The Control State Primer

I grew up in Pennsylvania, where there are no liquor stores. No, in PA we only have State Stores, a nickname so engrained that I don’t think I really noticed the actual sign on those establishments (“Fine Wine & Good Spirits”) until I was well into adulthood. PA, like a sizeable minority of other states, is a Control State, where the government runs the liquor business.

Many countries around the world have, or have had, government control of alcohol and other physically- or morally-dangerous substances.[i] But in America, a nation that prides itself on the purity of its capitalism, what’s the deal? Of course, our government does run or dictate plenty of industries—the mail, utilities, transit—but those tend to be either natural monopolies or things that fall under the “necessary but unprofitable” category. Until we started legalizing marijuana a few years back, alcohol was in its own class—a profitable, competitive industry, publicly run for our own good.

The History

Municipal alcohol “dispensaries” first appeared in Georgia in the 1890s, and soon South Carolina was managing them on a statewide basis. Government control of alcohol, clear racial overtones and all, spread across the post-slavery American South. At the same time, upper-class reformers and their “Committee of Fifty to Investigate the Liquor Problem” advocated for federal monopoly as a national solution to saloon culture.[ii] The idea, however, was soon swept away by the stronger tide of complete Prohibition, first state-by-state and then with the 18th Amendment.[iii] Quoting alcohol policy researcher Robin Room:

“Temperance organizations were often deeply opposed to monopoly proposals, which were seen as a technocratic and tepid response to more thoroughgoing proposals for prohibition. Prohibitionists were well aware how dependent governments could become on alcohol revenues, and detested the respectability potentially conferred on the trade by the state’s involvement.”[iv]

But when Prohibition crashed and burned, many saw government monopoly as the lesser evil. No less an ardent socialist than John D. Rockefeller was perhaps the most vocal proponent, insisting that “only as the profit motive is eliminated is there any hope of controlling the liquor traffic in the interest of a decent society.”[v] I guess he would know.

Fifteen states took Rockefeller up, and three more soon joined, some operating the wholesale/distribution part only, and others running their own retail outlets as well.[vi] Those eighteen would maintain control state status for the rest of the century.[vii] Privatization would regularly show up as an election issue, or would get through one house of a state Congress, but few serious changes occurred.[viii]

But we’re in a whole new world of alcohol regulation now, with, I would totally unscientifically guess, more law changes in the last decade than at any time since the 1930s. In 2011, Washington State voters, in a referendum, decided to do away with state control, marking the first total shift from monopoly to privatization. The results have not been entirely positive, but it remains to be seen if that will dissuade others from making a similar choice. Incremental changes are more common, with Pennsylvania, for example, now allowing beer and wine sales in grocery stores. The survival of the monopoly model will remain in question for the foreseeable future—every control state considers privatization regularly, and certainly there are no private enterprise states considering monopoly.

The Debate

So, should this model be regulated, er, relegated to history, or is there value in it? Obviously this system was not created in the name of market efficiency, but to control access to a product with some highly negative corollaries while maximizing government revenue, ostensibly to combat those corollaries. If they do those things well, then it’s just a matter of priorities—whether, as alcohol policy academic Philip Cook puts it, we place more weight on life, liberty, or the pursuit of happiness.[ix]

It’s pretty clear that control states do bring in more revenue. Washington State provides a nice case study, since there’s a before/after around privatization, and the figures from the state’s liquor control board show a pretty serious drop in alcohol-related revenues after private sales begin—despite having, by far, the highest tax rate in the country.[x] Academic articles have also made the case that state control results in greater revenue.[xi] There is even some evidence that they do so while keeping prices lower, on average, than in license states, though that is disputed.[xii]

The controlling access issue is less evident, because license states have found many ways to achieve similar ends. They control location through zoning, limit operating hours, restrict supply by only allowing sales in dedicated shops, regulate ownership by prohibiting chains, designate store square footage requirements, and much more. Considering all that, on public health I find it to be pretty much a wash, though I could be convinced otherwise. Access to alcohol has a lot more to do with the specific laws and enforcement priorities of a given state—or even a given municipality—than it does with whether you’re in a control or license state.

Control states are usually consistent statewide with their hours, prices and selection. They tend to pay their employees a living wage and provide benefits, and their stores are generally un-sketchy, which is nice. For producers, they offer standards for sales that provide clarity about how much has to sell if you want to keep your product on the shelves, something private distributors often won’t do.

On the flip side, if you want to get your product on the shelves in a control state in the first place, be prepared for FUN WITH BUREAUCRACY. If you’re a bar owner who wants to sell the latest, greatest cinnamon bubble gum whiskey, don’t expect it to be available overnight. And if you’re a consumer, expect stores that are often spread out and inconvenient.[xiii]

A neighbor who’s into whiskey recently found out I was from Pennsylvania, and waxed poetic about my home state’s crazy liquor laws. “Boy, I’ll bet you’re glad you live here now!” he quipped. I’m not so sure. In this county, liquor stores close at 7:00, and half the clerks wouldn’t know a decent rye if it bit them. But hey, at least there’s one on every corner!

Like my neighbor, I spent a fair number of years bashing control states, as have many ethanol aficionados. The point here, if I haven’t beaten it to death already, is that it’s more complicated than it appears.

 

[i] Especially Nordic countries, where government control has sometimes even extended to production. See Room, Robin. “The Evolution of Alcohol Monopolies and Their Relevance for Public Health.” Contemporary Drug Problems 20:169-187, 1993.

[ii] Levine, Harry D. “The Birth Of American Alcohol Control: Prohibition, the Power Elite, and the Problem of Lawlessness.” Contemporary Drug Problems, Spring, 1985: pp. 63-115.

[iii] Room 4

[iv] Room 4

[v] Room 5

[vi] ME, NH, VT, PA, MI, OH, WV, VA, NC, MS, AL, IA, MT, WY, ID, UT, WA, and OR.

[vii] Interestingly, those states that maintained Prohibition independently after the 21st Amendment did not choose the monopoly system when they eventually started allowing sales again. The politics of state monopoly as an option had changed, while the sense that government-run liquor stores implicitly sanction alcohol use remained prevalent. The rise of alcoholism-as-disease thinking also changed the narrative about what the problem really was. See Cook, ch. 2.

[viii] One exception being Iowa’s 1987 closure of the retail arm of their operation.

[ix] Cook 7. The choice between the three works even better, I think, when you consider the original John Locke phrase: “life, liberty, and the pursuit of property.”

[x] Those Washington budget numbers also show, however, that they weren’t spending a high percentage of those funds on alcohol-related enforcement or treatment, something I’ll probably rage about at some point.

[xi] See https://www.thecommunityguide.org/sites/default/files/assets/Alcohol-Privatization-of-Retail-Alcohol-Sales.pdf. Also see Room 8

[xii] Siegel et al. “Differences in liquor prices between control state-operated and license-state retail outlets in the U.S.” Addiction, February 2013; 108(2): pp. 339-347; Room, Robin. “Alcohol Monopolies in the US: Challenges and Opportunities.” Journal of Public Health, Winter 1987: p. 518; also see http://arg.org/news/washington-state-regrets-vote-to-end-monopoly/

[xiii] For more on pros and cons, see https://daily.sevenfifty.com/understanding-operations-in-one-liquor-control-state/

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