Opinion: We should blame politicians who set up and maintained a system that has both inconvenienced and overcharged consumers for nearly a century.
A lot has changed in the last 92 years, but Ontario’s alcohol policy is one thing that has remained largely the same. Following the repeal of alcohol prohibition in 1927, the province granted Brewers Warehousing Co. (later Brewers Retail/The Beer Store) a monopoly over beer sales, to appease prohibitionists. Now Prohibition’s legacy lives on through The Beer Store’s near monopoly on beer sales today, and Ontario Premier Doug Ford is facing both political heat and legal threats by trying to challenge it.
If the Ford government follows its plan, beer and wine will be available in corner and big box stores by Christmas. Evidence suggests this policy will enhance consumer choice by expanding variety, increasing convenience, and lowering prices. Anindya Sen, an economist at the University of Waterloo, estimated that roughly $700 million in annual revenue earned by The Beer Store is incremental profit earned because of its monopoly status and ability to charge higher prices. Additionally, The Beer Store’s roots in Prohibition demonstrate that lack of access is a feature, not a bug, of the current retail system. This inconvenience may be why 54 per cent of Ontarians support allowing more privately owned stores to sell alcohol.
Modernizing alcohol sales is good public policy. While the LCBO’s earnings serve as a cash cow for the province, The Beer Store’s profits primarily go into the hands of large multinational brewers — Anheuser Busch-InBev, through its Labatt subsidiary; Colorado-based Molson-Coors; and Japan’s Sapporo, through its Sleeman subsidiary. Additionally, retail monopolies do little to promote social responsibility. As one of the authors’ research has shown, privatization of alcohol sales in Alberta was associated with a lower rate of impaired driving.
The precedent for this change exists, as convenience stores already sell lottery tickets and cigarettes, and face hefty penalties for selling to minors. Furthermore, alcohol liberalization isn’t only good for consumers, it’s good for the economy. By studying similar reforms in British Columbia, a new report from the Retail Council of Canada predicts that Ford’s proposed reforms would result in 9,100 new jobs and a $3.5-billion dollar increase in GDP.
We should not blame the Ford government for pursuing alcohol modernization
However, pursuing this change has had its own set of challenges. The Beer Store has threatened legal action against the province if it moves forward with its plan, citing its agreement with the previous Liberal government that limits the number and type of beer-retailing outlets in Ontario until 2025. Beer-industry insiders claim a breach of contract could cost Ontario up to $1 billion. While there are reasons to doubt this figure, including that estimates have rapidly grown from a previous estimate of $100 million in the short time since the story about the Ontario government’s plans broke, it has proven to be politically challenging for the Ford government. Critics have claimed that moving forward would be irresponsible due to the financial risk, with Ford being directly responsible for the potential losses.
There are two important lessons to take from these exorbitant claims. The first is that the figures that opponents of the plan are claiming are entirely unsubstantiated. They are simply the figures they claim. In order for them to have any legal weight whatsoever, they would have to be proven in court, which would require The Beer Store to open its books. Given the grandiose figures being tossed around, it is entirely possible that The Beer Store is bluffing in an attempt to maintain its privileged treatment. The second important lesson here is the price of cronyism overall. The government over-regulating and picking winners and losers in the market hurts consumers twice over. First through inflated prices and poor customer service, and again as taxpayers via legal challenges. Setting a precedent that the Ford government stands with consumers over special interests would clearly show that it stands for the people.
When it comes to placing blame, there is a lot to go around. We should blame the politicians who set up and maintained a retail system that has both inconvenienced and overcharged Ontario consumers for nearly a century. We should blame the previous government for attempting to tie the hands of subsequent leaders by signing the latest contract with The Beer Store. However, regardless of the outcome of the legal challenge, we should not blame the Ford government for pursuing alcohol modernization. While this move may be costly, it is necessary to right past wrongs and end Ontario’s Prohibition-era alcohol framework. Ford has lots to answer for, but not this.
Heather Bone is a research fellow at the Consumer Choice Center and an economics PhD student at the University of Toronto. David Clement is the North American affairs manager of the Consumer Choice Center.
