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Abolish the OLCC? We'll drink to that!

By Angela Eckhardt and Kurt T. Weber

When national Prohibition ended in 1933 the regulation of alcohol was left to individual states. Oregon and 17 others opted to establish state-operated distilled spirits distribution systems. The underlying rationale for putting government in control of liquor distribution was to exclude Prohibition-era bootleggers from the distilled spirits market. Simple observation shows that we no longer need worry about bootleggers. For this reason and more, the continued existence of the Oregon Liquor Control Commission should be questioned.

Introduction to the OLCC

Let's start with an overview of the Oregon Liquor Control Commission (OLCC), in order to gain a better understanding of the intrusive and unnecessary role this government agency plays in our lives. The OLCC is the only liquor distributor in Oregon: it is a government-created, government-operated, and government-protected monopoly. This begs the question: if monopolies are illegal, let alone bad for consumers, why does the state of Oregon run one? In theory, each liquor store in Oregon is privately owned and operated. But, reality falls far short of theory. In fact, all the liquor on store shelves and in OLCC warehouses is owned by the state government.

Finally, liquor store owners, or "contract agents" as they're legally called, are essentially public employees - except in name and union membership. Contract agents have the worst of both worlds: they shoulder all the responsibilities and liabilities of being a private business owner, but they enjoy few - if any - of the advantages that being in the private sector offers. Indeed, the OLCC takes the notion of control to a whole new level.

The OLCC: Putting the control in liquor control

The OLCC dictates virtually every aspect of how contract agents run liquor stores. To begin with, the OLCC mandates that contract agents work in their stores full time, and cannot be absent for more than three days without written notification to the OLCC. Agents cannot change their hours of operation without approval. They cannot change their stores' exterior signage, store location, or the interior design of their store without approval. They're legally prohibited from making product recommendations to, or quality evaluations for, customers. These restrictions are just the tip of the iceberg.

Wouldn't it make sense for liquor stores to sell items such as snack foods? After all, Hollywood Video sells popcorn and licorice. Yes, it does make sense, but the OLCC prohibits liquor stores from selling anything unless it is on the OLCC's "related items" list. Ironically, bars, taverns, and restaurants are required by law to have food available during hours of operation when alcohol is being served, but liquor stores are prohibited from having food available when selling liquor. How about putting a bottle of Baileys Irish Cream, Old Grand Dad, or Frangelico on sale? You can't, unless the OLCC itself strikes a deal with the liquor companies and passes the savings along to the contract agents. But what incentive is there for the state agency to do so? There is no incentive to act in the interest of consumers because no one is legally allowed to compete against it. Because it is a monopoly, the OLCC can't help but fail in one of its stated goals: to "make alcohol available to legal users through quality customer service."

The OLCC's prices aren't competitive

Another goal of the OLCC is to "provide optimal revenue" from the sale of alcohol. According to a February 28, 1997 Portland Business Journal article, the OLCC ships liquor to "store operators at a 106 percent markup."

By comparison, the Business Journal noted, the average profit store operators earned on sales was 8.2 percent. According to Tiny Matthews, former president of the Oregon Retail Liquor Association (ORLA), those numbers are now 114 and 8.54 percent, respectively; though the numbers have changed slightly over the years, the point remains the same: We should be thankful that the OLCC doesn't regulate and sell milk or we'd be pouring Mountain Dew on our cereal.

Liquor discrimination

Interestingly, the OLCC maintains a drastically different approach to the regulation and taxation of beer and wine. In contrast to distilled spirits, Oregon's beer and wine outlets are privately owned in theory and fact. Beyond this favoritism, the OLCC discriminates against distilled spirits when it comes to taxation.

In a 1994 report written by ORLA and published by Cascade Policy Institute, it was noted that beer was taxed at approximately $3.35 per pure alcohol gallon. The tax rate on liquor exceeded $28 per pure alcohol gallon. Using an objective standard, we find that distilled spirits were taxed at a rate 836 percent higher than beer! That disparity still exists today. We know the alcohol in beer and wine is the same as that in liquor, so why the tax discrimination?

The fiscal argument

Another reason for privatizing the OLCC is fiscal austerity. A citizen-supported initiative is heading for the November 2000 ballot which, if passed by voters, would require Oregon legislators to cut approximately $1 billion from the state budget immediately. In its 1994 report, ORLA concluded that Oregon state government could reduce its budget by approximately $100 million initially, and $60 million every biennium thereafter, if it got out of the liquor business.

Should the ballot measure noted above pass, and current polls show it will, privatizing the OLCC would get us 10 percent of the way to the $1 billion goal - and not a single poor person will have bread taken from their mouth. Even if the ballot measure referred to above does not pass, the assets controlled by the OLCC should be sold and the state budget should be reduced accordingly.

The OLCC: A Prohibition relic

The OLCC's heavy hand of regulation is ultimately about the attempt to regulate the peaceful, honest and voluntary behavior of individuals. What else would one expect given the OLCC's roots are traceable to the 18th Amendment of the U.S. Constitution, ratified in 1919? This wholesale violation of individual liberty ruined many lives.

Nicholas Murray Butler gave an address against Prohibition before the Ohio State Bar Association in 1923. He noted that Prohibition could never be enforced because "it lays down rules of private conduct which are contrary to the intelligence and general morality of the community." In 1933, the 21st Amendment repealed the 18th Amendment and Prohibition ended. Americans had grown tired of the violence and corruption caused by the attempt to control "private conduct."

Vices are not crimes

Lysander Spooner wrote his seminal essay "Vices are not Crimes: A Vindication of Moral Liberty" in 1875, nearly a half-century before Prohibition. Spooner stated, "Vices are those acts by which a man harms himself." Conversely, "Crimes are those acts by which a man harms the person or property of another.

"Vices are simply the errors which a man makes in his search after his own happiness. Unlike crimes, they imply no malice toward others, and no interference with their persons or property." In short, the OLCC's regulatory actions speak of an attempt to control our private conduct. Whether this is intentional or not, the attempt to curb our vices is a mission best left to private mediating institutions - from churches to civic organizations to friends and family. In a free society, moral suasion can produce deeper and longer lasting results than law. Butler, in his speech before the Ohio Bar Association, made this point succinctly when he said, "It must not be forgotten that law is but one form or type of social control."

The ethical case for abolishing the OLCC

The trend across the country is for "control state" governments to divest themselves of selling liquor. Pointing to the positive actions of other states may make us feel good, but that argument does not come close to what should be the most convincing of all reasons for abolishing the OLCC. For us, the primary reason is an ethical one: the government should not sell alcohol. Government should not profit from vice.

In a free society, the government's role is to protect life, liberty, and property - not operate liquor warehouses, not sell liquor, not wholesale, not retail.

We see the outcry over Oregon state government's involvement in gambling, never mind that the money raised goes to purportedly good use. The ends do not justify the means. Oregon state and local governments could make money if they operated brothels, but imagine the uproar if our governments profited from prostitution. The ethical case against government selling alcohol is the same.

Conclusion

National alcohol Prohibition ended in 1933. That same year a special session of the Oregon Legislature created the Oregon Liquor Control Commission. Whatever justification fostered its creation, we no longer need this relic of Prohibition.

If the OLCC monopoly were abolished, and the sale and distribution of distilled spirits privatized, liquor prices would be lower and customer service would improve. Further, eliminating the OLCC would be a positive exercise in fiscal responsibility. Moreover, Oregonians could take pride in the fact that their state government was not trafficking in alcohol and thereby profiting from vice. Oregonians should write the final chapter on the failed policies of Prohibition and privatize the sale and distribution of distilled spirits.

We'll drink to that.

Angela Eckhardt is Program Coordinator for the Cascade Policy Institute. Kurt T. Weber is the Vice President of the Cascade Policy Institute.