Room, R. Alcohol monopolies as instruments for alcohol control policies. In: Österberg, E., ed., International Seminar on Alcohol Retail Monopolies, pp. 7-16. Helsinki: National Research and Development Centre for Welfare and Health, Themes 5/2000, 2000.
ALCOHOL MONOPOLIES AS INSTRUMENTS FOR ALCOHOL CONTROL POLICIES
Robin Room
Centre for Social Research on Alcohol and Drugs
Stockholm University
S-106 91 Stockholm, Sweden
The emergence of the idea of alcohol monopolies as instruments of public order and health
Government monopolies of alcohol sales have a long history, and have been instituted with a variety of motives besides concerns about public health and public order (Room, 1993). Before 1850, the primary motivation was usually fiscal. Governments noticed long ago that consumers were willing to pay a good deal more than the cost of production and distribution for alcoholic beverages, so that alcoholic beverages were among the commodities most frequently subjected to excise taxes. An effective government monopoly was an efficient way of ensuring that the tax was collected. This motivation has not, of course, disappeared today.
After 1850, government monopolies were set up as an instrument of public order and public health. The first such monopoly was set up in 1850 in the town of Falun, Sweden. A similar system was later set up in the larger seaport of Gothenburg, and government ownership of alcohol sales systems became known in the late 19th and early 20th centuries as the “Gothenburg system”.
Initially, such monopolies were at the municipal or local level. National monopolies emerged late in the 19th century or early in the 20th, some primarily with the function of stabilizing agricultural markets (e.g., the French brandy and German spirits wholesale monopolies; Fahrenkrug, 1989), some motivated both by this and by an interest in public health and order (e.g., Switzerland’s spirits monopoly; Cahannes, 1981).
It should be noted that government monopolies were usually proposed as an alternative to prohibition of alcoholic beverages. They were usually bitterly opposed by the strong temperance movements of the late 19th and early 20th centuries.
Monopolization of on-premise sales
The initial government monopolies in Sweden were of on-premises sales; such systems can still be found in the modern world, in such examples as beerhalls in southern Africa (LaHausse, 1992; Molamu, 1989); military messes; Minnesota small cities (Room, 1987); Alaskan villages (Berman and Hull, 1997); the pubs in Carlisle, a British shipyard town, until the 1970s (Greenaway, 1998); and New Zealand local trusts (Stewart and Casswell, 1987). But the long-term shift was away from government monopolization of on-premise sales, and towards off-premise retail monopolies. My impression is that the context of on-premise sales, with the state actually pouring out the drinks, were seen as involving it too much in a morally ambiguous activity. A classic case where the state was widely seen as tainted by involvement in on-premise alcohol sales was the “kabak” system in Russia before the 1870s (McKee, 1997).
On-premise monopolies clearly have considerable potential in operating in the interests of public health and order, for instance in holding down sales to those under age or to the already intoxicated. But their potential effectiveness in such matters has been very little studied.
Monopolization of bottle and package sales
Most of the present monopoly systems of the Nordic countries (in all Nordic countries except Denmark) and of north America (all Canadian provinces; 18 U.S. states) were set up at the conclusion of a period of prohibition of alcohol sales. They thus did not usually involve an expropriation of existing private interests, since these had been in any case wiped out by prohibition. The exception is Sweden, where prohibition was narrowly defeated by the alternative of a very tight control system operated initially at local levels, and later becoming national in scope.
Monopoly at the wholesale level. In the context of North America, the most durable level of monopolization has proved to be the wholesale level, although in recent years there has been some privatization at this level too in the United States (NABCA, 1998). These monopolies at the wholesale level have proven to be an efficient means of ensuring government revenue from alcohol sales. The U.S. monopolies also operate as a monopsony, that is, they have bargained effectively on price with spirits producers. Under the Des Moines agreements, they are guaranteed that no sales will be made to any other American wholesaler at a lower price. This is one reason underlying the fact that retail prices for spirits tend to be slightly lower in monopoly states than in the other (“license”) states (Room, 1987).
State monopolies at the wholesale level have only a limited relevance to public health and order – which is reflected in the decision in the European Union that the Nordic wholesale monopolies had to be abandoned (Holder et al., 1998). But they can make a contribution to three public health interests:
* They can ensure purity of supply. This is a substantial concern in present-day Russia, for instance, and in part underlies efforts in the 1990s to reinstate the Russian state spirits monopoly.
* They can be an instrument in effective tax collection and in discouraging illicit markets. A wholesale monopoly can more readily keep smuggled or illicitly produced products out of the retail system, including bars and restaurants. The Liquor Control Board of Ontario (LCBO), for instance, has procedures and a laboratory which enable it to determine whether spirits have come through its system or are smuggled. It is noticeable that seizures of spirits smuggled into Sweden rose spectacularly in 1996 (Holder et al., 1998, p. 141), after the wholesale trade was demonopolized.
* They are an alternative to private interests which are often more active in political lobbying and in promoting consumption. For instance, the U.S. Beer Wholesalers Association played an instrumental role in defeating national legislation in the U.S. which would have brought about a uniform national blood alcohol limit of 0.8 per mille (.08%) for drinking-driving.
Monopoly of retail off-premise sales. This kind of monopoly is, of course, the focus of our present meeting. The first thing to say about present-day retail monopolies in north America and the Nordic countries is that they are almost always incomplete, with respect to the full range of alcoholic beverages. Beer below the level called “strong beer” is outside the monopoly system in the Nordic countries, and is sold in supermarkets and corner stores. No U.S. state system monopolizes beer in any strength. The situation in Canada is more varied: the Brewers Retail system in Ontario, for instance, does function as a kind of provincially-sponsored private monopoly, while wine is partially demonopolized there.
In North America, given alcohol’s status as a special commodity in the U.S. constitution and in Canadian law, a variety of exceptions and preferences for local interests have grown up around many of the monopoly systems. Ontario, for instance, has a fairly extensive system of private wine stores operated by wineries, often located adjacent to supermarkets. The wine bottle has to bear the label of the winery, but only 25% of the wine in it has to be grown in Ontario. An indicator of the extent to which the LCBO now feels it is in a competitive rather than monopoly position is the fact that it has signed up for an “Air Miles” promotional program, seeking to reward customer loyalty. True monopolies do not have to worry about customer loyalty.
Competition comes also from other directions. In many locations in the United States, a retail monopoly is effectively in competition with stores across the state line for sales in a larger regional market. Thus monopoly stores in Virginia and Montgomery County, Maryland, for instance, feel they are competition with the liquor stores of the District of Columbia. The New Hampshire monopoly has put stores on its border which gain revenue for the state by undercutting prices in Massachusetts, its neighbouring large license state. These are examples of ways in which the monopoly systems in North America have often been diverted in recent decades into serving local interests which have little to do with public order or public health.
There are a number of characteristics of state retail monopoly systems which potentially contribute to public health or public order.
* Limited number of outlets. Typically an alcohol monopoly has many fewer retail outlets for alcoholic beverages than in an equivalent system of private licensed shops. By five years after Alberta privatization, for instance, the number of liquor stores in the province had risen from 204 to 702 (Her et al., 1999). The wider spacing of outlets imposes some extra transport cost and inconvenience on the customer. But this is typically minor these days in north American and the Nordic monopoly systems. And this minor level of inconvenience appears to have positive consequences for public health, in holding down population levels of alcohol consumption (Edwards et al., 1994).
* Hours and days of sale. Monopoly systems are typically open for fewer hours in a week than stores in license systems, and more often closed in particular at the times of week when drinking and drinking-related trouble reaches a crescendo – Friday and Saturday nights. For the liquor store to be closed when a boisterous party is running dry at 1 a.m. on a Saturday morning is in fact a quite targeted prevention strategy. Experiments in the Nordic monopoly systems with opening or closing on Saturdays have typically found that, although the overall level of purchases is not much affected, there is a noticeable reduction in family violence and in casualties when the stores are closed for the whole weekend (Edwards et al., 1994). Worries about providing “customer service” are pushing monopolies these days to open for longer hours, but it is worth keeping in mind that a system where alcohol purchases have to be planned ahead does discourage someone already drunk from keeping on drinking when supplies run out.
* Public health interests in product selection. There was a furor in much of Europe recently over “alcopops”, very sweet drinks formulated for and promoted to teenage tastes. Such issues can be dealt with quickly and administratively in the form of purchasing decisions by a government alcohol monopoly.
* Conditions of sale. There is much less point-of-sale promotion at least in Nordic alcohol monopolies, and in some north American ones. Counter service, rather than self-service, has some effect in holding purchases down, but self-service has come or is coming to most retail monopolies. A potentially important factor, often neglected, is that monopoly employees are typically unionized career employees, while the jobs in corner stores and supermarkets, paying much less, are often held by younger and more transient employees. Rules concerning underage purchasers and other conditions of sale are more likely to be adhered to in a unitary system with permanent employees.
* Restrictions on purchasers (no sales to those under age or already intoxicated). In the television advertising campaign by the LCBO union which played a role in staving off privatization in Ontario, the most effective line was a reminder of how easy it was for teenagers to purchase cigarettes in corner stores. Did you want the same situation for alcohol, the advertisement asked. In fact, the LCBO reported refusing sales to 41,700 under-age persons and to 15,700 customers already intoxicated in the year ending March 1993 (Goodstadt and Flynn, 1993). Given factors such as the difference in staffing already mentioned, it is indeed likely that monopolies are more effective than license systems in enforcing these restrictions, though there is little direct comparative evidence on this.
* “Disinterested management” and limits on political lobbying. The original point of a state monopoly on retail sales, when the systems were set up, was to remove any private profit interest in increased sales. John D. Rockefeller, Jr., no socialist with respect to other commodities, supported the monopoly system because he felt that “only as the profit motive is eliminated is there any hope of controlling the liquor traffic in the interest of a decent society” (Rockefeller, 1933). In these post-Reagan, post-Thatcher days, these sentiments are not often heard. But recent years have shown that, even though the Japanese and French state tobacco monopolies 20 years ago did not acknowledge any public health significance in their actions, they were preferable from a public health point of view to the effects of an endlessly innovating and promotional competitive market. Given the potential impact of alcohol consumption on public health and public order, a slightly sluggish state monopoly with a concern for its social responsibilities may be seen as serving the overall public interest better than a private marketplace full of competition and innovation.
A related advantage of a state retail monopoly from a public health perspective is that it is constrained by its position from lobbying as effectively as private interests for more favorable market conditions. The effectiveness of private interests in pushing against the public health interest can be seen already soon after the two most noted North American privatizations. Both in Iowa and Alberta, the new private store-owners effectively lobbied in the years after privatization to push down the government wholesale markup as a proportion of sales.
State monopolies, too, have built-in interests which they often present effectively to their political masters. But their interests are more limited than those of private sellers, and their public status puts constraints on their political activity.
* Lastly, the retail monopoly system, at least in the Nordic countries, seems to encourage an experimental view of alcohol policy, where changes in conditions of sale and other alcohol control measures are regularly studied, sometimes as true social experiments. A substantial portion of what we know about the effects of alcohol controls comes from studies carried out in these monopoly jurisdictions, usually with the cooperation of and often with funding from the monopoly. This valuable contribution of the Nordic societies to the international literature reflects also their traditions of interaction between practical social research and the policy world, and perhaps also the influence of some particular pioneer figures. On a more limited basis, there has also been some work in this tradition in Canada, particularly in Ontario. It is not too late for U.S. state monopolies and researchers to take steps in this direction, too.
The retail monopolies in the future
When the Nordic countries joined the EU, it was by no means certain that the Nordic retail monopolies would survive at all. Their survival reflects that they were valued by many elements in Nordic societies, who were able to articulate a convincing argument in the EU context for their importance to public health (Holder et al., 1998). Still, there are many predictions in the Nordic countries that they will not survive more than a few more years.
In the context of North America, the monopolies are better protected by the environment of constitutional law and trade agreements, and by the local interests the monopolies to some extent serve. But, particularly in the United States, it is rare to hear any public statement supporting monopoly systems on the grounds of their contribution to public health and public order. My impression is that neither police and public order interests nor public health interests in the U.S. would think of the monopolies as within their sphere of interest. The main expressed public support often comes from the staff unions, whose arguments are easily discounted as a matter of pure self-interest. To some extent, then, North American monopolies are in a weaker political position, if and when the political spotlight is turned on them. Many people on the Nordic political scene would disagree with parts of the alcohol control system, but there is still a general societal understanding of why it exists. That general societal understanding does not exist in the U.S. monopoly states, and it does not find much political expression either in Canada.
On both sides of the Atlantic, the retail monopolies have felt under attack now for some time. The general response to this, particularly in north America, has been to try to serve the customer better, with friendlier staff, product promotions, more stores, longer hours – all the measures which a private retailer selling an ordinary commodity might take. These efforts have had some success, by any objective measure, but it will always be an uphill climb to convince north Americans that a state enterprise can be more efficient and friendly than a private enterprise. In the end, to make an argument for survival based only on better customer service cannot be a winning strategy.
So a strong argument of “social responsibility”, and a real commitment to it, is needed as well. The argument starts from the fact that alcohol is a dangerous drug, as well as a source of pleasure for many of us. In developed societies like ours, it is calculated to account for 10.3% of the disability-adjusted life-years lost – four times as many life-years lost as from all illicit drugs together (Murray and Lopez, 1996). Much of this burden of lost life-years comes in the form of casualties – that is, as accidents and violence -- among the relatively young. A Canadian study found that 2/3 of the life-years lost due to alcohol were from injuries and other acute causes of death (Single et al., 1996). So a monopoly system, to the extent it is an effective tool for reducing alcohol problems, is as much a tool for preventive policing and public order as it is for public health.