Not that long ago the purchase of many types of alcoholic beverages in Maine required a visit to a State-run liquor store. This was rooted in the 21st Amendment to the U.S. Constitution which ended the Prohibition era in 1933 and allowed states to regulate importation of liquor. But no longer, Maine got out of the liquor business, right? Not exactly.
The business of alcoholic beverage sale in Maine is governed by its own title in Maine Revised Statutes, Title 28-A Liquor, which runs a good 211 pages. Much of this law and the regulations that flow from it cover the business of alcohol import, distribution, and sales. The statute reflects the phenomenon of rent seeking behavior, a common theme for “Stirring the Pot.” Rent seeking behavior happens when businesses or individuals seek to have government create economic advantages specifically for them in the guise of serving the public interest.
There are three legitimate government interests in the distribution and sale of alcohol. First is to determine who should be able to buy and consume alcoholic beverages and to enforce those rules, i.e. control underage drinking in Maine. Second is to collect tax revenues on the sale and consumption of alcohol. “Sin taxes,” like those on cigarettes and alcoholic beverages, are a popular source of government funding. This is under the assumption that those who engage in “bad behavior” are going to complain less about paying the higher tax. Third is to provide a means to ameliorate the social ills caused by excess alcohol consumption.
Effective rent seeking behavior creates the impression that a given law or regulation serves one of these public interests while creating an economic advantage for specific firms. You can see rent seeking best by looking for distortions in the market.
It is illegal to “import” liquor into Maine. Virtually all of Chapter 83 (Prohibited Acts in General) in Title 28-A is dedicated to this subject. Unlike almost all other business activity between the states, the Interstate Commerce Clause of the U.S. Constitution (see Article 1, Section 8) does not apply to alcoholic beverages. The State of Maine cannot regulate your importation from New Hampshire of books, cars, new socks and underwear, or peanut butter. But it can make it illegal for you to buy alcohol from the New Hampshire liquor store. It can make it illegal for you to join the Wall Street Journal wine club or The Beer of the Month Club (Father’s Day sale going on now!). One of the major political concessions to the States for getting the 21st Amendment ratified was the stipulation that States could regulate importation of “intoxicating liquors.”
The result for Maine and many other states was rent seeking, various firms working to craft vast pages of statutory language on who can and cannot sell alcoholic beverages and under what conditions. As a result, Maine consumers pay higher prices and have less choice. This is obvious in the distribution and pricing of spirits in Maine. There is one government sanctioned provider in Maine, Maine Spirits “The Exclusive Wholesale Supplier of Liquor for the State of Maine.”
Maine Spirits boasts that the price you pay for liquors is the same anywhere in Maine. This is one sure sign of monopoly power. So even though the costs of distributing and selling any retail product like alcoholic beverages are going to vary dramatically in a state like Maine, monopolists extract monopoly profits by hiding these cost differences with homogeneous pricing. Some people are paying much more than the true costs of serving them, while others pay less. The monopolist earns greater profits than it would in a competitive market, retailers (agency liquor stores) are prohibited from setting their own mark ups, and consumers pay more.
Title 28-A pays lip service to the legitimate public interests in the regulation of alcoholic beverages. But what most of its more than 200 pages does is pick winners and losers in the market under the guise of the public interest. And the winners will fight long and hard to keep it that way. It is time for Maine to get out of this business.