OPINION EDITORIAL

January 21, 2005

Drying up the state’s liquor monopoly

By Kristen Mercier
All’s fair in love and war, but not in Washington’s liquor monopoly. The state’s Liquor Control Board (LCB) is running into problems again, this time with the nation’s largest membership warehouse chain, Costco.

Issaquah-based Costco has filed a lawsuit to do away with Washington’s antiquated law that prohibits the company from purchasing alcoholic beverages from out-of-state distributors. Costco believes the LCB regulations violate the Commerce Clause of the U.S. Constitution and the federal Sherman Antitrust Act. The state’s monopolistic liquor laws also violate a sense of basic market fairness.

Currently, Washington does not allow companies to buy liquor from out of state or to purchase liquor at a volume discount or on credit. Costco’s suit seeks to overturn those regulations and level the playing field for all state retailers.

Under state law, suppliers must sell the same product at the same price to each distributor carrying that brand. Distributors are required to include a minimum 10 percent markup over cost when selling beer and wine to retailers. In-state breweries and wineries also face heavy restrictions, but are allowed to sell their products directly to retailers. They are also permitted to sell to consumers living in the 12 states in which there is a “reciprocity law” allowing their wine producers to sell directly to Washington consumers.

A number of smaller in-state beer and wine distributors are arguing that the state should keep the current monopoly. They fear their own businesses will suffer from decreased regulation. Arguing that the state’s regulations already make the playing field “more level” for all liquor businesses, these distributors feel that a change in the law will create less selection for the consumer by forcing smaller breweries and wineries out of business.

Costco believes, however, that through deregulation it will be able to offer lower prices to customers and increase sales. They contend that their goods, offered usually in bulk and in limited selection, will not decrease profits for distributors catering to consumers who desire to purchase in smaller quantities with greater selection.

If Costco’s lawsuit is successful, it could lead to the deregulation and privatization of liquor sales in Washington. After all, every business should be allowed to compete fairly for customers. Competition effectively decreases prices and increases quality for consumers. It also creates a greater demand for high quality products, benefitting both large and small businesses.

The businesses defending the state regulations do not seem to understand that Washington consumers should be the ones to demand greater selection if they so desire and should not have their selection dictated by an antiquated state monopoly. The market must be consumer-based to effectively grow and offer the highest quality products. By keeping the state liquor monopoly in place, innovation, competition and product selection are arbitrarily stifled.

Washington is now one of only eighteen states that directly controls the regulation, distribution and sale of alcohol. Thirty-two states and the District of Columbia, as well as many countries, have privatized liquor sales and limited government to managing sales licenses and any associated taxes.

It is unfortunate that it may take Costco’s lawsuit to finally “level the playing field” in Washington. The legislature should have made this reform long ago, especially after the Liquor Control Board was hit with audit findings in 2002 for being unable to properly account for $421 million in sales and for making nearly $1 million worth of payments to a vendor who was falsifying billing records.

Audit shortcomings aside, there is no legitimate post-Prohibition reason for the state to continue a liquor monopoly which both regulates and distributes the same product. Senator Tim Sheldon has recently proposed a bill to privatize the state’s liquor industry. Maybe the legislature has begun to recognize that it is time for the state to get out of the alcohol business for the benefit of taxpayers, businesses and consumers.

Kristen Mercier is a research assistant for the Evergreen Freedom Foundation, a non-partisan, public policy watchdog organization, focused on advancing individual liberty, a free-market economy, and limited and responsible government.

Contact: Booker Stallworth | Communications Director | 360-956-3482

Evergreen Freedom Foundation P.O. Box 552, Olympia, WA 98507 Phone: (360) 956-3482, Fax: (360) 352-1874 Email: effwa@effwa.org