The liquor business: What’s the goal?

The provincial government no longer needs to be in the business of selling liquor. So we are pleased to see that Premier Christy Clark has now recognized that basic premise and has started the process of selling the B. C.’ s Liquor Distribution system as part of the government’s plan to raise at least $ 700 million by selling off surplus assets.

At the same time, by including the privatization of the liquor distribution system as part of its efforts to balance the budget, the government has raised red flags about its real intentions.

If the government is getting out of the liquor business because it is the right thing to do, the end result will look quite different than if Finance Minister Kevin Falcon is simply trying to achieve the maximum value for the sale of an asset.

The most valuable thing about the liquor distribution system is not the real estate, it’s the monopoly on the wholesale liquor market. As a monopoly business, distributing liquor is a licence to print money, since prices could be set at any level needed to cover costs and turn a profit. Even as a regulated monopoly, profits would be all but guaranteed.

The government has not released any details of what it has in mind. We’re not sure it knows, since the decision to sell the distribution system was apparently taken only in the past few weeks. We are reasonably certain, however, that it will not allow an unregulated monopoly.

Yet even a heavily regulated monopoly, such as Alberta set up when it privatized its liquor stores and contracted out liquor distribution in the 1990s, is a long way from serving the principle of the government getting out of the business of selling liquor. In Alberta, the government still regulates what can be sold, the wholesale price and cost of delivery and prohibits the kind of volume discounting that has changed the face of retail marketing of other goods and services. It doesn’t allow competition in the wholesale and distribution business except among brewers.

The only way to fully harness the inherent power of the private sector is to encourage full competition in all aspects of the business. To do that there has to be more than a single wholesaler or distributor that retailers could access — there has to be competition on price and the variety of products available.

The model Alberta followed is neither ideal nor available to the B. C. government because of successorship rules in the Labour Code. Alberta closed all of its liquor stores and sold off the property. It kept the physical assets of the distribution system but contracted out its operation. The new operator was able to replace the government employees, as were the operators of private stores, with new people who were paid much less.

Falcon has already promised to work with the B. C. Government Employees Union to work out the transition to a new private employer, so that labour cost savings won’t be available to a new operator.

One alternative would be to sell the government distribution system, but throw the market open to competition, so that retailers, restaurants and bars could have a choice in where they buy their beer and wine.

Allowing such competition and choice would be better for consumers, especially in urban markets, but it would mean the value of what the government now proposes to sell would be much less.

The other problem the Clark government now faces as a result of its declaration that government no longer needs to be in the business of selling liquor is what to do about governmentrun liquor stores. Without the direct link to a government- owned distribution network, there is little justification left for the government stores to remain in competition with private operators. At the same time, government- run stores have remained a popular alternative for many British Columbians.

The government needs to consider all the competing interests as it moves forward on this issue.