Sunday, February 10, 2013

Pennsylvania Liquor Privatization: Harmful to Small, Local Business

Pennsylvania Governor, Tom Corbett revealed a new proposal last week, which aims to privatize the state's liquor distribution. This announcement comes on the heels of the governor's controversial decision to privatize the state's lottery system. This new proposal has many local beer distributors worried about rising costs for licensing. An article from BusinessWeek addresses some of the concerns:
"For one, the business owners say the governor's plan would create an unlevel playing field for beer distributors who would face competition from supermarkets, convenience stores and big-box stores selling beer. 
Under Corbett's proposal, distributors could buy an enhanced license for $150,000 to sell smaller packages of beer such as six-packs along with wine. They also could purchase separate licenses to carry liquor.
In the meantime, grocery stores could sell six bottles of wine and up to a 12-pack of beer for a license costing $25,000 to $30,000 annually. Convenience stores could sell six-packs with a $15,000-a-year license.
Big-box stores, such as Costco and Target, could sell six bottles of wine and cases of beer through a $35,000 annual license."
Local businesses are concerned with their ability to compete against large corporations. Many small business owners are left wondering whether they will be able to support their families if the proposal goes through.
 "It would really dilute the marketplace. As far as Pennsylvania beer distributors, we all have to be small, family-run businesses. We can't own more than one outlet. You are asking us in a new world to compete against Walmart and Costco, plus other major chains of liquor stores that would move in. That would be difficult to compete against," said Tom Bowman, owner of Beer Express in Lower Paxton Twp.


  1. First off, as anyone who has ever lived in PA knows, state-owned liquor stores *don't* sell beer. A consumer has to go to a beer distributor to buy beer. Further, even if state-owned liquor stores did sell beer, that's still not sufficient reason to keep the LCB in existence. The agency is little more than a job-creation vehicle for the politically well-connected that puts them into a cush job with platinum plated bennies for life while simultaneously keeping the price of liquor artificially high.

  2. This is not a failure of privatization, but of insufficient privatization.

    The state has reaped monopoly rents from the liquor business for decades. These rents translate into government revenues as well as funds for employees (more jobs, higher pay) in the liquor division.

    There was pressure on the state to privatize to improve cost, selection, and service to consumers. But the state did not want to give up the monopoly rents. So you get half-hearted non-privatizations like this, where the state charges simply absurd amounts of money for liquor licenses to try to continue to get its monopoly rents, but in another form.

    If they are going to privatize, they have to go whole hog and really privatize, with an unlimited supply of cheap licenses available to all at no more than the administrative cost of issuing the licenses. Otherwise we end up in the horrible middle ground, which can often be a crony heaven.