Don’t be quite like Washington

Today’s Oregonian editorial urges Oregon to make like Washington and privatize liquor:

It’s possible, even probable, that Oregonians will vote on same-sex marriage and marijuana legalization in November 2014, leaving the state one measure short of a following-Washington’s-footsteps trifecta. That spot may — and should — be filled by an initiative privatizing liquor sales. It’s time to drag booze regulation out of the 1930s.

I’m with them on this, but they oversell the case a bit in using Washington as a model. This paragraph in particular seems disingenuous:

Despite the initial price shock, Washingtonians bought more booze than they did the year before. It’s simply far more convenient to buy liquor at Safeway or Costco, as Washingtonians now can, than to make a separate trip to a state liquor store. And consumer choices have increased thanks to the appearance of popular store brands, says Gilliam.

I think it’s fair to say that the appeal of these “popular store brands” lies more in price than in quality. And that’s fine. I’ve said before that we shouldn’t force mainstream consumers to pay higher prices so that booze nerds can buy esoteric spirits. But let’s not pretend there’s no potential trade-off here. The OLCC, to its credit, has become quite good at placing special orders compared to other control states. (Trust me, I used to live in Virginia.) It’s also acted as an incubator for Oregon distillers. This seems at least partly because the agency is not a pure maximizer of profits. Depending on how retail licenses are structured in a successful privatization plan, the state may end up with a less responsive supply side.

The benefit of watching Washington privatize liquor first is that we can learn from its mistakes. So here are two to keep in mind:

Keep taxes reasonable — Washington gave privatization a bad name by packaging it with extremely high taxes, the highest in the nation. As a result, consumers associate privatization with price hikes instead of the lower costs they anticipated.

Allow small retailers — Washington’s initiative generally limits new retail licenses to stores that are at least 10,000 square feet in area. This is a classic “bootleggers and Baptists” dynamic: Temperance-minded voters didn’t want proliferation of liquor licenses, and large grocers didn’t mind restricting competition. This makes it difficult to open boutique stores appealing to consumers that Costco may ignore.

Both of these concerns will be a factor in Oregon’s eventual privatization, which may be broadly popular but will be driven by particular interests. The state will want to retain its revenue. Retailers and distributors will want to shape the law to their benefit. To get this right, voters and legislators will need to keep in mind that privatization is a means to the end of competition, not an end in itself.

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  1. [...] Don’t be quite like Washington (state). Jacob Grier has some good thoughts about how other states (in his case Oregon) can follow Washington’s lead in privatizing liquor sales, but avoid some of the concurrent problems. Spread the Word: Pin ItMoreDiggTechnoratiDeliciousPrintEmail Prior Post: SideBlog: Craft Distillers and the Commerce Clause You can leave a response, or trackback from your own site. [...]

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