Liquor Privatization Would Edge Washington State Toward Freedom

Today voters in Washington State will finally have their say in whether or not to get the state out of the business of selling liquor. For months, advertisements on both the “yes” and the “no” side of the fight have filled the media. Many  observers lamented how much money has been spent on the issue. But in Washington State, this isn’t exactly new. For two years running, supporters and detractors of measures to sell off the state-run liquor store and liquor wholesaling business have shoveled millions of dollars into advertisements. This year’s attempt, Initiative 1183 has provoked a flood of cash like never before. Interested parties on both sides have given millions of dollars to sway voters.

The reasons are obvious: Wholesalers believe the measure could be the beginning of the end of the government propping up their business, and big box retailers hoping to earn a license to sell alcohol believe the passage of the bill will result in a significant increase in profit. But what is the best scenario for the consumer?

Washington, one of only 12 states that continue to run the wholesale and retail liquor operations (six additional states control just wholesaling operations), has explored the idea of getting government out of the liquor business in various ways for a number of years. Last year, voters could choose between two separate initiatives on the ballot that would have privatized the state liquor system in one way or the other. Both initiatives failed to garner enough support for passage, but one only fell just short. This year’s effort, I-1183, would sell the state-owned liquor wholesaler as well as the state-run liquor stores, allowing private wholesalers and retailers to compete for Washington’s liquor dollars. Two elements of the proposal have made this latest initiative particularly worrisome for some in the business of booze.

First, the Initiative stipulates that retail licenses may only be granted to those establishments with more than 10,000 square feet of space — a condition that contributed to the bill’s not-so-affectionate nickname, “the Costco Initiative,” since Costco stores are among the few with enough space for a license and also because of the more than $22 million Costco has put toward pushing the Initiative. Second, I-1183 would make Washington State the first to allow retailers to buy liquor directly from the producer. They could also purchase wine directly from vineyards, allowing retailers to bypass the wholesalers altogether. Wine, liquor, and even beer wholesalers have also contributed millions of dollars in an effort to stop I-1183. The fear is that if one state allows retailers and producers to skip the wholesaling tier, it might set a precedent that other states eventually follow.

For consumers, that means that we might get to see just how much money can be saved by allowing producers to decide whether or not to use a wholesaler. Wholesalers, who would no longer enjoy regional monopolies, would be forced to compete on the basis of price and quality. Again, the ripple effect would be lower prices for consumers and better service for those producers and retailers who continue to choose to use wholesalers.

The Initiative is far from perfect from a free market perspective. For one, small liquor stores are essentially banned by the requirement of 10,000 or more feet for licensing. Also, beer would remain captive to the mandatory three-tier system without any justification for its exception. However, I-1183’s provisions ending the state’s liquor wholesale monopoly and creating a voluntary three system for liquor and wine are welcome steps toward alcohol freedom that will result in greater competition, higher efficiency, and better service and prices for consumers. Hopefully, the Initiative passes and will open the door to ever increasing freedom in the alcohol market.