State policymakers will reform Michigan’s
antiquated alcohol regulations this year if Gov. Rick Snyder adopts ideas
submitted by a liquor reform advisory panel he created months ago.
certainly needed; in particular, the state effectively grants monopolies to a
few lucky private, for-profit beer and wine wholesalers. These regulatory
privileges should be struck from state law in the name of fairness and
A basic principle of economic theory is that
competition — or the threat of competition — is good for consumers. Monopolies
facing no such threat are generally bad.
Recent Mackinac Center for Public Policy research suggests that nationwide, such state controls raise liquor prices by between 3 percent and 6.3 percent.
strictest sense, a business monopoly is a single seller of goods or services.
Most businesses find it difficult to maintain monopoly status in a system of
rugged competition. As Nobel Memorial Prize-winning economist George Stigler
has written, “Most important enduring monopolies … rest upon government
policies.” Cable franchises and utilities come to mind.
Beer and wine wholesalers effectively possess
monopolies because state law mandates that suppliers of beer and wine grant
exclusive sales territories to wholesalers for the suppliers’ products. All
retailers, such as liquor stores and bars, must buy their beer and wine from
their area wholesaler. The result is a territorial monopoly.
You don’t need a Ph.D. in economics to understand
what happens when firms obtain monopoly status: Prices rise and services
Consider just one example. In 2002, Northwest
Airlines was busted for trucking beer and wine to Detroit Metro Airport instead
of acquiring it through a Michigan wholesaler. According to the Detroit Free
Press, Northwest reported it was saving up to $3 million per year by shipping
the alcohol to the Great Lakes State, rather than buying it locally.
Now multiply this experience by the thousands of
businesses licensed to sell at retail — and by their hundreds of thousands of
customers — and you’ll understand the magnitude of what is effectively a state
tax that benefits territorial beer-and-wine wholesale monopolies.
All of this
might be acceptable if these wholesale monopolies somehow produced an overall
increase in safety for Michiganders. The preponderance of the evidence,
however, suggests that monopolies do not. Even state-operated monopolies on the
wholesaling of all liquor products have not been shown to improve public
Indeed, there is no statistically significant
difference in alcohol-related fatalities, car crashes and binge drinking
between states that monopolize liquor wholesaling and states that do not. While
monopolies can discourage drinking through higher prices, they haven’t lowered
the social costs of excessive drinking on balance.
For their part, beer and wine wholesalers
typically blanch at the term “monopoly.” Mike Lashbrook, president of the
Michigan Beer and Wine Wholesalers Association, recently disputed the term in
The Saginaw News by arguing that there are many different beer and wine
products to choose from on grocers’ shelves.
But this is like arguing that because there is a
wide selection of items in a Meijer store, consumers won’t be hurt if Meijer is
the only box store chain allowed to operate in Michigan. Obviously, Michigan
consumers would suffer if Wal-Mart and similar wholesale-style retailers
couldn’t compete with Meijer. Ultimately, many products can end up on
retailers’ shelves while wholesalers still enjoy monopolies that jack up
Indeed, the state government also distorts the
Michigan marketplace by acting as a monopolist wholesaler for stronger liquor
products, such as whiskey. Recent Mackinac Center for Public Policy research
suggests that nationwide, such state controls raise liquor prices by between 3
percent and 6.3 percent.
Granting effective monopoly status to a few lucky
businesses — or to state government itself — is fundamentally unfair to
Michigan consumers. It benefits a relative handful of wholesalers and makes our
political institutions seem myopic.
Killing these wholesale regulations should
be the first order of business for reforming Michigan’s alcohol control code
Michael D. LaFaive is director of the Morey
Fiscal Policy Initiative at the Mackinac Center for Public Policy, a research
and educational institute headquartered in Midland, Mich. Permission
to reprint in whole or in part is hereby granted, provided that the author and
the Center are properly cited.