Chairman of the Board: Adrien D. Pouliot President : Michel Kelly-Gagnon •• The Montreal Economic Institute (MEI) is an independent, non- profit, non-partisan research and educational institute. It endeavours to promote an economic approach to the study of public policy issues. alentin Petkantchin holds a Ph.D. in The MEI is the product of a collaborative effort between entrepre- VEconomics (Economic analysis of institu- neurs, academics and economists. The Institute does not accept any tions) and a Master’s Degree in Media communi- public funding. cation and economics training from the Univer- sity of Aix-Marseilles III (France). Between 1996 The MEI is a registered charity as defined by the applicable federal and 2003 he was a fellow researcher at the Center and provincial statutes. Therefore, it issues receipts for income tax of Economic Analysis and a lecturer in econo- purposes. mics at the Applied Economics Faculty and at the Law Faculty in that same university. Valentin One-year subscription to the MEI publications : $98.00. Petkantchin also wrote weekly columns between •• 1999 and 2002 for Libres.org (an electronic news- paper offering an economic perspective on public Montreal Economic Institute policy and current affairs in France). He is the 6708 Saint-Hubert Street author of numerous scientific publications and Montreal, Quebec research working papers on various subjects. Canada H2S 2M6 Before joining the Montreal Economic Institute in January 2004, Mr. Petkantchin had been working Telephone: (514) 273-0969 for several years with the Institute for Humane Fax: (514) 273-0967 Studies-Europe and the Institute for Economic E-mail: [email protected] Studies-France. Web site: www. iedm.org •• The opinions expressed in this study do not necessarily represent those of the Montreal Economic Institute or of the members of its board of directors. The publication of this study in no way implies that the Montreal Economic Institute or the members of its board of directors are in favour of or oppose the passage of any bill. •• Production supervision: Varia Conseil Design, lay-out and typesetting: Guy Verville © 2005 Montreal Economic Institute ISBN 2-922687-16-3 Legal deposit: 4th quarter 2005 Bibliothèque nationale du Québec Library and Archives Canada Printed in Canada Valentin Petkantchin Research Director Montreal Economic Institute Is government control of the liquor trade still justified? Montreal Economic Institute Research Paper “Regulation” Series • October 2005 Montreal Economic Institute Table des matières Foreword Résumé / Executive Summary ........................................................................................ 5 Introduction ...................................................................................................................... 7 1. Historical origins of the liquor monopoly in Quebec .................................. 8 1.1 From Prohibition to the creation of a public sector monopoly in 1921 ............. 8 1.2 The shift toward a commercial monopoly ............................................................ 9 1.3 The broad scope of the SAQ’s monopoly powers ................................................ 11 2. Arguments that fail to justify the SAQ’s monopoly .....................................13 2.1 Alcohol is not just another product ......................................................................13 2.2 Alcohol consumption creates externalities or social costs ............................... 14 2.3 A government monopoly keeps fraud and contraband away ...........................15 2.4 The monopoly is a source of government revenue .............................................15 3. Case study: Quebec, Ontario and Alberta ......................................................... 17 3.1 The number of stores .............................................................................................. 17 3.2 Product selection and quality of service ..............................................................19 3.3 Dividend payments to governments .................................................................... 22 3.4 Beverage prices .......................................................................................................24 3.5 Changes in alcohol sales .........................................................................................27 Conclusion: Toward a true liberalization ........................................................... 29 Bibliography .................................................................................................................... 30 Biographical note ..........................................................................................................33 Is government control of the liquor trade still justified? Foreword he commercial monopoly that we see in the Société des alcools du Québec (SAQ) is a T vestige of the past with origins going back to the Prohibition era of the 1920s. Putting the government in charge at that time aimed at controlling alcohol consumption. Even though this context is now far behind us, every recent attempt to reform the SAQ has failed. In 1985, Rodrigue Biron, then a minister in the Quebec government, proposed a partial privatization, but this went nowhere. A working committee set up by the government in 1997 examined full liberalization of the sector, but without any more success. The long strike last winter at the SAQ but ends up penalizing responsible drinkers, brought back questions about the perti- meaning the vast majority among us. nence of this type of government monopoly This study is also of great interest here in the 21st century, at a time when because it is one of the few studies, if not people are allowed increasingly to make the only one, providing an idea of the their own decisions about how they want SAQ’s performance in relation to the LCBO to live and what they want as consumers. in Ontario and the privatized system in Similar questions are being raised in other Alberta. Are we better served by our SAQ provinces. In Ontario, a committee created monopoly in Quebec than Albertans are by the provincial government to examine by their privatized system? Strange as this how liquor is sold reached the following may seem, the study uses figures to show conclusion in a report released this past not only that privatization puts consumers July: “Following a six-month review, our at an advantage but also that it enables Panel has come to the unanimous conclu- governments to increase revenues from sion that the Ontario government should this sector. withdraw from ownership and operation It is time to restart a serious debate of wholesale and retail beverage alcohol in Quebec on this issue. This study from business and instead create a regulated but the Montreal Economic Institute will most competitive marketplace.” certainly enable everyone to understand This study by Valentin Petkantchin this question more clearly. looks at several sides of the issue. The author goes over the various arguments that are heard regularly, such as the fact that alcohol is not just another product, and he concludes that none of this reasoning justifies the SAQ’s existence. He shows that Michel Kelly-Gagnon using government stores to sell beverages President not only fails to lower alcohol consumption 3 Montreal Economic Institute Valentin Petkantchin, Research Director, Montreal Economic Institute Is government control of the liquor trade still justified? Résumé Executive Summary e Cahier de recherche se penche sur his Research Paper deals with the justifica- Cles justifications et les conséquences Ttions for preserving a government monopoly économiques de la présence d’un monopole on liquor sales in Quebec and the economic d’État au Québec dans le commerce d’alcool. consequences of this policy. As explained in the Comme il est expliqué dans la première section, first section, these government monopolies are ces monopoles d’État sont des vestiges du passé. vestiges of the past. Their origins in Quebec and Leur origine au Québec, mais aussi dans les the other Canadian provinces go back to the autres provinces du Canada, remonte à l’époque inglorious days of prohibition and the United peu glorieuse de la prohibition et du régime sec States dry laws of the early 1920s. aux États-Unis au début des années 1920. Even though this historical context long Même si ce contexte historique n’existe ago ceased to exist, nearly all Canadian prov- plus depuis longtemps, presque toutes les pro- inces maintain strict controls over the import, vinces canadiennes maintiennent un contrôle storage, distribution and sale of alcoholic strict sur les importations, l’entreposage, la dis- beverages. Over the years, however, the temper- tribution et la vente de produits alcooliques. Au ance goals that served as the main justifica- fil des années, on a toutefois perdu de vue les tion for these policies have been lost from view. objectifs de tempérance qui ont été la justifi- The Société des alcools du Québec (SAQ) has cation principale de ces politiques. La Société become a commercial monopoly that holds des alcools du Québec (SAQ) est aujourd’hui consumers hostage and tries to take the place devenue un monopole commercial qui garde of what a host of private companies could offer les consommateurs captifs et qui essaie de se under competitive conditions. substituer à ce qu’une multitude d’entreprises Provincial governments justify their grip privées auraient pu offrir dans des conditions on this commercial sector by means