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A Report to the Premier’s Advisory Council on Government Assets, Ed Clark, Chair

A Report to the Premier’s Advisory Council on Government Assets, Ed Clark, Chair

We the North
We the North
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September 18, 2014

Ed Clark
Chair, Premier’s Advisory Council on Government Assets
Cabinet Office, 1075 Bay Street, Suite 830
Toronto ON  M5S 2B1

Dear Mr. Clark:

The Ontario Public Service Employees Union represents 130,000 Ontarians who work in nearly every area of public service in this province. More than 7,000 of our members work for the Liquor Control Board of Ontario, a major government asset that falls within the scope of your council’s review. Our members are proud to work for an organization that sells beverage alcohol in a socially responsible manner that reduces the harm associated with this highly popular and addictive drug.

The LCBO, described as a “revolutionary innovation” by Brock University professor Dan Malleck,[1] came into being because the two extreme alternatives that preceded it had failed so dismally. The first, the unregulated market, created so many domestic and social problems that it triggered a powerful temperance movement across North America, mostly led by women, who suffered “from the loss of income consumed in saloons, and from domestic violence and the general neglect of home and family.”[2] The Prohibition era, which began in Ontario in 1916, created its own set of problems by criminalizing an activity enjoyed by much of the population. The result was “a state of lawlessness under an extremely restrictive legal regime.”[3] As it turned out, public opinion would only tolerate this regime for 11 years.

Since 1927, the LCBO has continued to balance the social need to reduce harm with the popular desire to enjoy alcohol. As an arm of government, the LCBO has reduced harm from alcohol consumption in a number of ways: by limiting the number of retail outlets selling alcohol; through alcohol pricing policies designed to reduce alcohol consumption, especially among high-risk drinkers; by strong enforcement of the ban on alcohol sales to minors and the intoxicated;[4] and through other policies and procedures.

The design of Ontario’s liquor distribution system may help explain why per capita liquor consumption in Ontario is the second-lowest among all provinces and territories in Canada (only residents of New Brunswick consume less).[5] And while there are many factors that have an impact on impaired driving rates, liquor marketing regimes clearly play a role, and Ontario has the lowest rate of impaired driving charges per capita of any province in Canada.[6] LCBO staff routinely report impaired drivers to police, resulting in charges being laid and improved road safety.[7]

While emphasizing liquor control, the LCBO has also recognized public enthusiasm for alcohol by changing with the times, offering shoppers a retail experience that is second to none. Of course, the LCBO does, to some degree, facilitate – and even encourage – alcohol consumption through its marketing campaigns and merchandising. While undesirable in many respects, it is not at all clear that the LCBO would enjoy the popular support it does if it were to return to the much more restrictive booze-behind-the-counter approach that prevailed before the first “self-serve” store opened in 1969.[8] Acting like a sophisticated modern retailer may, in fact, be politically essential to maintaining the LCBO’s ability to contain alcohol consumption and fulfil its social responsibility mandate. The revolutionary innovation of 1927 has been updated to suit the needs and tastes of 2014.

The issues of social responsibility and the social costs of alcohol are typically ignored by those critics of the LCBO who routinely call for the liberalization of liquor retailing and/or the sale of the LCBO to private interests. Recent studies from the C.D. Howe Institute and the Ontario Convenience Stores Association, for example, have argued that government could increase its income from alcohol sales by allowing the sale of beer and wine in corner stores and other retail outlets.[9] In May, the head lobbyist for private liquor stores in British Columbia came to Ontario to make the same argument.[10]

All would-be privatizers base their argument on the same idea: that by introducing price competition and greatly expanding the number of outlets permitted to sell alcohol, alcohol sales would rise. The resulting surge in tax revenues, they all claim, would more than make up for any profits lost by government as a result of privatizing and liberalizing alcohol sales.

What the privatization pushers ignore, however, is the cost to government – and society as a whole – of increased alcohol consumption. The reality is that, from a societal point of view, the idea of “profit” from alcohol is an illusion. The evidence is clear: no society can ever actually profit from the sale of alcohol. When it comes to alcohol, “direct costs exceed direct revenue in most jurisdictions,” Ontario included.[11]

There is money to be made in selling alcohol, to be sure; alcohol has made the fortunes of many. But those profits, which accrue to alcohol sellers, come with costs – costs which are socialized across society as a whole. Alcohol consumption is indisputably linked to lost productivity at work and damaged relationships at home. Its negative health effects, from dementia to cancer, are well documented. Its role in fatal and property-destroying automobile accidents is reported daily in news stories. And the cost of alcohol-related law enforcement is paid for by every citizen.

The most comprehensive study of the costs of alcohol abuse in Canada was published in 2006. That study, from the Canadian Centre on Substance Abuse (CCSA), put the social cost of alcohol abuse in Ontario (using 2002 data) at $441 per capita, or, in 2014 dollars, $560 for every man, woman, and child in the province.[12] With Ontario’s population now topping 13.6 million, and assuming (based on steady consumption levels) that there has been no substantial change in the costs of alcohol abuse since 2002, the cost of alcohol abuse in Ontario would total more than $7.6 billion in today’s dollars. Based on CCSA calculations, some 49 per cent, or $3.7 billion of this, would be lost by employers and employees because of reduced workplace productivity related to alcohol; about $3.3 billion would be spent by government on direct healthcare costs, addiction treatment costs, and law enforcement; and an additional $600 million would be lost directly as a result of fire damage, traffic accidents, workers’ compensation, the cost of prevention and research programs, and the like.

The LCBO returns a large dividend to provincial coffers, and the tax and licensing revenues to government from the sale of beer, wine and spirits through its various channels are substantial as well. Nonetheless, these revenues do not equal the financial costs associated with alcohol consumption. Based on a 2012 CCSA study, the net cost to government of alcohol consumption in Ontario is approximately $650 million a year (in 2014 dollars).[13]

From these numbers, it is evident that every penny earned by the LCBO is needed to offset the costs of alcohol consumption in Ontario. From a financial perspective, privatization of the LCBO would reduce revenues to government while boosting costs to government as a result of increased alcohol-related harm arising from a proliferation of retail outlets and the attendant increase in consumption.

Yet the real costs of liberalizing alcohol retailing cannot be measured only in dollars and cents.

The country of Sweden has an alcohol marketing system similar to Ontario’s. In a recent study, researchers at the University of Stockholm estimated what would happen if all 8,000 supermarkets in Sweden started selling alcohol. In their most conservative scenario, consumption would increase by 17 per cent, resulting in 4.5 million more sick-leave days per year, 8,500 more assaults, 2,700 more drunk driving offences, and 770 more deaths.”[14]

In Ontario, with a population 50 per cent greater than Sweden’s, throwing open the alcohol marketing system would have even more devastating results. The LCBO must remain 100 per cent publicly-owned and controlled, and must maintain its pre-eminent position in Ontario’s alcohol market.

The LBCO is uniquely situated to help improve public finances while mitigating the negative effects of alcohol consumption. There are many ways to do this, but at this time our union proposes one simple strategy that could increase revenues to government without increasing consumption of alcohol by Ontarians.

Currently, the LCBO sells alcohol through 216 private operators as part of its Agency Stores Program. Originally created in 1962 as a low-cost way to serve isolated communities, the program has broadened in scope to the point where it now serves many communities that could more profitably be served by directly-operated LCBO stores. In November 2010, a comprehensive study of the agency stores program indicated that returning 103 of these high-volume agency stores to direct operation by the LCBO could increase gross sales of publicly-owned LCBO stores by $570 million over ten years, with a one-time investment required of just $370,000 per store, or about $38 million.

Pursuing this strategy would be good for social responsibility and good for government revenues. As part of your review, please recommend that the LCBO take a serious look at paring back the Agency Stores Program so that it once again serves its original – and limited – purpose.

The 2010 consultant’s report paid for by OPSEU is attached here for the information of you and your colleagues on the Advisory Council. Please do not hesitate to contact us directly should you have any questions whatsoever.

Yours truly,

Warren (Smokey) Thomas, President 
Ontario Public Service Employees Union

Denise Davis, Chair
Liquor Board Employees Division, OPSEU

Notes


[1]   Malleck, Dan (2012). Try to Control Yourself: The Regulation of Public Drinking in Post-Prohibition Ontario, 1927-44. Vancouver: UBC Press, p.5.
[2] Campbell, Robert A. (1991). Demon Rum or Easy Money: Government Control of Liquor in British Columbia from Prohibition to Privatization. Ottawa: Carleton University Press, p. 15.
[3]   Malleck, p. 11.
[4]  “LCBO staff challenged more than 11.4 million individuals in 2013-14 for failing to produce valid ID, appearing intoxicated or attempting to purchase for a minor or an impaired individual. Service was refused to more than 414,600 people, with 86.9 per cent for reasons of age. (Source: Liquor Control Board of Ontario, http://www.lcbo.com/content/lcbo/en/responsibility/responsibility/challenge-and-refusal.html#.VBma4Gd0xMw/)
[5]   Statistics Canada, CANSIM table 183-0019.
[6]  Perreault, S. [2012]. Impaired Driving in Canada, 2011. Juristat. Statistics Canada Catalogue no. 85-002-X Ottawa: Canadian Centre for Justice Statistics, Statistics Canada.)
[7]  On the relationship between LCBO staff and police in the fight against impaired driving, see for example Forrest, Ben (2014). St. Thomas store named one of best at reporting suspected drunk drivers. St-Thomas Times-Journal, July 4. Web edition: http://www.stthomastimesjournal.com/2014/07/04/st-thomas-store-named-one-of-best-at-reporting-suspected-drunk-drivers.
[8] For the first several decades of its operation, the LCBO “forced people who wanted a drink to run a series of bureaucratic gauntlets before they could indulge and relax. In the liquor stores, the customer had to buy a permit book, fill in a form listing a substance he or she wanted to buy, and be evaluated by the liquor store employee” (Malleck, p. 9).
[9]   See, for example, Masson, Paul R. and Anindya Sen (2014), Uncorking a Strange Brew: The Need for More Competition in Ontario’s Alcoholic Beverage Retailing System. Toronto: C.D. Howe Institute, Commentary No. 414, August; also Sen, Anindya (2014), An Economic Analysis of Increasing Competition in Retail Liquor Sales in Ontario. Oakville, Ontario: Ontario Convenience Stores Association.
[10] Baillie, Ian (2014). “BYOBC: Strategies from BC on How Ontario Can Better Retail Beverage Alcohol.” Speech to the Economic Club of Canada, Toronto, May 9.
[11] Thomas, Gerald (2012). Analysis of Beverage Alcohol Sales in Canada. Ottawa: Canadian Centre on Substance Abuse, p. 2.
[12] Rehm, J. et al (2006). The Costs of Substance Abuse in Canada 2002. Ottawa: Canadian Centre on Substance Abuse, p. 107.
[13] Thomas, Gerald (2012). Price Policies to Reduce Alcohol-Related Harm in Canada. Ottawa: Canadian Centre on Substance Abuse, p. 29.
[14] Norström, Thor, Ted Miller, Harold Holder, Esa Österberg, Mats Ramstedt, Ingeborg Rossow and Tim Stockwell (2010). Potential consequences of replacing a retail alcohol monopoly with a private licence system: results from Sweden. Addiction, Vol. 105, Issue 12, December, pp. 2113–2119.