News Story

Commentary: Liquor Distribution Monopolies Rob Consumers, Taxpayers and Job Providers

The Mackinac Center’s Ken Braun and Kathy Hoekstra have documented how the wine and beer distribution monopolies that Michigan has granted to a handful of families damage entrepreneurs and investors in the micro-brewery industry. The Center’s Michael LaFaive has reported how an obsolete regulatory regime on hard liquor generates prices that exceed those in neighboring Indiana by more than 20 percent.

This system generates losses for the Michigan economy that probably amount to tens of millions of dollars. Part of that goes into the pockets of a few monopoly distributors who have spent lavishly over many decades lobbying legislators to defend their unfair profits. Perhaps an even larger share comes from deadweight losses imposed by not allowing a modern and efficient free market distribution system to operate in the state. 

To get a very rough idea of how large those losses may be, consider the price differences between consumer products sold at a small town “Main Street” hardware store (whose value-added consists of service and convenience) versus a Wal-Mart or Meijer. Then multiply those price gaps by all the alcoholic beverages sold in this state.

If the current distribution monopoly and regulatory regime were repealed, those tens of million of dollars would be available for two legitimate purposes: saving consumers money and/or funding the government through a simple excise tax on alcohol.

Note that these alternative uses are in competition, and both have advocates. On one side, consumers naturally want to pay less. On the other side are those who view alcohol consumption as something to be discouraged by imposing a higher tax, or who just view “sin taxes” on consumption to be an economically efficient way to fund the government.

Both these alternative uses are valid, and the appropriate body to make the judgment call is the Legislature. It could give the savings entirely to consumers, or tax some or all of them away to pay for government services - perhaps offsetting any revenue increases with cuts to other taxes.

In contrast, enriching a small number of monopolists and imposing deadweight inefficiency losses through regulatory overkill are not legitimate exercises of government power. The system that perpetuates these abuses is a historical accident, a relic of the post-Prohibition era decriminalization of alcohol. If it  didn't already exist no legislator would dare vote to create it. But for decades, political influence purchased by the monopoly beneficiaries of the system has prevented legislators from voting to repeal it. 

It’s past time for the Legislature to repeal a system a system that rips off both consumers and taxpayers.

Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.

Commentary

Distilling the Truth

The president’s letter in the January-February edition of the Michigan Beer and Wine Wholesalers newsletter suggests that association members are not primarily motivated by economic self-interest, but are merely active supporters of public safety. He then offered to sell the Mackinac Bridge to potential buyers at an excellent price.

OK, just kidding about the bridge. But the absurdity of the “disinterestedness” suggestion was indirectly revealed in the president’s letter, writing on a state of Washington effort to privatize the state’s liquor control regime and reform beer and wine distribution by repealing that state’s distributor monopoly. Reportedly, the initiative was financially supported by Costco and other retailers. Costco also allowed petitioners to gather ballot-access petition signatures on its properties.

The Michigan Beer and Wine Wholesalers president wrote, “As is often the case lately, beer and wine distributors stood shoulder to shoulder with state regulators and public safety officials to help defeat this glaring example of corporate greed.”

That’s rich coming from the head of an organization that exists only because the state has assured its members lucrative distribution monopolies that cost consumers and taxpayer millions of dollars.

According to Meininger’s Wine Business International, in 2007 Costco Wholesale Corp. was the world’s largest seller of fine wines. It earned that status by purchasing high quality goods in volume and passing the savings on to customers. In contrast, Michigan’s beer and wine wholesalers acquire much of their profits by getting the government to prohibit potential competitors.

Those monopoly profits come at the expense of consumers, and yes, also at the expense of retailers, who might add to their bottom line if the beer and wine distribution monopoly was broken. Or maybe not: Unlike monopolists, they operate in a competitive environment, and the store down the street might promote a “Broke the Monopoly” sale, forcing outfits like Costco to lower their own prices.

That’s the kind of thing that makes a free people prefer competition to monopoly, and makes voters irritated when legislators take those benefits away by preserving archaic laws that grant monopoly favors to politically active special interests. Especially special interests that add insult to injury with pious remarks about standing “shoulder to shoulder” with government officials  in the name of "public safety."

Like every other special interest that seeks riches in the political arena rather than providing value in competitive markets, the beer and wine wholesalers in Michigan and in other states with similar monopolies don’t check their self-interest at the state capitol door.  Indeed, there’s a reason why the families that own these distributorships are called “The Millionaires Club.”

Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.