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5 October 2005October 5, 2005

Is government control of the liquor trade still justified?

Research Paper on the justifications for preserving a government monopoly on liquor sales in Quebec and the economic consequences of this policy

Is government control of the liquor trade still justified?

While in the 1920s the Quebec government clearly had the most liberal and least detrimental policy in North America for controlling the sale of liquor, in 2005 it is among the most restrictive. The time has come to discuss the various ways of privatizing the SAQ and liberalizing liquor sales, turning a page that goes back to the era of prohibition.

Neither theoretical arguments nor economic performance justify maintaining the SAQ’s current monopoly. No reason exists to preserve this paternalistic attitude on the part of public authorities who seek to dictate lifestyles and to tell consumers which beverages they have the right to drink. As responsible adults, citizens are capable of making their own choices.

While in the 1920s the Quebec government clearly had the most liberal and least detrimental policy in North America for controlling the sale of liquor, in 2005 it is among the most restrictive. The time has come to discuss the various ways of privatizing the SAQ and liberalizing liquor sales, turning a page that goes back to the era of prohibition.

 

Omnibus Survey Report on the Opinion of Quebeckers regarding Privatizing Retail Trade of Alcohol :: Léger Marketing Omnibus Survey Results

Media reactions to the MEI study on alcohol trade

Privatization of alcohol trade in Ontario and Quebec: Consumers would come out ahead in an Alberta-style system, says the MEI :: Press release, October 5, 2005

 

Research Paper prepared by Valentin Petkantchin, Research Director of the Montreal Economic Institute.

Foreword


The commercial monopoly that we see in the Société des alcools du Québec (SAQ) is a vestige of the past with origins going back to the Prohibition era of the 1920s. Putting the government in charge at that time aimed at controlling alcohol consumption. Even though this context is now far behind us, every recent attempt to reform the SAQ has failed. In 1985, Rodrigue Biron, then a minister in the Quebec government, proposed a partial privatization, but this went nowhere. A working committee set up by the government in 1997 examined full liberalization of the sector, but without any more success.

The long strike last winter at the SAQ brought back questions about the pertinence of this type of government monopoly here in the 21st century, at a time when people are allowed increasingly to make their own decisions about how they want to live and what they want as consumers. Similar questions are being raised in other provinces. In Ontario, a committee created by the provincial government to examine how liquor is sold reached the following conclusion in a report released this past July: “Following a six-month review, our Panel has come to the unanimous conclusion that the Ontario government should withdraw from ownership and operation of wholesale and retail beverage alcohol business and instead create a regulated but competitive marketplace.”

This study by Valentin Petkantchin looks at several sides of the issue. The author goes over the various arguments that are heard regularly, such as the fact that alcohol is not just another product, and he concludes that none of this reasoning justifies the SAQ’s existence. He shows that using government stores to sell beverages not only fails to lower alcohol consumption but ends up penalizing responsible drinkers, meaning the vast majority among us.

This study is also of great interest because it is one of the few studies, if not the only one, providing an idea of the SAQ’s performance in relation to the LCBO in Ontario and the privatized system in Alberta. Are we better served by our SAQ monopoly in Quebec than Albertans are by their privatized system? Strange as this may seem, the study uses figures to show not only that privatization puts consumers at an advantage but also that it enables governments to increase revenues from this sector.

It is time to restart a serious debate in Quebec on this issue. This study from the Montreal Economic Institute will most certainly enable everyone to understand this question more clearly.

Michel Kelly-Gagnon, President

Executive Summary

This Research Paper deals with the justifications for preserving a government monopoly on liquor sales in Quebec and the economic consequences of this policy. As explained in the first section, these government monopolies are vestiges of the past. Their origins in Quebec and the other Canadian provinces go back to the inglorious days of prohibition and the United States dry laws of the early 1920s.

Even though this historical context long ago ceased to exist, nearly all Canadian provinces maintain strict controls over the import, storage, distribution and sale of alcoholic beverages. Over the years, however, the temperance goals that served as the main justification for these policies have been lost from view. The Société des alcools du Québec (SAQ) has become a commercial monopoly that holds consumers hostage and tries to take the place of what a host of private companies could offer under competitive conditions.

Provincial governments justify their grip on this commercial sector by means of pretexts such as health hazards, alcohol addiction, social costs and even economic efficiency. This control also generates sizable revenues that they fear losing if privatization were to occur.

The second section examines all these arguments and shows that none of them justifies the SAQ’s current commercial monopoly. For example, harmful health effects resulting from excessive alcohol consumption hardly justify the existence of a monopoly. Quebecers can obtain alcohol in the amounts they desire exactly as if there were no monopoly. Purchasing bottles in stores belonging to the government rather than to private businesses does not somehow make the health hazards disappear.

Despite the dearth of arguments to justify preserving the SAQ’s monopoly, the privatization option remains controversial. Certain studies purport to show that a privatized system would cause governments to lose the dividends from their monopolies (nearly $600 million a year in the SAQ’s case) to the private sector. Critics of privatization also argue that the private market would leave consumers with a narrower product selection, poorer service, higher prices and so on.

The third section presents a case study comparing the performances of Quebec and Ontario (the latter having a monopoly similar to the SAQ) with that of Alberta, which largely privatized the sale of alcoholic beverages in the early 1990s. Although the Alberta market is not fully open to competition, with public authorities maintaining control over the import, wholesale and distribution side, the data show clearly that privatization offers advantages. Alberta has three times more stores, similar prices, more products available and just as much government revenue compared to Quebec or Ontario.

Neither theoretical arguments nor economic performance justify maintaining the SAQ’s current monopoly. No reason exists to preserve this paternalistic attitude on the part of public authorities who seek to dictate lifestyles and to tell consumers which beverages they have the right to drink. As responsible adults, citizens are capable of making their own choices.W hile in the 1920s the Quebec government clearly had the most liberal and least detrimental policy in North America for controlling the sale of liquor, in 2005 it is among the most restrictive. The time has come to discuss the various ways of privatizing the SAQ and liberalizing liquor sales, turning a page that goes back to the era of prohibition.

Read the Research Paper on iedm.org.


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