Governing is harder than it looks. Most of the time, there are no simple solutions – instead, politicians end up wrestling with contradictory choices, balancing competing voting groups and trying to sum up costly trade-offs. But every once in a while an issue comes along that is nothing like that. It's a straight-up no-brainer. All government has to do is get out of the way, and allow a mess of its own creation to fix itself.
Welcome to Ontario's drinking problem.
Over the next few days, we'll be looking at ways to make government better – by running it more like the private sector. Private businesspeople do not have some special genius that bureaucrats and politicians lack. They are not wiser or more moral. But sometimes, the private sector works under very different incentives than the public sector. And if you know how to harness those incentives, that can lead to far better outcomes.
Consider Ontario's two big booze retailing monopolies. Both are creations of government. The sale of wine and liquor is controlled by the Liquor Control Board of Ontario (LCBO), a chain of stores owned by the province. Nearly all beer is sold by The Beer Store, a chain that most people think is owned by the government, but which is in fact controlled by three private, foreign-owned brewers.
The two monopolists aren't even allowed to compete with one another; The Beer Store doesn't sell wine, and the LCBO is limited to selling beer in packs of six or fewer. Small brewers and wineries can open stores, but only under restrictive circumstances designed to protect the two monopolists. The monopolists are very cozy with government, and there's a well-oiled revolving door of people and money flowing between the two.
There is no other area of the economy where anyone believes the way to lower prices, increase choice or improve customer satisfaction is to outlaw competition. Raise your hand if you think giving Target a nation-wide monopoly on clothing sales would lead to lower prices or better customer service.
There are some parts of the economy that are what are known as natural monopolies. For example, there's a reason why your home is hooked up to the electric grid by one and only one wire. Each competing electricity seller is not going to string a line to your home in the hope of winning your business. That wouldn't be efficient, and it's not the outcome the market would deliver. Government sometimes has to step in to regulate and foster competition.
But most of the economy isn't like that. Barriers to entry are low. Things are naturally competitive. Government just has to get out of the way. Thousands of merchants and millions of customers will handle the rest.
For decades, Ontario has been under pressure to scrap or at least water down its archaic alcohol sales model, and Premier Kathleen Wynne's government has promised to finally introduce changes in the coming weeks. Unfortunately, all signs point to only a half-reform – or worse.
Instead of simply taking away The Beer Store's monopoly, the government has publicly mused about maintaining it, and demanding an annual payment from The Beer Store in return. And instead of simply allowing all of the province's grocery and convenience stores to compete by selling beer and wine, there's been talk of permitting only a limited number of large grocery stores to get into the game – with Ontario limiting competition by auctioning off licences to the highest bidder.
If that's the government's plan, then its priorities and its understanding of the economy are upside down. An obsession with squeezing as much cash as possible out of the booze retailing sector appears to be leading Ms. Wynne and her government to some seriously wrong-headed conclusions.
The government seems to be thinking about artificially manufacturing a scarcity of alcohol-buying options – the better to extract payments out of the businesses given a piece of the monopoly. In the long run, that will shortchange consumers, while undermining economic efficiency. And it isn't even the best way for the government to raise money. A competitive market in the sale of beer, wine and spirits would be better for consumers, and government could raise cash transparently rather than by stealth, through taxes. That's how things work in every other area of retailing.
The Beer Store and the LCBO might survive and even thrive in a competitive marketplace. The latter controls hundreds of prime retail spaces and could be successfully privatized. The former is already privately owned, and its brand and stores are established and well-known. Both of these companies should be allowed to succeed or fail, just like other retailers. Their logical competitors, grocery stores and convenience stores, should be allowed to go head to head with them. No matter the outcome, consumers, government and taxpayers would win. It really is that simple.
Next: Part II: The tricky business of privatizing electric power.