News Story

Commentary: Liquor Distribution Monopolies Rob Consumers, Taxpayers and Job Providers

The Mackinac Center’s Ken Braun and Kathy Hoekstra have documented how the wine and beer distribution monopolies that Michigan has granted to a handful of families damage entrepreneurs and investors in the micro-brewery industry. The Center’s Michael LaFaive has reported how an obsolete regulatory regime on hard liquor generates prices that exceed those in neighboring Indiana by more than 20 percent.

This system generates losses for the Michigan economy that probably amount to tens of millions of dollars. Part of that goes into the pockets of a few monopoly distributors who have spent lavishly over many decades lobbying legislators to defend their unfair profits. Perhaps an even larger share comes from deadweight losses imposed by not allowing a modern and efficient free market distribution system to operate in the state. 

To get a very rough idea of how large those losses may be, consider the price differences between consumer products sold at a small town “Main Street” hardware store (whose value-added consists of service and convenience) versus a Wal-Mart or Meijer. Then multiply those price gaps by all the alcoholic beverages sold in this state.

If the current distribution monopoly and regulatory regime were repealed, those tens of million of dollars would be available for two legitimate purposes: saving consumers money and/or funding the government through a simple excise tax on alcohol.

Note that these alternative uses are in competition, and both have advocates. On one side, consumers naturally want to pay less. On the other side are those who view alcohol consumption as something to be discouraged by imposing a higher tax, or who just view “sin taxes” on consumption to be an economically efficient way to fund the government.

Both these alternative uses are valid, and the appropriate body to make the judgment call is the Legislature. It could give the savings entirely to consumers, or tax some or all of them away to pay for government services - perhaps offsetting any revenue increases with cuts to other taxes.

In contrast, enriching a small number of monopolists and imposing deadweight inefficiency losses through regulatory overkill are not legitimate exercises of government power. The system that perpetuates these abuses is a historical accident, a relic of the post-Prohibition era decriminalization of alcohol. If it  didn't already exist no legislator would dare vote to create it. But for decades, political influence purchased by the monopoly beneficiaries of the system has prevented legislators from voting to repeal it. 

It’s past time for the Legislature to repeal a system a system that rips off both consumers and taxpayers.

Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.