By L.A. Williams and Rev. Mark H. Creech
For nearly a decade, there has been an undercurrent from certain lawmakers in the North Carolina General Assembly, who want to see the state do away with its current control system for liquor sales. They base their arguments in their understanding of Free Market enterprise and entrepreneurial ideas for increasing profits. They argue that North Carolina’s Alcoholic Beverage Control (ABC) plan is antiquated and needs replacing with the privatization of liquor sales. Their contentions, however, conspicuously neglect the uniqueness of alcohol in a Free Market. Their arguments are largely ideological but inconsistent with the science of policies that most effectively work to minimize alcohol-related harms. In short, their case forces public health and safety, which should be paramount, to take a back-seat to liquor profiteers.
Before lawmakers embrace the notion of privatized liquor sales, they should carefully consider the potential for its extreme social costs, its profound negative impact on injury and illness, as well as the long-term loss of annual revenues on the state and local levels. Quite simply, privatization would increase liquor outlet density, hours of sale, liquor advertising and promotion, and ultimately alcohol consumption levels, while also undermining what has been a consistent revenue source for the state.
There are numerous significant benefits the state would lose by shutting down the ABC system for liquor sales.
North Carolina’s Current System
When the 21st Amendment repealed Prohibition in 1933, control of the sale and distribution of alcoholic beverages passed to the states. Because of this decentralization of alcohol control, there is a great deal of variation in regulatory and enforcement mechanisms used by the states to prevent the misuse of alcohol. The Federal Bureau of Alcohol, Tobacco, Firearms, and Explosives (BATF) recognize two types of alcohol distribution systems: licensure and control. [1]
The single feature distinguishing a “licensure” state from a “control” state is that control states take ownership of the product and retain the exclusive rights of sale, thereby having a greater level of control to prevent abuses. In the control model, the citizens of the state are the shareholders, and the government has the explicit responsibility to protect the public. Whereas in the license model, the state relinquishes its control on some or all levels to the private sector, whose primary motive is profit for its shareholders.
North Carolina is currently one of 18 control states in the nation. It retains control at both the wholesale and retail levels. The Tar Heel state is unique in that its system focuses on local control. The sale of alcohol – whether malt beverage, wine or spirituous liquor (also called spirits) – is allowed only in jurisdictions where citizens have approved such sales at the ballot box. Upon approval of an ABC store referendum, local governments may appoint ABC boards, which are the only legal entities in the state authorized for liquor sales for consumption off-premise.
At the state level, a three-member ABC Commission appointed by the Governor controls the permitting process, sets prices for liquor, administers ABC laws, authorizes the opening and location of ABC stores, and oversees the local ABC Boards.
Research experts have recognized North Carolina as having an alcohol environment that protects its citizens more than most states. It does this, in part, because of the control model. This direct oversight affords the state’s citizens with important defenses that deter excessive alcohol consumption, such as the number and locations of liquor stores, price, promotions of the product, and the hours and days the product is sold. [2]
In North Carolina, liquor is bought only in the state’s 418 ABC stores. Prices are uniform. Advertising of liquor is extremely limited and not allowed by any ABC stores, which are not open on major holidays, Sundays, or after 9:00 p.m.
The Impact of Privatization on Control
North Carolina’s system is comprehensive and designed to guard the public as much as possible from alcohol problems while generating significant revenue for the state and local governments. Privatization’s impact on these factors would depend on the degree to which the state relinquishes control to the private sector.
There are a number of scenarios for privatization of liquor sales, ranging from the state contracting space for so-called “agency stores” inside grocery or convenience stores, to privatizing retail sales, while retaining government control of the wholesale function, all the way to total licensure – meaning liquor sales are allowed in the same places beer and wine are available. Other options could involve auctioning off the ABC stores and auctioning the right to sell liquor in numerous other locations.
But whatever the means of privatizing, North Carolinians could expect a reduction in control, which means more consumption of alcohol in more places, creating more alcohol-related harms, and less annual revenues for government to use in addressing these problems.
In May 2010, the Centre for Addiction and Mental Health concluded in a report: “International evidence indicates that privatization of retail sales is expected to be associated with: increase in density of alcohol outlets, longer hours of sales, and increase in alcohol-related harm.” [3]
Before public policy makers would privatize liquor sales in North Carolina, they should carefully consider the impact of privatization.
Listed are some of the expected consequences.
- Increase in liquor outlet density
Under a private, license system, North Carolina would have an estimated 2,139 retail outlets for the sale of spirits, based on the national average of 30 retail outlets for each 100,000 residents in a license state. [4, 5] Alberta, Canada had 310 government-run ABC stores. After privatization, that number grew to 983. [6]
Washington State voted to privatize its system in 2012, which provided a natural experiment in the U.S. on the impacts of privatization. Over the past seven years, citizens of Washington have seen a substantial increase in new liquor stores opening, increasing from 330 locations to over 1600 locations and still counting. [7] Asked whether they would vote for privatization today, 20% said they would not, referencing the escalation of liquor stores as the primary reason for their remorse. [8]
Associated with greater consumption levels and more frequent alcohol-related problems is the presence of higher numbers of alcohol outlets.
Youth Access. “Study after study shows that having high outlet density leads to a variety of alcohol problems, especially for youth,” [9] said Dr. Paul Gruenewald, principal investigator of a three-year study released in May 2009. Prevention Research Center of the Pacific Institute for Research and Evaluation in Berkeley, California, demonstrated that communities containing large numbers of stores selling alcohol are more likely to have higher levels of underage access. “These findings show that high alcohol outlet densities in the community allow underage youth to get alcohol from various sources – not just by buying it themselves,” said Dr. Men-Jinn Chen, the lead author of the study. [10]
This is highly significant because, in the Tar Heel state, 26.5% of students report drinking alcohol in the past month and just over 12% of students report binge drinking [11] (four drinks for women and five for men in about 2 hours is what defines binge drinking). In North Carolina, one person dies every week as a result of underage drinking. [12]
Violence. A separate nine-year study released in 2008 confirmed that alcohol outlet density is also clearly linked to violence. “The study found that, across Melbourne, the three types of outlets examined – hotel pubs, bars, and packaged liquor outlets – all had positive relationships to assault rates,” said Michael Livingston, the study’s author. “In other words, increasing the density of these outlets in a suburb leads to increasing rates of violence in that suburb.” [13]
Robin Room, director of the Alcohol Education and Rehabilitation Centre for Alcohol Policy Research, told Medical News Today that alcohol controls (i.e., limits on the number of licenses) matter, even if the public often takes them for granted as a part of the social scenery. “Rates of harm due to drinking can be influenced by these kinds of not very visible controls. Specifically, the density of outlets is an important decision to consider in alcohol policymaking,” Room said. [14]
Furthermore, a study conducted in 2017 found a positive association between the alcohol policy environment in a state (based on the presence, relative effectiveness, and implementation of multiple policies, including a state-control regulatory structure) and alcohol-related homicide victimization. The research team found states, like North Carolina, that have “a more restrictive alcohol policy environment is associated with reduced odds of alcohol-involved homicide victimization overall and among groups at high risk of homicide.” The study went on to explain a less restrictive alcohol policy environment in a state is associated with an increased likelihood of having alcohol involved among homicide victims. [15]
- Increased hours of sale
At present, North Carolina ABC stores must close from 9:00 p.m. to 9:00 a.m., as well as on Sundays and major holidays. However, once liquor is in the hands of private retailers, these limits are no longer guaranteed. States that license alcohol retailers generally have longer and later hours of sale.
Not surprisingly, those longer hours of sale lead to greater alcohol use and related harms – especially motor-vehicle crashes, according to a report published in the December 2010 issue of the American Journal of Preventive Medicine. The report, produced by an independent non-federal body of public health experts, says excessive alcohol use causes more than 79,000 U.S. deaths annually and contributes to health and social problems. It adds that policies that increase the hours of sale by as little as two hours contribute to excessive drinking, driving after drinking and alcohol-related assault and injury. [16].
- Increased advertising and promotion
Advertising and promotion do not change the actual availability of alcohol, but there is no question that they change the perception of availability, and the convenience of obtaining liquor by publicizing locations of sale, hours of sale, and price specials. North Carolina ABC stores do not promote the sale of their products. The state’s laws are grounded in the conviction that North Carolina has traditionally rejected a culture that promotes or encourages the sale of spirituous liquor. Under a privatized system this is not the case because owners of private establishments must be able to advertise, and will zealously advocate for the least restrictive advertising limits for optimum sales. Liquor signage and promotions are considerably more prominent in privatized states than in control states like North Carolina.
A myriad of studies have determined that youth are especially susceptible to alcohol ads. In fact, according to the American Academy of Family Physicians, “the degree of youth alcohol advertising exposure is strongly and directly associated with intentions to drink, age of drinking onset, prevalence of drinking, and the amount consumed.” [17]
- Increased consumption levels
Research consistently shows that in control states there are lower consumption rates – on average 14 percent less for spirits and seven percent less for all alcohol products than licensure states. [18] To entertain the notion that privatizing liquor sales would not result in increased consumption levels, is simply an untenable position. No reputable scientific study supports this claim.
Research from Tim Naimi and colleagues (2014) found that the more restrictive alcohol policy environment a state has, as North Carolina does, it leads to less adult binge drinking. [19]
Higher consumption rates are deadly. According to the Centers for Disease Control and Prevention, an average 2, 762 alcohol-attributable deaths occurred in North Carolina between 2006 and 2010. [20]
The Economics of Privatization
Proponents of privatization say it will provide significant gains for the economy and state coffers.
North Carolina’s current ABC system keeps prices uniform and consistent statewide. A bottle of Scotch Whiskey costs the same in Asheville as it does in Wilmington. But in a privatized system, competition can drive prices down. Further, as market and health experts alike can attest, privatization lends itself to deep discounting or even the use of alcohol as a “loss leader” to lure in more drinkers. [21] According to a 2009 report from the World Health Organization, “when other factors are held constant, such as income and the prices of other goods, a rise in alcohol prices leads to less alcohol consumption and less alcohol-related harm, and vice versa.” [22] It’s the vice versa that public policymakers, as well as the citizens of this state, should find of concern.
Alcohol is already causing plenty of harm – more than crack cocaine or heroin according to a Lancet study released in November 2010. Researchers rated 20 different substances from 0 to 100 on nine harms they can cause individuals and seven they can cause for society. Alcohol with an overall score of 72 was found to be the most harmful drug to society and the fourth most harmful drug to individual users. [23]
Too High a Cost. Beyond the lives lost in this state, the cost of irresponsible and destructive use of alcohol is estimated to be $7 billion as of 2010 [24] According to the Pacific Institute for Research and Evaluation, “In 2013, underage drinking cost the citizens of North Carolina $1.3 billion…This translates to $1,437 per year for each youth in the state or $3.48 per drink consumed underage.” [25]
Nevertheless, proponents of privatization will argue that only a minority of drinkers is responsible for the abuse of alcohol, and since most drinkers use it responsibly, it doesn’t matter who sells it. They contend that private wholesalers and retailers can handle sales more efficiently and that the state would still see plenty of revenue, initially from the sale of ABC property and then from license fees and taxes. These claims do not hold up to scrutiny.
North Carolina’s ABC stores generate over $1 billion every year from the sale of spirituous liquor. Distributions benefit the state’s General Fund and the municipalities and counties where alcohol sales are allowed. Revenue distributions during fiscal year 2017 totaled $406,044,410.
One-time Funds. If the state were to auction off the entire ABC system – stores, stock, etc. – there would initially be a non-recurring influx of monies from those sales. But the ability of the state to control liquor sales and to generate revenue in the way it does now would be forever lost.
Should the state auction licenses to the highest bidder, or sell a set number of them in each region, license sales could generate additional one-time funds. But once this is in place, the system would be in the hands of private retailers and annual revenue potential would drop.
The North Carolina General Assembly’s Program Evaluation Division pointed out this fact in a 2008 study of the North Carolina ABC system, noting that some states may not choose to convert from control to licensure because a reduction in state revenues from liquor is likely. [26]
Control states collect more revenue because they control the price and receive part of the profits that accumulate. Because private retailers are not subject to fixed prices, this cannot happen.
Community Revenue. Moreover, in a control state like North Carolina, some of the revenues go back to the communities, local law enforcement, and human services. In a license state, the money goes into the pocket of the store owners, which presents another negative for privatizing.
Last year, in addition to putting more than $306 million into North Carolina’s General Fund, ABC produced $74.5 million for county and city coffers. Also, another near $12.2 million went to local alcohol education, $8.3 million to local law enforcement, and $3 million to counties for rehabilitation, and more than $1.6 million went to the Department of Health and Human Resources. These millions now collected from the sale of spirits would likely be significantly reduced or eliminated by a privatized system.
Although proponents of privatization often contend that such losses could be made up via taxes on alcohol, these taxes rarely materialize as a viable solution. If competition drives prices down as privatization advocates say it will, then tax revenues will also decline. What is more, the powerful spirits industry is most adept in exerting lobbying pressures on lawmakers not to raise taxes.
Short-term vs. Long-term. So while privatization proponents and lawmakers may have their sights on short-term gains, studies show license states face significant losses in the long run.
In the seven states surrounding and including North Carolina, 3 of which are control states and 4 of which are license states, control states average $30 per capita in spirits ethanol sold, while license states average less than half as much revenue at $14 per capita per gallon of spirits ethanol sold. [27]
Whether public-policy makers argue for liberalizing liquor laws to stimulate economic growth or tax gains, alcohol never comes near to fulfilling its promises, given an estimated 40% of alcohol’s social costs are paid for by the government. [28]
Holding Lawmakers Accountable
Whatever plan may be put forward by state lawmakers, North Carolina citizens need to hold them accountable.
During her tenure as Governor, in 2011 Beverly Perdue (D) carefully weighed the option of privatizing North Carolina’s liquor sales. Her advice at that time was: “Privatizing the ABC system is a multi-faceted issue that must be evaluated based on facts, analysis, and outcomes of long-term effects.” [29] She also said, “I do not believe that the privatization of our ABC system is the right business decision for North Carolina. The juice is just not worth the squeeze for the people of this state.” [30] Perdue was correct.
Former Lieutenant Governor, Jim Gardner (R), also former ABC Chairman, as well as the champion of North Carolina’s Talk it Out program for reducing underage drinking, said in an editorial he penned for the Fayetteville Observer (2015): “Privatization does not make fiscal sense, nor does it make public health sense.” [31] He added, “There is no stauncher Republican than I am. There is no one more pro-business than myself. And there is no one more convinced than myself that continuing the Alcoholic Beverage Control system in North Carolina is the right thing for this state and particularly for the children of this state.” [32]
There is no specific proposal for privatization yet. Nevertheless, one influential lawmaker, Rep. Chuck McGrady (R-Henderson), a Chairman of the House ABC Committee, has vowed that he will push for the privatization of liquor sales in 2019. McGrady has said that he’s optimistic about his chances for success.
It is very difficult to believe there is a better way to address an issue as complex and weighty as this one than the way ABC does it now. The principles and procedures behind North Carolina’s system of alcohol control are not antiquated, but more relevant than ever. Imperative to any system of alcohol control is to keep dangerous consumption levels down to protect the public’s health and to keep revenues up for state and local coffers. North Carolina’s current system of alcohol control effectively strikes this critical balance, making this state 44th in per capita consumption levels of spirits and 7th in the nation in the amount of revenue garnered per gallon. [33] By contrast, South Carolina, which is a privatized state, ranks 27th in per capita consumption levels of spirits and 38th in the nation in the amount of revenues garnered. [34]
Any plan put forward should guarantee it can do better than the one in place. Citizens must hold their lawmakers accountable to this high standard and accept nothing less. If citizens do this, it is highly unlikely any proposal for privatization of liquor sales could succeed.
Conclusion
There are sincere differences of opinion among the citizens of North Carolina concerning the sale and consumption of liquor. Some take the matter very seriously, while others wonder why the sale of alcohol is such a big deal. Some even argue there are much more important issues to be considered.
But it is imperative to remember that alcohol is no ordinary commodity. A recent poll commissioned by the Centers for Alcohol Policy found that four-in-five Americans agree that since alcohol is different, it requires a different set of rules, and states should regulate it. [35] The point cannot be overstated: Alcohol remains America’s number one drug problem. This same national poll found a clear majority of Americans still see alcohol-related issues as serious problems in this country – drunk driving at 93%, binge drinking at 78%, and underage drinking at 73%. [36]
Few matters ever affect more the life, liberty, and property of the people. Alcohol policy may not be as urgent a priority as some issues are on certain occasions, but it should never be considered a low priority issue.
Neither is the issue of privatization a question of whether to drink or not to drink. The issue is really about alcohol marketing – the where, when, and how liquor sales should happen – a matter that will unquestionably impact life in North Carolina on numerous levels.
Critical to understanding this issue is the fundamental change in the way spirituous liquor becomes available if the state introduces privatization in any form. It is a point worth repeating over and again: A privatized system is focused on the objectives of liquor profiteers, while North Carolina’s state-regulated system is zeroed-in on fostering control, moderation, and self-restraint. It is the state’s best hope for preserving a culture that prizes freedom, coupled with responsibility, in a manner that protects the public’s health and safety in a serious way.
The “C” in North Carolina’s ABC system still stands for control. On the other hand, private store owners are in business for one reason – to make money. They have direct incentives to increase their sales and to reduce or at least minimize taxes.
Seventy-five years ago, John D. Rockefeller, Jr. said, “Only as the profit motive is eliminated is there any hope of controlling the liquor traffic in the interest of a decent society. To approach the problem from any other angle is only to tinker with it and ensure failure.” [37]
It is this unfettered push for liquor sales by the private sector that would ultimately lead to lower prices that decrease state and local revenues, push up hazardous consumption levels, and thereby drive up the cost of social services.
Should a proposal for privatization be offered in 2019, it will be the biggest issue concerning alcohol policy that has faced North Carolina’s citizens since Prohibition.
Resources
(1) “The Effects of Privatization of Alcohol Control Systems,” William Kerr, Phd., Alcohol Research Group, for National Alcohol Beverage Control Association.
(2) Naimi T et al. (2014) A new policy scale of the U.S. Alcohol Policy Environment and Its Relationship to Binge Drinking. Am J Prev Med. 46(1). doi:10.1016/j.amepre.2013.07.015.
(3) “Alcohol Retail Monopolies and Privatization of Retail Sales,” CAMH By: Norman Giesbrecht (CAMH) in collaboration with Leda Grovestine (CAMH), Ida Hersi (Toronto Public Health), Deb Kelly (MADD Canada), Janet McAllister (CAMH), Andrew Murie (MADD Canada), Ben Rempel (OPHA), Barney Savage (CAMH) and Victoria Van Gilst (Niagara Region Public Health) May 14, 2010.
(4) U.S. Census Bureau: State and County QuickFacts. Data derived from Population Estimates, Census of Population and Housing, Small Area Income and Poverty Estimates, State and County Housing Unit Estimates, County Business Patterns, Nonemployer Statistics, Economic Census, Survey of Business Owners, Building Permits, Consolidated Federal Funds Report, Last Revised: Monday, 16-Aug-2010 08:49:40 EDT.
(5) “The Effects of Privatization of Alcohol Control Systems,” William Kerr, Phd., Alcohol Research Group, for National Alcohol Beverage Control Association.
(6) Alberta Liquor and Gaming Commission, Liquor in Alberta — Quick Facts, January 2003.
(7) Kerr, W. C., Williams, E., & Greenfield, T. K. (2015). Analysis of Price Changes in Washington Following the 2012 Liquor Privatization. Alcohol and Alcoholism (Oxford, Oxfordshire), 50(6):654–660
(8) Subbaraman, MS, Kerr, W.C. (2016) Opinions on the Privatization of Distilled-Spirits Sales in Washington State: Did Voters Change Their Minds? J. Stud. Alcohol Drugs, 77, 568–576
(9) Prevention Research Center, Pacific Institute for Research and Evaluation, Journal of Adolescent Health, May 2009.
(10) Ibid.
(11) CDC’s Youth Risk Behavior, 2017
(12) Talk it Out, https://www.talkitoutnc.org/facing-the-facts/
(13) “A Longitudinal Analysis of Alcohol Outlet Density and Assault,” Alcoholism: Clinical & Experimental Research. Vol. 32, Issue 6, pages 1074-1079, June 2008.
(14) Ibid.
(15) Naimi et al (2017). Alcohol Policies and Alcohol-Related-Involved Homicide Victimization in the United States. J. Stud. Alcohol Drugs. 78:781-788.
(16) “Effectiveness of Policies Restricting Hours of Alcohol Sales in Preventing Excessive Alcohol Consumption and Related Harms,” American Journal of Preventive Medicine, Vol. 39, Issue 6, Pages 590-604, Dec. 2010.
(17) “Alcohol Advertising and Youth” © 2010, www.aafp.org, American Academy of Family Physicians.
(18) “The Effects of Privatization of Alcohol Control Systems,” William Kerr, Phd., Alcohol Research Group, for National Alcohol Beverage Control Association.
(19) Naimi et al (2017). Alcohol Policies and Alcohol-Related-Involved Homicide Victimization in the United States. J. Stud. Alcohol Drugs. 78:781-788.
(20) Centers for Disease Control and Prevention. Alcohol Related Disease Impact (ARDI) application, 2013. Available at www.cdc.gov/ARDI.
(21) “Why We Can’t Sell Alcohol Like Tires and Mayonnaise,” By Pamela Erickson, Oregon Partnership, Aug. 18, 2010.
(22) Österberg E. Effects of price and taxation. In: Heather N, Peters TJ, Stockwell T, eds. International handbook of alcohol dependence and problems: Part VI: Prevention of alcohol problems. Chichester, John Wiley and Sons, 2001, 685–698. 247. Cook PJ. Paying the tab. The costs and benefits of alcohol control. Princeton, Princeton University Press, 2007.
(23) Drug Harms in the UK: a multicriteria decision analysis. Lancet, Volume 376, Issue 9752, pages 1558-1565, Nov. 6, 2010.
(24) Sacks, Jeffrey J. et al. 2010 State Costs of Excessive Alcohol Consumption. AM J Prev Med. 2010;49(5) e73-79.
(25) Retrieved from http://www.pire.org/documents/UDETC/cost-sheets/NC.pdf
(26) North Carolina’s Alcohol Beverage Control System is Outdated and Needs Modernization, Program Evalutaion Division, N.C. General Assembly, December, 2008.
(27) Kerr, W. (2016). Alcohol Beverage Revenues: 2014 State 7 Revenues. ARG/PHI. NABCA Research.
(28) Sacks, Jeffrey J. et al. 2010 State Costs of Excessive Alcohol Consumption. AM J Prev Med. 2010;49(5) e73-79.
(29) Correspondence from Gov. Beverly Eaves Perdue to members of the North Carolina General Assembly, Feb. 26, 2010.
(30) Winston-Salem Journal, January 21, 2011
(31) Christian Action League of North Carolina, July 9, 2015, https://christianactionleague.org/news/fayetteville-observers-editorial-touting-privatization-of-liquor-sales-prompts-thoughtful-response-by-abc-chairman-jim-gardner/
(32) Ibid
(33) Kerr, W. (2016). Alcohol Beverage Revenues: 2014 State 7 Revenues. ARG/PHI. NABCA Research.
(34) Ibid.
(35) Public Opinion Strategies. National poll conducted for Center for Alcohol Policy on July 20, 24-27, 2017.
(36) Ibid.
(37) Toward Liquor Control, Raymond B. Fosdick and Albert L. Scott; with a foreword by John D. Rockefeller, Jr., pub. 1933 by Harper in New York
