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Washington State Ballot: Cracking Open the Wine and Spirits Market

This election day, Washington State voters will have to decide on two different ballot initiatives dealing with alcohol regulation (#1100 and #1105). The first will open the market to competition at all levels -- allowing competition necessary to reduce prices, make shopping more convenient, and increase consumer choice. The second goes halfway, forgoing many benefits offered by the first. (A helpful chart comparing the two initiatives can be found in this Washington Policy Center study.)

Both initiatives would essentially privatize spirit sales, but 1100 would also eliminate government pricing schemes for all alcohol that currently bar retailers from offering discounts. In addition, it breaks the state-imposed three-tier system by eliminating regulations that keep retailers from buying wine directly from wineries around the world rather than buying it all through wholesalers. Initiative #1105 would privatize spirits (which is good!) but  keeps three-tier mandates intact and also includes harsh taxes and regulations that will keep prices high.

Tackling three-tier mandates--as 1100 would do -- is critically important.  Three-tier mandates serve wholesalers and bureaucrats well -- at the expense of everyone else. They ensure that retailers cannot simply buy direct from wineries and then pass savings onto consumers. It also means, if wholesalers don’t want to carry certain wines, retailers can’t offer them.

Initiative 1100 was originally developed and promoted by Costco, which wants to buy direct and offer steep discounts to consumers. Opponents suggest that means the initiative is designed to undermine small retailers and wineries to benefit "big box" stores. That's ridiculous. Costco isn't asking for special privileges. It's asking for opportunity to compete.

Voluntary contracts and competition drives market players toward arrangements that ultimately benefit consumers, and that's what 1100 is all about. This system gives everyone a fair-and-equal shot, whereas government regulations favor the politically organized. If Costco wins in an open market, it will win because it meets consumer demands.

Costco won't be the only business that wins. A more open marketplace will raise the best businesses to the top. It will help wineries and retailers -- large and small -- explore new opportunities for marketing products.

And an open marketplace won't destroy wholesalers or the three-tier system; it would simply base that system on voluntary contracts rather than mandates. Competition for contracts will reward those wholesalers that provide the best service and eliminate those dependent on governmental guarantees. California and D.C., for example, do not have three-tier mandates, yet wholesalers play a critical role based on voluntary market arrangements.

Still, opponents of both initiatives--a good portion of which includes wholesalers--have suggested that privatization and rational market arrangements will undermine public health and promote alcohol abuse. Concerns about alcohol misuse are certainly important they have no bearing on economic organization of the marketplace, nor could they ever justify government-created monopolies. Social problems should continue to be addressed by other means, such as checking identification and private social services to help abusers.

In fact, the data shows that states with more open economic arrangements do not suffer from more alcohol-related problems. For example, a study published by the Virginia Public Policy Institute compares data from 18 “control states” (where at least some kinds of alcohol is sold only in government stores) and 32 “license states” (states where all alcohol is sold in private shops). The researchers found no difference between the two approaches in terms of alcohol-related health and social problems.

Specifically, they found that between 2001-2005 the number of per-capital alcohol-related deaths, binge drinking incidents, and drunk-driving cases were roughly the same among the states, regardless of where the alcohol was sold. In other words, government ownership of any portion of the industry does not improve public health and safety. The Commonwealth Foundation drew similar conclusions in an analysis of the data that produced in 2009.

This Reason Foundation study underscores some of the other fallacies associated with "temperance"-based arguments favoring regulation. In addition, check out Tom Wark's blog, Fermentation, for helpful information on the initiatives and problems associated with three-tier mandates.

Image: Wine at California Costco Store, by Willscrlt's photostream on Flickr.