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Implications of privatization of the LCBO:

There is an ongoing controversy on whether to privatize the Liquor Control Board of Ontario (LCBO). Discussions tend to intensify during times of recession or when workers threaten to strike. The 2008 recession, and the recent threats by LCBO workers to go on strike makes this a perfect time to discuss whether Ontario should privatize liquor sales. It is vital to recognize the importance of liquor in Ontario and Western culture, as alcohol is often associated with socializing, yet overindulging has negative implications on health and social order. As a result, alcohol consumption requires a balance between pleasure and danger; this balance opens the question, should free trade govern liquor consumption? There is no simple answer to this question, as the ramification of privatizing liquor has economic, social, and cultural impact. Luckily, Ontario can study the privatization of the Alberta Liquor Control Board (ALCB) in 1993 to make an informed decision. Close examination of Alberta’s privatization of liquor leads to the conclusion that the privatization of the LCBO would jeopardize local spirit producers, lead to relaxed regulation on retail sales, and amplified costs associated with alcohol abuse. The LCBO prioritizes the well being of the general population over profits gained through alcohol sales.

Before analyzing the privatization of the LCBO, it is imperative to reveal the circumstances that led to the creation of liquor control in the province. During the 19th century, alcohol consumption reached a peak and public drunkenness was the norm. In fact families, including children, would often consume whisky in the morning in a manner similar to the consumption of coffee today. Politicians would also engage in drinking as a social activity. Sir John A. MacDonald was known to be a heavy drinker. In the 1830’s Taverns were so popular that people called them “public houses”, and there was one tavern for every 119 persons. The high levels of liquor consumption led to social disorder, violence, and family abuse; sparking the temperance movement in Ontario. The temperance movement was constantly described as the “moral voice” of Ontario, and it was often associated with women’s suffrage. The goal of this movement was prohibition of alcohol. The temperance movement was successful, and the Temperance Act of 1916 was passed into law, resulting in the banning of alcohol in Ontario. However, the law was not enforced until the fall of the William Hearst government in 1919. When the United Farmers of Ontario came to power, with E.C Drury as Premier, measures were taken to enforce the Act. At first Drury resisted the enforcement of prohibition, however later, discovering that lax regulations allowed for a bottle of wine to contain over 48% alcohol, he enforced prohibition. Prohibition was a complete failure due to smuggling and illicit trading, which resulted in a flourishing Black Market.

This also damaged Ontario’s relationship with the United States, as there was unlawful trading of alcohol within border towns of Ontario with little law enforcement. The ineffectiveness of prohibition led to a shift in public opinion and the failure of the referendum on the issue in 1923, led to the defeat of the Drury government. The new Premier Howard Ferguson, a Tory, supported a “wet” platform and established the LCBO in 1927 with strict government oversight.  Ferguson proposed the creation of the LCBO to the House of Commons:

“We are not here to push the sale of liquor. We are here to restrict it within reasonable bounds. We are here to eliminate all the abuses and excess it is possible to eliminate. We are here to protect particularly the rising generation of this country from being poisoned.”

Ferguson recognized the importance of liquor within a reasonable limit, however, he refused to allow businesses to regulate liquor. He knew that nothing would stop retailers from seeking profits, including illicit trading. Ferguson was himself a first hand witness to the failures of prohibition. The history of alcohol and its impact on politics is significant, yet the recent calls to privatize the LCBO threatens to undermine the reasons that led to the creation of the LCBO in the first place.

The LCBO has been credited with curbing the demand of public drinking by creating norms, and was critical in reshaping public drinking behavior. Post-prohibition focused not only on the concerns of drunkenness, but generally on all activities associated with alcohol. The provincial government and Ontarians were concerned with gambling, prostitution, and violence. This led the government to create commissions and strengthen the responsibility of the LCBO. For instance in 1934, the Liquor Control Act (LCA) gave municipalities in rural regions the authority to restrict alcohol usage in public spaces, and inns based on their discretion. Many rural communities in Ontario were largely opposed to having a local LCBO, and preferred a complete ban, as they feared alcohol would lead to public drunkenness. The LCBO responded to these concerns by creating a ‘beverage room’ in certain hotels and lodging areas, which could serve travelers alcohol. This allowed the LCBO to not only govern whom it was able to sell to, but also to designate specific areas where it was acceptable to drink. A curfew of 11p.m. was enforced to restrict the time allowed for drinking. These beverage rooms would prove critical in creating the proper environment and norms that made drinking safe and responsible.

Ontario can study the effects of privatization in Alberta, and more importantly why Premiers Mike Harris of Ontario, and Ralph Klein of Alberta came to such opposing beliefs on privatization. Mike Harris’s main objective was to reduce the deficit using what he called “the common sense revolution”. Harris’s platform was centered on reducing government spending and cutting taxation by selling public assets including the LCBO. Unexpectedly, Mike Harris did not sell the LCBO, but rather solidified its position as a publically owned corporation, thus providing critical funding for its development. In 1998-1999, the Harris government provided 50 million dollars a year towards restructuring, renovating shops, training employees and providing better selection of liquor, all in an effort to rebrand the LCBO for a favorable public opinion. Many Conservatives in the Mike Harris caucus were against privatizing the LCBO, as they wanted to restrict access to liquor, and ensure that regulations were not negligent. In Ontario, the public health community, LCBO unions, local spirit producers, and Conservative MPP’s helped ensure that the LCBO remained publically owned, and favoured reform. In Alberta, the sale of the ALCB became a key issue in influencing public perception of the Klein government’s attempt to reduce provincial deficit. Even though Alberta had the same interest groups (health care, local spirit producers, and unions), opposing privatization of the ALCB, their attempts proved futile in changing the mindset of conservative policymakers. Alberta’s stand on privatization was to increase job creation, and reduce government spending, which would aid in easing provincial deficit. Privatization of liquor would increase profits to the province, however it would lead to a greater spending in health care and law enforcement, to overcome alcohol abuse.

In Ontario, local spirit producers face the most risk from privatization, as local producers cannot compete with the prices set by the international market. Local producers also gain the advantage of selling their produce to one retailer. This allows for fair competition between international, and domestic produce seeing that all the products are displayed side by side. In 2013, the Ontario wine industry was worth 346 million dollars. Over half of the revenue came from the LCBO; only 60 million dollars was attributed to alcohol exported from outside the province, and the rest was attributed to the service industry, such as restaurants. The LCBO helps protect Ontario vineries from international competition, as France and the United States provide subsidies to their wine producers. The Ontario government launched an incentive to help further nurture the local wine industry, by having the LCBO add additional Ontario wine selections so that small vineries can succeed. The LCBO has supported local wine producers over international producers as a result the industry flourished; in 2003 there was only 66 wineries, while today, there are 140. Local producers help create jobs directly and indirectly through agriculture sector. Before privatization, Alberta’s wine industry was very small scale, privatization has forced wine producers to target tourists, and fruit based wines have become a niche market.

A key argument made by those supporting privatization has been that the liquor regulations of the province can still be maintained with private retailers. Alberta’s relaxed regulations led to a massive increase in alcohol consumption due to the major autonomy given to the private sector. In 2004, a poll was conducted by the AGLC (Alberta Gaming and Liquor Commission) that said: “86% of Albertans said they felt that alcohol abuse was a serious problem, in the province, and 78% believed alcohol abuse was a serious problem in their community”. Alberta has the highest average of alcohol abuse cases which continues to rise, and will continue to do so unless new regulations are implemented. The AGLC has been vocal in expressing the need for stricter legislation, regulation, enforcement, and most importantly the control of liquor availability:

Population-based measures include legislation and regulation to

control the physical availability of alcohol (for example, restricting the clustering of retail alcohol outlets and the hours and days of sale). Pricing strategies and taxation are population-based measures that control the economic availability of alcohol, based on a considerable body of evidence, suggesting that demand for alcohol is sensitive to price. Other population-based measures involve information campaigns to influence social availability and promote responsible alcohol use.

Many of the measures the ALCB recommends are already being implemented by the LCBO. The report by the ALCB emphasizes the need for state intervention in the private sector. The reason behind the ALCB’s concern is an increasing number of fatalities and cases of alcohol abuse that have been financially draining the province. Alberta lost roughly 1.6 billion dollars in 2006, to treatment of alcohol abuse and increase in social services. Privatization has led to easier access to liquor and has been associated with underage drinking, which is a key issue in Alberta. The LCBO has been mostly successful in keeping underage drinking at a minimum; only 14% of high school students have been reported of illicit purchasing. It is difficult to find statistics on underage drinking in Alberta, however the AGLC conducted an audit in which 82% of private retailers have failed to check ID.  It is difficult for the province to regulate private retailers, especially employees who are untrained in detecting suspicious underage drinking. Private retailers may also find it difficult to turn away business. The LCBO trains its employees to detect underage drinking, as evident last year, as 290,000 Ontarians were turned away for showing inadequate proof of age. Privatizing the LCBO would undermine the vision of Premier Ferguson, whose goal was to ensure that liquor did not corrupt the society. His legacy lives on today, and his plan has worked to maintain order and good government, while allowing for controlled liquor consumption.

Today, the LCBO’s revenue is $4.892 billion, with 1.7 billion dollars in profit for the province. Despite the enormous profits the LCBO provides, those supporting privatization have argued that competition in the market would generate more income to the province. The basic argument for privatization is the end of the dominance of LCBO over the liquor market. This would allow competitive pricing, innovation and untapped revenue generated through taxation. According to a study commissioned in 2005 by the Ontario government, privatizing the LCBO would generate at least 200 million dollars per year in addition to what is already being generated. However, this study ignores the costs of health care and law enforcement as a result of alcohol abuse.

When examining the arguments made by those who favour privatization, it would be naïve to simply consider the economic potential of such a move without factorizing in the social impact. It is imperative to acknowledge that the LCBO has been an innovative institution. Between 1927 and 1991, the LCBO was described as an oppressive agency, as it controlled, “What one looks for, and where and how one looks for it, restricts the range of possibilities of what one finds”. Today’s LCBO is drastically different. When it was first created in 1927, it had a complex administration, with multiple commissions and boards.

The LCBO’s organization shifted into a corporation in 1991, when Andrew S. Brandt became the CEO and chairman. Brandt was credited with modernizing the LCBO into an innovative organization, and helped generate enormous revenue by simplifying management and integrating corporate strategies.  Between 1991 and 2006, the revenue has, grown from 1.8 billion to 3.6 billion. As a consequence of the restructuring, the LCBO continues to see record-breaking profits. As a result, the Liquor Control Board of Ontario has been a key donor to local communities and charities. The economic argument for privatization is that publically owned corporations are inefficient as they are bureaucratic, however this is not the case with the LCBO. The argument for privatizing the LCBO is that this would generate an additional income of 200 million dollars, and yet these costs will be nothing in comparison to the costs of treating the alcohol abuse that would result from privatizing the liquor control board.

Generally privatizing the LCBO would create more profits, as competition in the market would lead corporations to examine and target demographics. A study found that the privatization of alcohol would result in a 15-20% increase in alcohol consumption in Ontario. Teenagers were identified as being at most risk, and would contribute significantly to the profits as is evident from Alberta. When Alberta privatized the ALCB, it led the provinces to spend more money on law enforcement, health care, and loss of productivity. Privatization of the ALCB led to an increase in criminal offences, such as break-ins, relaxed law enforcement for underage drinking, and a higher number of fatalities as a result of impaired driving. According to a study conducted by the federal government in 2001, Ontario would lose 11% of its budget, or 367 million dollars to the treatment of alcohol abuse. The study examined individual costs associated with the direct/indirect health care, law enforcement, and labour productivity loses. It concluded that the province would have to allocate more funds towards social services.  When examining the social issues, and the costs to society it becomes clear that Ontario would lose far more than it could gain from the privatization of the LCBO. The creation of the LCBO has mandates, which places an emphasis on operating in a responsible manor towards its customers, and society as a whole. If Ontario does privatize the LCBO, the corporation’s main responsibility towards its shareholders would become profit. When looking at the costs associated with privatizing the LCBO, one can appreciate the Mike Harris government’s decision-making that led to develop and fund the LCBO.

Privatization of the LCBO would economically damage Ontario’s winery sector, weaken regulations and increase provincial costs towards social services. After discussing the history of prohibition and the creation of a liquor control board, as well as the heated political debates, one must recognize the deep political culture that the LCBO developed. When analyzing the history of the previous premiers of the Drury government, the Ferguson government and the Harris government, had their political campaigns platform issues around liquor consumption. As was stated, liquor consumption requires a ‘balance’ and involvement of government to ensure that the retail of liquor is administrated responsibly. The Mike Harris government solidified this history, and was a key ‘crossroad’ that helped pave the way for the LCBO’s rebranding. Premier Ferguson’s vision of government oversight in the liquor industry remains intact. After leaving office, Ferguson maintained his policy on liquor control; “government control was for the good of everyone that included tax payers”. The LCBO has a clear mandate where it corresponds within its corporate structure that embraces its role as a ‘balancing’ institution, hence maintaining the selling of liquor to Ontarians while promoting responsible consumption.  Lastly as a scholar one appreciates the LCBO’s transparency and accountability to Ontarians as statistics where easily accessible for the purpose of this research paper. While Alberta’s statics where difficult to attain, considering the private retailers have no accountability to the province. Therefore the LCBO maintains order so as to protect Ontarians from alcohol abuse, while protecting local producers; these benefits far outweigh any benefits of privatization.

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