Will the recession liberalize wine laws? What to watch

Several states in America, land of the free, own the means of distribution–when it comes to wine, spirits and beer. You don’t have to be a Tea Party member to wonder if this is the best arrangement.

Thanks to shortfalls in state budgets, state authorities are increasingly looking to liberalize liquor distribution according to a piece in the WSJ yesterday. The issue is in play in at least Washington State, Virginia, North Carolina, Mississippi, and Vermont.

Privatization could be a mixed bag for wine enthusiasts. Consider the story of Chicago parking meters.

In early 2009, without much debate, the city council decided to sell a 75-year lease to operate the city’s parking meters. A private group led by Morgan Stanley paid $1.2 billion (about 60 times 2008 meter revenues), a portion of which helped plug the immediate budget shortfall. The first thing the group did was raise the meter rates. Then the group raised rates again, quadrupling in some areas during year one. In the first few weeks, there were reports of vandalism of the meters, a lack of repair from the new authority, confusing new meters, a lack of response to citizens and journalists who called with questions, and a higher incidence of parking tickets (the revenue from which the private group keeps). A poll last fall found that nine out of ten Chicagoans didn’t like the deal and Mayor Daley (“mayor for life”) saw his approval rating drop below 35 percent.

This example has a couple of lessons for wine. First, privatization does not equal liberalization: slothful monopolists who raise prices and limit choices can be either public or private. So as states contemplate privatizing alcohol distribution, the key aspect is fostering competition that allows niche distributors to emerge to sell fun, small production wines from the Cote Chalonnaise, or wherever. And why not take liberalization all the way and mandate out-of-state shipping from both wineries and retailers at the same time, with a mechanism to secure tax collection? Or allow ways for innovative retailers, restaurants or wineries to handle their own sourcing or supplying of wines, free of a middle tier? Or allow multiple distributors in a state to carry the same wines?

Further, privatization can easily be botched by the short-term thinking that drives most politicians: Don’t sell a 75-year lease for something that the private firm(s) can recoup in a fraction of that time. Privatization would also create more private profits that could be cycled back into electoral campaigns for politicians, further entrenching the prevailing three-tier system. Whether or not you want to raise a glass to that may depend on where you live.

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6 Responses to “Will the recession liberalize wine laws? What to watch”

  1. One can always hope.

    Certainly, replacing one monopoly with another will not give consumers any benefits.

    It might be interesting to know that the fact that there are several US states that retain a monopoly for alcohol distribution and/or retail is taken as proof of that the monopoly system is the best way to sell alcohol by some monopoly supporters in Sweden – in particular by the monopolist retailer itself.

    For example, that argument featured prominently in big double spread advertisements in a national campaign that Systembolaget, the Swedish monopoly that is a retail-only monopoly, recently did. “Look: many states in the US also have monopolies for alcohol. You see, it really is best for consumer to have an alcohol monopoly”.

    By the way, that campaign humbly stated in it’s headline “We’ve invented the best way to sell alcohol” over two pages in, if I remember right, 59 newspapers across the country.

  2. Really interesting post. I was reading something similar yesterday that focused on Washington state’s liquor sale monopoly. I’d love to see some of this crazy alcohol laws changed. Hope it really does take place, but I am not getting my hopes up too much.

  3. The city of Chicago did sell the rights to the revenue arising from the parking meters, but the city also agreed to the rise in rates before the sale. This is why Morgan Stanley paid 60 times trailing revenue. This price is very high when one considers that the S&P 500 trades at less than 20 times profits, which are revenue less expenses. The truth is that raising the rates was necessary for public revenue but making it appear as though someone else (Morgan Stanley) did it should have made the move less politically damaging to the politicians (not to say the plan worked).

  4. Dr. Vino, your blog is very interesting and I couldn’t agree more. Monopoly and the enforcement of laws that violate the Dormant Commerce Clause within the US Constitution need to be addressed for the common good of the people and the state/federal governments. While limiting retailer’s rights to ship wines across state lines cheat state’s ability to obtain licensing revenues, and collect state taxes. The federal government would ses alcohol consumption increase,and thus would generate millions of dollars in Federal Excise Taxes. Lastly, hard working, tax paying citizens that want to be able to buy wines outside of their local reach could purchase a bottle using a required adult 21 signature policy. Pay-to-play politics at its finest…

  5. It is a mixed bag. There is no doubt that the private companies will lock up the politicians to give them everything they want to increase profits. For example, no inbound or outbound shipping.

    Illinois is a joke, we had reasonable policies to allow importing of wine that I was more than happy to pay taxes on to get things I couldn’t find in my state.

    What happens- my wine purchasing has decreased.

  6. […] we discussed last year, privatization can be botched. Indeed, Iowa and West Virginia got less than the early estimates in their privatizations. From a […]


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