Politics & Policy

A Bar Fight over Privatization

In Pennsylvania, unions scrap to keep alive the last remnants of Prohibition.

A booze-fueled brawl has broken out in Pennsylvania. But not in a bar — this fight is unfolding in the statehouse. 

Pennsylvania is one of two states in the nation with a government monopoly on the wholesale and retail sale of both wine and liquor. It dates from the repeal of Prohibition in 1933. Republican governor Tom Corbett and his allies in the statehouse want to dismantle that monopoly and allow private retailers to sell alcoholic beverages. But Democrats and at least one powerful Republican state senator are standing in their way. 

Ordinary consumers should hope that Governor Corbett prevails. Privatizing the sale of alcoholic beverages would deliver greater choice, lower prices, more jobs, and more revenue for the state. 

For evidence, look no further than the state of Washington, which privatized just last year. Now more than 1,400 retailers can sell liquor, and consumers can shop for booze at nearly 900 more outlets than they could under the previous state-run regime. This new competition in the alcoholic-beverage marketplace has greatly enhanced consumer choice and convenience.

#ad#Meanwhile, the state government is benefiting from higher tax revenues from alcohol sales — a projected $425 million by the end of fiscal year 2013, compared to $309 million for FY 2012.

On prices, the outcome so far is mixed. According to the Washington State Department of Revenue, prices on alcoholic beverages in March were 7 percent higher than the previous year, before privatization. However, that increase has been driven by the high fees that distributors were required to pay during the transition. Those fees will drop by half next year. 

At the same time, there’s anecdotal evidence that prices are now beginning to fall due to the increased competition. Retail chain Total Wine and More, which moved into Washington after privatization, said in late May that the average prices on 50 popular brands of beverages were down nearly $6 compared to the old state-store prices.

Critics of Pennsylvania’s privatization plan point out that some 5,000 people who work in the state’s liquor stores will lose their jobs. Washington’s experience is instructive in that regard as well. Some 900 state-liquor-store employees did lose their jobs, but half of them have gained new employment. Meanwhile, one distributor hired 1,000 new workers following privatization, and retailers around the state have brought in hundreds of new workers to support increased liquor sales. 

Unfortunately, Pennsylvania Democrats don’t find Washington’s case persuasive, and neither does Republican senator Charles McIlhinney, chairman of the Senate Law and Justice Committee. He is writing his own liquor-reform bill that would slightly relax some of the restrictions on licenses for selling alcohol, rather than get rid of the state monopoly on wholesale distribution altogether and close the state-run stores that now sell all wine and spirits.

McIlhinney maintains that alcohol is a “drug” that needs to be regulated. But he has been the beneficiary of large campaign contributions from a major beer distributor and a big union, two of the forces that most benefit from maintaining the status quo.

Liberalized markets benefit consumers, promote economic growth, and create jobs. Pennsylvania’s current system for selling alcoholic beverages, by contrast, merely enriches the large distributors and labor unions that control it — at everyone else’s expense.

Consumers should raise a glass to privatizing the sale of alcoholic beverages in Pennsylvania — and ensure that their elected officials see it through.

Michelle Minton is a fellow in Consumer Policy Studies at the Competitive Enterprise Institute, a nonprofit public-policy organization dedicated to advancing the principles of limited government, free enterprise, and individual liberty.

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