

But cracks have emerged within the three-tier system during the past decade. A major blow came in 2005 with the Granholm v. Heald U.S. Supreme Court decision, which barred protectionist state alcohol laws.

Now Costco Wholesale Corp. is leading the campaign for change in Washington State. A number of Washington state laws that enforce the three-tier system prevent Costco from effectively implementing its wholesale model, which involves direct purchasing of large volumes of product at discounted prices, central warehousing, and eventually delivering to its retail outlets where cost savings are passed on to members of its wholesale club.

Costco had already won the right in court to buy alcohol direct from both in-state and out-of-state wine producers, skipping wholesalers altogether. But laws barring them from buying direct from the spirits industry and against central warehousing of alcohol undermine their model.

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Another TSA Nightmare

by Hans Bader on February 7, 2011 · 2 comments

in Labor, Mobility, Nanny State, Personal Liberty, Precaution & Risk, Regulation

The writer Andrew Ian Dodge shares his painful experience at the hands of the TSA at this link. The TSA inflicted prolonged pain on him through completely unnecessary “kneeding and prodding” of his scar from a “colon cancer operation that went from” his crotch to his sternum. He still hurt a day later.

Dodge wrote about the TSA’s recent decision to block competing private companies from performing airline security screening, even though private airport screeners do better on customer-satisfaction and passenger-happiness measures than TSA employees. I wrote earlier about how the TSA’s attack on private screening will harm innovation and passenger safety. CEI’s Brian McGraw wrote about the TSA’s recent decision to allow unionization of TSA employees, which TSA heads during the Bush administration had consistently opposed on security grounds.

TSA Shuts Door on Private Airport Screening Program That Exposed TSA’s Inefficiency

by Hans Bader on January 30, 2011 · 7 comments

in Labor, Mobility, Precaution & Risk, Regulation

The Transportation Security Administration has shut the door on a private airport screening program that was making the inefficient agency look bad by outperforming it in safety, innovation, and customer satisfaction. The TSA’s action was praised by a liberal union that expects to unionize the TSA, the American Federation of Government Employees. Its head, John Gage, applauded the Obama administration for requiring a “federalized” government “work force.”

The exemption allowing outsourcing to private screeners was originally created in the aftermath of the September 11 terror attacks, when Congress and the Bush administration foolishly nationalized American airport security and created the TSA. While the screeners would be provided by private contractors, they would still be paid for by the TSA and be required to follow the same procedures as TSA-employed screeners.

Previously, the Screening Partnership Program allowed airports to replace government screeners with private contractors. 16 airports did so. “But on Friday, the TSA denied an application by Springfield-Branson Airport in Missouri to privatize its checkpoint workforce, and in a statement,” TSA head John “Pistole indicated other applications likewise will be denied.” The TSA’s head said he did not see any “clear or substantial advantage” to the TSA in allowing additional airports to use private screeners, although he said that the few other airports that already use private screeners will be allowed to continue to do so.

Florida Congressman John Mica (R), chairman of the House Transportation and Infrastructure Committee, criticized the TSA’s decision. “It’s unimaginable that TSA would suspend the most successfully performing passenger screening program we’ve had over the last decade,”Mica said Friday night. “Nearly every positive security innovation since the beginning of TSA has come from the contractor screening program,” Mica said.  Supporters of private screening say it is easier to discipline and replace under-performing private screeners than government ones.

Earlier, the TSA retaliated against a veteran pilot who exposed the TSA’s security failures, taking away whistleblower Chris Liu’s credentials and firearm.

The Obama administration is now seeking to unionize the TSA, even though the TSA was originally forbidden to unionize due to security concerns. Unlike the TSA’s current head, all past TSA administrators have recognized that collective bargaining and union work rules are inconsistent with the flexibility needed to protect public safety and adapt quickly to changes in terrorist tactics. (Undercover agents have managed to slip bombs past TSA screeners, and the TSA is even less effective at detecting them than the private security firms it replaced after 9/11). The AFGE union predicted on January 21 that voting to unionize the TSA will begin by mid-March.

The Obama administration is also undermining the security of railroad passengers by gutting an expert, highly-rated, anti-terror agency at Amtrak, which Amtrak’s unions hate, despite its efficiency, because it is not unionized.

Alcohol Industry Infighting Leads to Wacky and Costly Regulation

by Angela Logomasini on November 22, 2010

in Nanny State, Personal Liberty

If the ban on alcohol-containing energy drinks tells us anything, it’s that American alcohol policy continues its tradition of being very wacky. If you need more examples see Enobytes: Top Ten Wackiest Wine Laws.  And not all of this dumb regulation is old. These days, it’s hard to find a public park with you can enjoy a glass of wine at a picnic, as many have recently banned this “egregious” activity.

Such anti-consumer regulations are advanced for a number of reasons. Blogger Tom Wark points out that the absence of a consumer advocacy organization has led lawmakers to simply serve special interests at the expense of consumers. Another key problem is that various parts of the alcohol industry work at odds. This situation eventually undermines the credibility of the whole industry.

For example, consider the infighting between wine, beer, and spirit producers regarding privatization of spirits and supermarket sales. As it now stands, 19 states do not allow spirit sales in supermarkets but allow supermarkets to sell beer and wine (some only allow beer in supermarkets). This simply makes life less convenient for consumers. Wine and beer lobbies don’t seem to mind discrimination against spirits probably because they think it makes them more competitive. For example, a comment to a recent post on Winepolicy.com noted one reason wine and beer industry players opposed Washington State ballot initiatives on spirits privatization (The Washington Wine Institute opposed privatization, for example): they fear losing supermarket-shelf space.

Ironically, wine and beer folks do not help themselves with such positions. They simply reinforce the idea that their very own products–which also contain alcohol–are somehow bad for consumers. That idea helps push regulation on the entire industry.  In fact, that was one factor that advanced the concept of prohibition. Richard Mendelson points out in his book From Demon to Darling: “Wine and Beer Interests proved themselves willing and eager to throw the liquor men to the drys,” he notes (pg. 46). Yet that strategy simply helped build the case for prohibition of all alcohol.

It was would wiser for wine, beer, and spirits industry players to understand the value that comes from working together to promote the image of the entire industry. Alcohol producers and retailers would benefit if they all promoted a positive image of the industry and supported market competition. The end result would be more rational and fairer regulatory policies for everyone rather than wacky and special-interest regulation.

Image credit: Joe Shlabotnik’s flickr photostream.

Time to Privatize? The Economics of Social Security

by Alex Schibuola on November 16, 2010 · 3 comments

in Economy

Government spending reform is not an option. It’s a necessity. Reforming Social Security goes a long way here. The most sensible reform would be to privatize it. To see why, one needs to understand the economics of Social Security.

First: What is saving? When we buy stocks, bonds, and CDs with our money, we call it “saving.” In the economics sense, when we save, we abstain from consuming resources today. Businesses use the saved resources to produce more for tomorrow.

Suppose an economy produces a stock of corn. We can either consume it or save it. The saved corn is planted and makes more corn next year. This is saving and investment, in the economics sense. Here’s the link between “saving” and saving: I decide not to spend all my money consuming corn. Rather, I buy a bond from a farmer. I am “saving.” In doing so, I also leave corn on the shelf of the supermarket. This is saving.

The farmer buys the leftover corn using the money from the bond I bought. He invests by planting the corn. In a year, it becomes more corn. He sells it to the supermarket for money which he uses to repay me for the bond, with interest. Now I have the money, and I can consume more corn or save again.

This corny story is an analogy for gross domestic product (GDP), the measure of all final goods and services produced within a nation in a year. It includes all the corn, cars, soda, etc. produced by a nation. The saved portion of GDP becomes investment. Investment creates more GDP in the future.

So is Social Security saving? No. Those paying in today don’t consume it or save it. The government receives the money, but they don’t leave it in a personal account; they transfer it someone else who uses it to consume resources. In other words, the government takes corn from you and gives it to your grandma. Now she can consume it. There’s no real saving because no corn gets planted to make more corn tomorrow.

If there’s extra money in Social Security, government takes it and buys corn to consume itself, e.g., to build corny missiles. It gets replaced with a government IOU, Treasury bonds (aka higher future taxes). Not only is this not saving, but the corn missiles mean there is even less corn for individuals and businesses to consume and invest too.

Identically, imagine you “save” $1,000 of your income, but buy a new TV instead of depositing it with a bank. Since you’re “saving” and not a scheming politician, you write an IOU to yourself, promising to repay yourself $1,000 with interest. Is this “saving” plan stupid? It is. This is Social Security.

If Social Security were privatized, people would deposit their income with a bank. People actually save resources that businesses can invest. We, as true savers, get more resources in the future.

“Lockbox” proposals are equally flawed. In this instance, government doesn’t reach its hand into the cookie jar. It keeps the extra cash stowed aside. This is like putting money under your mattress. Once it’s out of circulation, it serves no purpose. Less money in circulation relative to real GDP means the average price level goes down (deflation). The Federal Reserve would just print more money to offset this.

Remember, the purpose of actual saving is to allow you to consume more in the future — not today. Social Security retards this process whereas privatized Social Security means actual saving. If people defer consuming some corn (GDP) today with a bank that lends it to someone to invest, then there will be more corn (GDP) tomorrow. This is the economics of Social Security.

Alcohol Bureaucracy Prevails in Washington State

by Angela Logomasini on November 5, 2010

in Nanny State, Personal Liberty

Washington State voters rejected an initiative that would have re-organized this industry simply to make it more rational, market-based, and fairer. The initiative, discussed in an earlier post, simply would allowed retailers to buy wine, spirits, and beer direct from producers and would have allowed private shops — rather than government agencies — to sell spirits.

Why on earth would consumers reject this? Quite frankly, I am dumbfounded that they did. These regulations largely exist because special interests have a really good lobby and ample PAC money. But consumers didn’t seem to get that message. Many people actually believe that bureaucracy and special-interest laws serve the public good by ensuring children are protected and that that alcohol markets are orderly and fair. This was the rationale of the temperance movement that brought us prohibition — which created a disorderly, unfair mess governed largely by organized crime. But still, we haven’t learned.

There aren’t good data to support the view that inefficient government monopolies and economic protectionism serve “temperance” goals in any case.

But these debates are not about data or “the facts.” They are about values — and our job is to communicate to consumers how the values of freedom, fairness, and public order are not well served by messy economic regulations. Maybe we can start by looking at other regulations — many of which are very silly and easy to grasp.

For example, I recently called a Virginia restaurant to see if I could bring my own wine. Guess what? Such corkage is against the law in Virginia! Supposedly, corkage threatens the “three-tier system,” which only allows restaurants to serve alcohol that they bought from wholesalers.

How does this meet our need for order or fairness? It doesn’t. It takes away some of life’s little pleasures (totally unfair), particularly for those who can’t afford wine on the restaurant list. In states where corkage is allowed, some restaurants even offer “free-corkage” on at least one day a week. And there is nothing disorderly about that!

Here it the specific law from the Virginia Code pasted below.

§ 4.1-315. Possession without license to sell alcoholic beverages upon premises of restaurant; exceptions; penalties.

A. No alcoholic beverages shall be kept or allowed to be kept upon any premises or upon the person of any proprietor or person employed upon the premises of a restaurant or other place where food or refreshments of any kind are furnished for compensation, except such alcoholic beverages as such person owning or operating such place of business is licensed to purchase and to sell at such place of business.

Image credit: Joe Shlabotnik photostream on Flickr.

Shifting the Burden of Explanation

by Ryan Young on September 14, 2010

in Economy, Personal Liberty, Politics as Usual

A lot of people get angry when somebody suggests privatizing some or other government service. For example, someone who opposes government-run schools is accused of opposing all education, period. Not a rigorous line of thought. But it’s common.

Why do some people propose privatization? It’s not because they’re against the service. It’s because they think the private sector will do a better job providing that service.

If anything, because theory and data usually side with privatizers, the burden of explanation actually lies on those who favor government provision of many services. Why support more expensive and less effective schools, or mail service, or health care, or rail travel?

Mises briefly touches on that disconnect in his short 1927 book Liberalism (that is, liberalism as the word originally meant):

If I am of the opinion that it is inexpedient to assign to the government the task of operating railroads, hotels, or mines, I am not an “enemy of the state” any more than I can be called an enemy of sulphuric acid because I am of the opinion that, useful though it may be for many purposes, it is not suitable either for drinking or for washing one’s hands.

-Ludwig von Mises, Liberalism: The Classical Tradition, p. 18.

Republicans Should Favor Privatization of Liquor Sales

by Michelle Minton on August 19, 2010 · 1 comment

in Odds & Ends

Republicans should support increased privatization and oppose the continuation of government-run entities. It should go without saying, but some Republicans in Virginia (and beyond) seem to have forgotten what it means to be a Republican.

Since his election last November, Governor Bob McDonnell has expressed an interest in privatizing  the commonwealth’s alcohol beverage control system. Now as his plans take shape and edge closer to abolishing the state’s hold on alcohol retail sales some Republicans are showing nervousness about McDonnell’s ideas.

Del. Tom Gear (R-Hampton) said he was concerned by suggestions that Costco and Wal-Mart would be able to sell liquor in a new system. He said he’s worried the big companies could make it tough for small retail businesses to successfully compete in the market. “My idea was to create jobs from small operations, mom-and-pop stores,” he said. “Costco can put in liquor and never have to hire a single person.” Gear also said he was concerned about replacing the $248 million ABC now deposits in the general fund annual in liquor profits, excise and sales taxes.

Sen. Emmett Hanger (R-Augusta) is concerned about the potential loss of tax revenue and increased consumption: “The money is already flowing into the general fund and being spent, every last penny. There is not a bonanza to have there.” “The experts I’ve talked to think privatization would be the absolutely wrong direction to go.”

Del. Bob Marshall (R-Prince William) is also concerned about increased consumption and revenue. “We have to make a decision not just about what’s going for today, but 10 years from now,” he said.

Republican politicians should NOT support policy simply to fall in line with the party or support a proposal simply because its author is a Republican — especially if the proposal only pays lip service to individual liberty, private property, or personal responsibility. However, many of the concerns expressed by McDonnell’s conservative opponents show an utter lack of concern for the principles their party is supposedly based on.

More than that — their concerns are entirely unfounded:

No new money

It’s understandable that lawmakers are concerned about losing a practically guaranteed annual revenue stream of $248 million, all of which is already allocated to pay for goods and services around the state. But according to an article published in the Washington Examiner this week those fears are unfounded when considering how much VA spends on the business of controlling liquor sales:

The Department of Alcoholic Beverage Control has a budget of $514 million. Through the third quarter of 2010, the Agency had spent more than $237 million on “supplies and materials.” Of that, $232 million was spent on alcoholic beverages…. meaning the commonwealth, in the interest of restocking the shelves at its ABC stores, was cutting checks to distilleries, wineries and importers across the country.

Higher rates of crime and abuse

Again it’s understandable that lawmakers and other interested parties are concerned that  “loosening” the state’s grip on alcohol sales will result in minor abuse, increased alcoholism, crime, and traffic accidents due to increased availability and affordability. If we look at other localities that have switched from control to private systems, we can see that these fears seem to be unfounded.

For example, Iowa privatized state stores in the 1980s without such an increase in social ills. The number of liquor stores nearly doubled, tax revenue from sales increased by $125 million, (according to the state’s division of alcoholic beverage control) yet, underage drinking and alcohol-related fatalities “remained steady.”

…even though Iowa’s number of liquor stores roughly doubled, its incidence of underage drinking and alcohol-related fatalities remained steady. “Privatization didn’t really have any effect” on such problems, said Keith Bailey of the Iowa chapter of MADD.

Similarly in Alberta, Canada, which privatized alcohol sales in 1993 has seen cheaper prices, increased numbers of retail operations, and higher amounts of government revenue.

Of the four western provinces along with Ontario and Quebec, Alberta is tied for the highest in terms of dollars raised from alcohol per capita, ahead of those with retail and distribution monopolies.

In addition to the fiscal benefits, privatization in Alberta did not result in a spike in crime, death, and abuse. In fact, despite increased availability in Alberta, consumption declined following privatization along with traffic accidents related to alcohol.

In the decade following privatization, Alberta’s impaired driving rate declined by a higher percentage than any other province — 73%. That compares to a 47% decline for Saskatchewan and an average 50% for Canada. In addition, citizens of Saskatchewan report higher rates of alcohol-related harm than nearly all other provinces, including Alberta.

All lawmakers, not simply Republicans, should seriously consider the merits of privatizing liquor sales. In particular, Republicans should temper their fear of change with a commitment to their espoused ideals. Infinite numbers of studies could be conducted, statistics could be collected from now until kingdom come: we will never know without a doubt what the results will be of privatizing liquor sales in Virginia. But by supporting the policies that best preserve free enterprise and personal liberty, Republicans can at least be certain that they are protecting their ideals and the rights of their citizens.

Liquor store privatization on tap in WA

by Michelle Minton on June 25, 2010

in Nanny State, Odds & Ends, Personal Liberty, Regulation

In Washington state’s November election ballot will have a very interesting twist: dueling initiatives to privatize the state-run liquor stores: Washington Privatize State Liquor Stores Initiative 1100 and the Washington Revise State Liquor Laws Initiative 1105.

The first, initiative 1100 would:

direct the liquor control board to close all state liquor stores; terminate contracts with private stores selling liquor; and authorize the state to issue licenses that allow spirits (hard liquor) to be sold, distributed, and imported by private parties. It would repeal uniform pricing and certain other requirements governing business operations for distributors and producers of beer and wine. Stores that held contracts to sell spirits could convert to liquor retailer licenses.

On June 23rd supporters of the initiative delivered boxes to election officials containing almost 400,000 signed petitions far more than the required 241,000 to qualify it for a ballot vote in November. If it passes, state stores would be abolished and retailers already licensed to sell beer and wine could begin selling liquor as well. Best of all, the state pricing regime, which includes bans against volume discounts would be repealed and retailers could buy directly from manufacturers–cutting out the middleman of distributors. Not surprisingly, Costco has been one of the initiative’s biggest supporters.

Issaquah-based Costco Wholesale Corp. has contributed about $735,000 to the campaign, along with roughly $107,000 in other donated assistance – including the use of staff to collect petition signatures in its stores.

Costco has unsuccessfully fought the state’s existing liquor system for years, both in the Legislature and the federal courts. If I-1100 passes, the retailer would be able to apply its considerable buying power and supply system to selling hard liquor, as it does in other states with different liquor laws.

But there is another initiative that might be on the ballot in November, too. Though the  Washington Revise State Liquor Laws, Initiative 1105 doesn’t yet qualify to be on the ballot, supporters are confident that they’ll get the necessary petitions. Like 1100, 1105 would close all of the government run liquor stores and give the state the ability to issue licenses to private sellers. However, this bill would continue to protect distributors (aka “the middle man”) and retain price controls, preventing volume discounts. The biggest financial supporter for this initiative is, unsurprisingly, distributors who need government to protect their industry. Apparently, unless government forces all retailers to buy their goods from distributors, distributors fear that they’ll have nothing to offer the in the open market.

We will just have to wait and see how the good people of Washington State feel about this come November.

End the Letter Delivery Monopoly: Sell The USPS

by Michelle Minton on August 4, 2009 · 1 comment

in Deregulate to Stimulate, Odds & Ends

“Neither snow nor rain nor heat nor gloom of night stays these couriers from the swift completion of their appointed rounds”

I am quite fond of the symbol of the mailman. Dressed in a crisp blue uniform, they evoke romantic memories of a small town I never lived in, and simpler times that are only simple in superficial retrospection.

But it is time to put the mailman to rest.

With proposals to limit deliveries to 5 days a week and to plans to close post offices around the country, it is becoming clearer that the government-run US postal service is an abject failure; that is clearer because most people recognize that even before the current financial climate the service provided by USPS was tolerable at best.

Would you pay $.44 to send a letter that may or may not arrive in a few days or send an email for free? Send a check or important document through the mail and pay through the nose for insurance or just pray it arrives, or would you use one of the private delivery services (UPS, DHL, FedEx)? Which organization do you trust to securely deliver your goods in a timely and efficient manner? Private companies have to answer to you, the consumer if they mess up; not months later at the next election, but the next time you need to send a letter or package. If a private company loses a package, charges too much, or has poor customer service, consumers will take their money to a competitor.  When USPS fails to “deliver” as a service provider, when consumers are dissatisfied, USPS might be mildly embarrassed, but they’ll keep taking your tax money—and probably charge more with the excuse of improving services.

Only in a government run monopoly industry can a service provider give less service and charge more (think public transportation).

The laws that give the government a monopoly on the delivery of letters are called “Private Express Statutes” or PES enacted in 1792. It is time to suspend these statues and sell off the government run post offices. Simply put, the only reason for the USPS to exist, the letter, has died—the internet killed it. When it comes to parcel delivery services, which the PES do not cover, there is no competition—private companies are far superior in quality, security, customer service, and price.  The billions of dollars spent on USPS is a complete waste of taxpayer money.

If political leaders truly want to have letter delivery services remain widely available to consumers (however small their numbers) the best option is to remove the government monopoly and let private carriers deliver letters.