Tuesday, September 4, 2012
Privatization of Liquor Sales: Higher Costs for Consumers
In a recent article published in the Wall Street Journal, authors Joe Milliman and Mike Esterl examine the implications of Washington's recent decision to privatize all sales and distribution of liquor.
In November 2011, Washington voters passed a bill to put all sales and distribution of liquor in the hands of the private sector. Washington became the 33rd state to fully privatize the sale of liquor, but the first to do so since the end of Prohibition.
While many mistakenly presume privatization always equals lower costs for consumers, Washington residents are seeing first hand that that is not always the case. According to the state Department of Revenue, the average price of liquor for the month of June rose by a staggering 17% from last year. As a direct result of rising prices, total sales (in terms of volume) have understandably dipped. In June, sales dropped by 9% compared to last year. Due to higher costs, many Washington residents are traveling across state borders to Oregon and Idaho in search of cheaper prices. Oregon's Liquor Control Commission reported that sales in 12 stores located on the state border saw a $1.5 million increase from last year for the months of June and July.
The unfavorable impact on Washington's economy, thus far, has led to speculation that it could push other states away from privatization. Craig Wolf, president of Wine & Spirits Wholesalers of America, expressed this sentiment stating: "It's slowing down the process in others states. It's turning into a negative.'' Admittedly, the change is relatively recent, and more time must pass before a definitive conclusion on its overall impact may be reached. This article illustrates the point that privatization is not always the most desirable solution. In fact, it can be inefficient and more costly to consumers.