BACHELOR THESIS IN BUSINESS ADMINISTRATION Atlantis Program

                     

Systembolaget: An Examination of State Monopoly Alcohol Retail in

the 21st Century  

Daniel Knuerr Michael Lepri

Ryan Livingston  

Tutor: Anne Schmitt    

     

Spring semester 2014 ISRN-number: LIU-IEI-FIL-G--14/01152--SE  Department of Management and Engineering (IEI)

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English title: Systembolaget: An Examination of State Monopoly Alcohol Retail in the 21st Century

Authors:

Daniel Knuerr, Michael Lepri and Ryan Livingston

Tutor: Anne Schmitt

Publication type:

Bachelor Thesis in Business Administration Atlantis Program

Undergraduate level, 15 credits Spring semester 2014

ISRN-number: LIU-IEI-FIL-G--14/01152--SE

Linköping University Department of Management and Engineering (IEI)

www.liu.se  

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Abstract

Authors: Daniel Knuerr, Michael Lepri, and Ryan Livingston

Bachelors Thesis in International Business

Linköpings University, Department of Management and Engineering, 2012.

Supervisor: Gunilla Söderberg

This thesis presents and examines the Swedish alcohol retail monopoly Systembolaget based on findings of theoretical data which contained a synthesis of established theory on privatization, cultural theories of alcohol, and alcohol policy theory. This theory was then used to analyze empirical data from three selected cases of privatizations of North American state-run alcohol retail monopolies, This data was analyzed alongside data on alcohol consumption Sweden, as well with the results of qualitative interviews of Swedish policy makers representing different Swedish views on the alcohol retail monopoly.

Keywords: Privatization, SOM (State Owned Monopoly), temperance culture

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Summary Background: Systembolaget is a state corporation run by a government appointed

CEO which controls all aspects of the Swedish market in alcoholic beverages that contain an alcohol content higher than 3.5%, (Holder et. al, 2008). Private retailers are allowed to sell alcoholic beverages that have alcohol content lower than this. As the sole provider of strong alcoholic beverages to the Swedish market of nine million people, Systembolaget is one of the largest purchasers of wine and spirits in the world. It also operates a highly unique alcohol distribution operation in which no products are promoted over one another and prices are controlled to generate the same profit margin from all sales. As a state-run firm with a social health mission they do not aim to achieve a sales volume that fully meets consumer demand for alcohol (as their goal is to limit consumption) as a private, profit-motivated company would be.

Aim: To identify methods and models that could be adopted by Sweden in the

event of a privatization by Systembolaget that would be economically beneficial while maintaining controls on alcohol-related social and health concerns.

Methodology: There have been numerous cases of privatization occurring around the

world similar to that in which Systembolaget could follow and replicate for our empirical data. Not only this, but there has also been numerous theoretical research we have obtained to back this up. Thus, our research will be two-fold, in that we will be mainly focusing on empirical and theoretical data to answer our question.

Results: Certain examined data sets (i.e. violent crime in Alberta, job creation) reacted in anticipated ways after privatization. Trends in other sets of data (i.e alcohol crimes in Washington, alcohol prices in Alberta and Washington) followed unexpected patterns.

Conclusion: While somewhat inconclusive, the results show that this issue is not as well understood as it is sometimes presented in literature on the subject.

More research that strives to be unbiased toward either side of the question and that thoroughly attempts to focus research on areas that can be isolated from confounding factors should be carried out to build a comprehensive theory on an ideal model for alcohol retail.

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Acknowledgment

We are very grateful for the enormous help and advising we received from our tutor, Anne Schmitt. Throughout the two months of writing the thesis Anne was always there to guide us and help pave our way to completing this thesis. She made several important suggestions which enhanced this thesis tremendously, and she did just an overall great job with a contagious smile that lit across the room. Thank you to Gunilla Soderburg and her hard work at organizing the 723G52 Bachelor Thesis course. Without her council of leading the way we would have never even had Anne as a tutor. So, thank you to Gunilla for all your time in making this organization work very well. We would also like to thank Linköping University for all the building blocks and laddering that led us to completing this thesis. A special thanks goes out to the people that gave us the time to answer some questions in our qualitative interviews. Finally we would like to give tremendous thanks all the sources and authors that we used in our thesis that paved the way for us.

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Table of Contents: Abstract………………………………………………………………………………………… Acknowledgement………………………………………………………………………………Table of Contents………………………………………………………………………………. 1 Introduction…………………………………………………………………………….....…1

1.1 Research Purpose……………………………………………………...……….….5 1.2 Research Aim Questions………………………………………………………….6 1.3 Outline…………………………...………………………………………..………6

2 Methodology……………………………….…………………………………………..……8 2.1 Research Philosophy………..………………………………………………..……8 2.2 Research Design………………………………………………………………..…9

2.2.1 Validity……………………………………………………..………….10 2.2.2 Reliability…………………………………………………….………..11

2.3 Limitations……………………………………………………………………….12 3 Theoretical Framework…………………………………………………………………….13

3.1 Privatization Theory………………………………………………..……………13 3.1.1 Privatization Theory History…………………………………………..13 3.1.2 Privatization Theory Summary…………………………………….….14 3.1.3 Exceptions to Privatization Theory……………………………………15

3.2 Temperance Cultures and State Alcohol Policy ……………………………...…17 3.2.1 Dev. of Temperance Culture Theories on Alcohol Consumption……..18 3.2.2 Contemporary Alcohol Retail in Temperance Countries……….……..19

3.2.2.1 Nordic Models……………………………………………... 20 3.2.2.2 North American Models…………………………………….20

3.2.2.2.1 North American Retail SOM……………….…….20 3.2.2.2.2 Private North American Retail Models……….…..21 3.2.2.2.3 The Special Cases of Maryland and Alberta…...…23

3.3 Alcohol Retail Privatization Debate……………………………………………..23 3.4 Alcohol Policy Implementation…………………………………………..……...24

3.4.1 Measures for Regulating Availably of Alcohol………….………....... 26 3.4.2 Physical Alcohol Availability Regulation..………………………..…..26 3.4.3 Alcohol Price Availability Regulation………………………….....…..28 3.4.4 Alcohol Advertising and Promotion Regulation Policies……..………29

4 Empirical Framework…………………………………………………………..…………..32 4.1 Empirical Cases of Alcohol Retail SOM Privatization……………….…………32

4.1.1 Alberta Privatization……………………………………………..……32 4.1.1.1 Alberta Economic Data…………………………………..…33 4.1.1.2 Alberta Health and Social Data………..……………………34

4.1.2 West Virginia Privatization……………………………………………36 4.1.2.1 West Virginia Economic Data………………………………36 4.1.2.2 West Virginia Health and Social Data………………………37

4.1.3 Washington Privatization.......................................................................38 4.1.3.1 Washington Economic Data...................................................39

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4.1.3.2 Washington Health and Social Data.......................................39 4.1.4 Swedish Health and Social Data………………………………………42

4.2 Interviews………………………………………..………………………………44 4.2.1 Systembolaget Interview………………………………………………45 4.2.2 Moderate Party Interview…………………...…………………………46

5 Analysis………………………………...………………………………………..…………48 5.1 Analysis of Privatization Case Data……………………………………………..48

5.1.1 Analysis of Privatization Models…………………………………….. 48 5.2 Health and Social Data…………………………………………………………..48

5.2.1 Alcohol Related Traffic Accidents…………………………………… 49 5.2.2 Alcohol and Crime……………………………………….……………50

5.3 Analysis of Economic Data……………………………………………………...50 5.3.1 Job Creation Data……………………………………………………...51 5.3.2 Tax Revenue……………………………………..…………………….52

5.4 Interview Analysis……………………………………………………………….53 6 Conclusions and Discussion……………………………………..…………………………55 Works Cited………………………..………………………………………………………...58

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List of Figures:

Figure 1: Changes in Swedish Public Opinion on Systembolaget from 2002……………..….3 Figure 2: Changes in Swedish Public Opinion on Systembolaget from 2007………………...4 Figure 3: Research Process….………………………………………………………….……10 Figure 4: The Temperance Countries…………………………………………………..….…17 Figure 5: Relationship of Consumption and Related Issues…………………………………25 Figure 6: WHO Ranking of Alcohol Policy Effectiveness……………………………….… 28 Figure 7: Spousal Homicides with Drugs/Alcohol…………………………………………..35 Figure 8: West Virginia Revenue………………………………………………….…………37 Figure 9: DUI Fatalities West Virginia....................................................................................38 Figure 10: Traffic Fatalities Washington.................................................................................40 Figure 11: Alcohol Related Washington Arrests………………………………….…………41 Figure 12: European Related Alcohol Accidents……………………………….……………43 Figure 13: Liver Disease European……………………………………………..……………44 Figure 14: Traffic Fatalities Washington/West Virginia………………………………….…49 Figure 15: Consumption and Employment……………………………………………….….52

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1. Introduction

Strident regulation of the alcohol market has been the consistent policy of the Swedish

government for over two centuries, being carried out under the auspices of alleviating health

and social concerns related to alcohol consumption (Systembolaget, 2010). In 1955

Systembolaget was established as a nationwide retail monopoly to replace former regional

and municipal monopolies and as a solution to an inefficient and unpopular ration system that

had been in place since the First World War (Systembolaget, 2010). Since then,

Systembolaget has managed to build a strong base of support amongst the Swedish

population with “...an upward trend, reaching a 66% level of support in 2009..”(Spiering,

2011, p. 11). There are 426 stores and approximately 500 total agents in Sweden

(Systembolaget, 2010). With their mandate and mission being politico-social in nature and

lacking profit motivation, Systembolaget and other alcohol retail monopolies operate in a

unique way. Instead of attempting to meet full Swedish consumer demand for alcohol with

their sales, Systembolaget intentionally fails to meet this demand to control the negative

effects on drinkers and negative externalities for others that can arise in a society with a high

level of alcohol consumption (Systembolaget, 2010).

However, since Sweden entered first the European Economic Area (EEA) in 1994, and later

the European Union in 1995, the state and Systembolaget have at times come under

significant pressures both internal and external to relinquish their control of the Swedish

alcohol market in favor of a more private system (Holder et al., 2008; Cisneros Örnberg and

Ólafsdóttir, 2008). Specifically, the Nordic states were compelled to divest all state

monopolies on alcohol (i.e. import, export, production, and wholesale) except at the retail

level (Cisneros Örnberg and Ólafsdóttir, 2008). In the case of Sweden preserving

Systembolaget as a retail monopoly was strongly supported by the general public and was a

key issue in the negotiations on EU membership (Cisneros Örnberg and Ólafsdóttir, 2008).

While surely many in Sweden hoped this would be the end of the discussion concerning

Systembolaget, this was not to be the case.

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As Cisneros Örnberg and Ólafsdóttir relate, “In the years following accession, the longevity

of this settlement [on the retail monopolies] was in question, since it was challenged in court

cases filed by Nordic citizens” (2008, p. 141). In 1997 these pressures eventually culminated

in the Franzén case, which would prove to be the seminal Swedish case on retention of the

Systembolaget monopoly (Cisneros Örnberg and Ólafsdóttir, 2008; Moritz, 2002). The case

began when Franzén, a Swedish grocer who had been found to have sold wine illegally in his

store challenged the ruling of the Swedish court, and therefore Swedish alcohol policy in

general, as being contrary to EEA and EU laws protecting the free movement of goods

(Moritz, 2002). Swedish courts opted to refer the case to the European Court of Justice,

which upheld the right of Sweden to retain its monopoly on alcohol retail as it met the criteria

of being maintained over public health concerns and being non-discriminatory in practice

(Cisneros Örnberg and Ólafsdóttir, 2008). While Cisneros Örnberg and Ólafsdóttir conclude

that these and other pro-retail monopoly court rulings basically eradicated the legal threat to

the Nordic retail monopolies. However, Moritz (2002) argues that, at least in the Franzén

case, several relevant clauses of the applicable laws were ignored in court proceedings

leading to a final verdict that was political in nature and made to avoid offending the new

Nordic member states or give them reason to reconsider their new EU membership.

Further pressures on Systembolaget and Nordic alcohol retail monopolies came in 2004 when

European travellers allowances, quotas limiting the amount of alcohol private individuals

could bring from one country to another, were abolished in Denmark, Sweden, and Finland

(Bloomfield et al., 2010; Cisneros Örnberg and Ólafsdóttir, 2008). Bloomfield et al. relate

how this development combined with the ascension to the EU of Estonia, a country adjacent

to Sweden with substantially lower alcohol prices at the time, raised fears in Sweden that

cheap alcohol would pour over the borders and increase alcohol-related problems, though

they conclude that this generally did not come to pass. Cisneros Örnberg and Ólafsdóttir

(2008) describe these same developments as constituting serious threats to Systembolaget,

and wider Nordic alcohol policy, which was answered by a trend of cuts on alcohol taxes

across the Nordic countries.

With cracks appearing in its former monolithic control of the alcohol market, the Swedish

government began a concerted effort to shore up public support for Systembolaget. Another

contributing factor to the launch of this campaign was growing criticism of the monopoly for

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issues ranging from possible embezzlements to lack of transparency. In 2003 specific

allegations of corruption were brought against a number of Systembolaget employees

(Cisneros Örnberg and Ólafsdóttir, 2008). In 2007 a Web- and newspaper-based campaign to

build upon public support was launched (Cheng et al., 2011) in which evidence from Holder

et al. (2008) was heavily cited to emphasize the necessary role of regulating public health and

safety played by Systembolaget. As Figure 1 demonstrates, this campaign was successful in

increasing support for the monopoly amongst a majority of the Swedish population in 2002

along with figure 2 which shows the support in 2007.

Figure 1: Changes in Swedish Public Opinion on Systembolaget from 2002

(Cheng et al., 2011)

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Figure 2: Changes in Swedish Public Opinion on Systembolaget from 2007

(Cheng et al., 2011)

Besides the public support campaign Systembolaget has also focused on providing high

quality customer service and increasing their product range to keep to keep customer

satisfaction high (Cisneros Örnberg and Ólafsdóttir, 2008). This marketing strategy is

reflected by this statement on their official website, “Systembolaget shall use its expertise on

its customers’ behalf, both with regard to the taste characteristics of individual drinks and

with regard to their effects on people’s health, and shall thereby inspire our customers to

make informed choices about drinks” (Systembolaget, 2010, p. 1). This trend towards

increased customer service can trace its development to 1991 when Systembolaget outlets

began transitioning from counter-service to self-service in an attempt to increase consumer

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satisfaction (Cisneros Örnberg and Ólafsdóttir, 2008). The success of these strategies in

guaranteeing the continued survival of Systembolaget have seen it and Sweden go on the

offensive in more recent years as it has worked in concert with other Scandinavian countries

to develop a united Nordic alcohol policy within the EU and even gone international with

paid promotions in print media toting the value of a state alcohol retail monopoly (Cisneros

Örnberg and Ólafsdóttir, 2008).

Systembolaget has outlasted other Swedish state monopolies, including its former monopoly

on pharmaceutical retail, Apoteket. While public recognition of Systembolaget remains high

both in the public and professional sectors, negative perceptions associated with such

monopolies played a role in the decision by the Swedish government to divest itself of

Apoteket. In 2009 Sweden began partial privatization and deregulation, divesting itself of

about 70% of its Apoteket operations (Lakemedelsverket, 2014). “Of 1000 pharmacies 615

of them were sold, while 330 stayed with Apoteket AB” (The Branding Source, 2011, p. 1).

Unlike Systembolaget, and its current acceptance by Swedish citizens, the privatization of

Apoteket has also been well received due to its resulting benefits. While the long-term results

of the privatization of Apoteket AB cannot be analyzed as of yet, there have been several

notable short-term effects. Expansion of the pharmaceutical market, greater availability, and

satisfaction of consumer demand are among the noted benefits post-privatization (Willach

Pharmacy Solutions, 2010).

1.1 Research Purpose

Holder et al. (2008) claims that currently there is no ongoing discussion or debate in Swedish

media or politics on replacing the Systembolaget monopoly with a private retail system, even

though the EU and WTO pose external threats to it and other Scandinavian state alcohol

monopolies despite the perceived victory of Nordic retail monopolies in their transition era

trials. This is arguably a short-sighted state of affairs as the aforementioned pressures have

forced Sweden to reform its public alcohol policy in the past and could conceivably do so to

a greater extent in the future. The purpose of the research presented in this paper is to

examine various methods and models of privatization that Sweden could employ in different

scenarios involving some degree of liberalization of its alcohol market.

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1.2 Research Aim and Questions

The aim of the present paper was to collect data on several empirical examples of

liberalizations of alcohol retail state-owned monopolies (SOMs as they will be referred to

from this point) with the goal of identifying privatization models and compare and contrast

them with potential liberalization scenarios that Systembolaget could experience. Therefore,

the research presented herein was directed towards comprehensively describing North

American alcohol retail SOMs that were privatized during the past 25 years. Research

direction was further focused by two specific questions:

1. Do accepted theories on alcohol consumption and its negative effects and how they relate

to certain models of alcohol retail hold up when examined with empirics from alcohol retail

privatizations within a relevant cultural context?

2. Can the results of the first question be extrapolated from to comment on the necessity of

Systembolaget and open a discussion on the merits of privatization of the Swedish market in

alcohol retail?

1.3 Outline

The opening chapter of the present paper is meant to give context to the current state of the

Swedish alcohol retail SOM Systembolaget as well as detail the purpose of the research

presented herein. In the second chapter the methodology behind this research and the analysis

of it is presented. The third chapter features the theoretical framework of the paper, a

synthesis of established theory on privatization, cultural theories of alcohol, and alcohol

policy theory. The following chapter is a summary of the empirical data gathered during the

research of this paper. It is comprised of data on the three selected cases of privatizations in

North American alcohol retail SOMs, and data on Systembolaget in Sweden, as well as

qualitative interviews of Swedish policy makers representing different Swedish views on the

alcohol retail monopoly. The fifth chapter contains the analysis of this empirical data and is

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followed by the sixth and final chapter in which a concluding discussion on the findings of

the analysis is presented.

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2 Methodology

Primary research focus was of a theoretical nature, with the intention of synthesizing current

thought on privatization and the relation between alcohol consumption trends and resulting

interventionist state policy in relation to “temperance culture”. This synthesis was necessary

to construct a theoretical framework through which the scenario of a potential privatization of

Systembolaget could be analyzed. Empirical data was also of paramount importance to the

success of the study, as it was needed to back up the theoretical arguments presented within.

The empirics were compiled from academic case studies, government data sources, and

media reports on the privatization of specific North American alcohol monopolies and on

Systembolaget and the state of alcohol in Sweden. We link the Swedish context to examples

in Canada and the United States due to their aforementioned relation as “temperance

cultures”, a group of Nordic and English-speaking countries that in the nineteenth and

twentieth centuries shared large-scale and long-term temperance movements to control

overall consumption of alcohol (Levine, 1993, P 2). The paper takes on the tone of a

scientific recommendation to Swedish government in preparation for a privatization of

Systembolaget by independent policy advisors to the Swedish government.

2.1 Research Philosophy

The study presented here conducted research through the quantitative approach, with some

aspects of qualitative research. This is clear as the tone and structure is highly deductive in

seeking to test established theories on privatization and alcohol policy through the collection

and analysis of mainly numerical data. Epistemologically the study is positioned within the

realm of quantitative research as it is highly positivist, meeting several of the criteria laid out

by Bryman and Bell (2007, p. 17)

1. Phenomenalism- Only observable phenomena or knowledge that can be confirmed by

the senses is valid, an important concept to keep in mind for researchers working on a

subject as politically and culturally sensitive as Systembolaget

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2. Deductivism- By testing existing theories (such as privatization and alcohol policy)

new hypotheses can be devised dealing specifically with the case of Systembolaget.

3. Objectivism- Science can and must be conducted in a way that is value free

This third criteria, objectivism, is perhaps the most important for this study in terms of

methodology. This is because the researchers feel that to successfully analyze a hypothetical

Systembolaget privatization it is essential to remain culturally and personally unbiased and

focus solely on empirical fact and accepted theory to form new theses. It was with this

approach in mind that the business research paradigm took on a regulatory approach, defined

by Bryman and Bell (2007) as being the opposite of a revolutionary paradigm in that it does

not seek to make a moral or political judgement of Systembolaget or Swedish alcohol policy

or advocate radical changes. Instead it merely aims to suggest how some degree of

privatization of the monopoly could be carried out successfully as a business reform with a

conscious eye towards social responsibility.

The qualitative aspect of the study stems from the interviews carried out during the research

phase. These interviews were qualitative in nature as they were concerned with the

viewpoints on the subject of those interviewed, and how they may differ. This is a crucial

way in which qualitative interviews differ from quantitative ones (Bryman and Bell, 2007).

2.2 Research Design

The research design behind the study presented in this paper is inherently comparative,

seeking to draw links between Systembolaget with cross-cultural examples of alcohol retail

SOM privatizations from North America, this type of cross-culturalism often being a factor in

comparative research (Bryman and Bell, 2007). To be more specific, research took the form

of a quantitative meta-analysis where comparisons were drawn between the results of various

case studies of alcohol retail SOM privatizations that took place with the context of the

previously defined “temperance cultures”. Adapting the rudimentary quantitative research

process model depicted by Bryman and Bell (2007) to the specifics of our study we

developed our own research process, leading from the synthesis of concepts of the theoretical

framework to an analysis of the data with the aim of identifying privatization methods and

models that could be used by the Swedish state to develop an ideal Systembolaget

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privatization model (i.e. with desirable social control of alcohol consumption as well as

competitive equilibrium promoted), which is outlined below in Figure 3

Figure 3: Research Process

(Bryman and Bell, 2007)

2.2.1 Validity

As defined in Chapter 6 of Business Research Methods validity “refers to the issue of

whether or not an indicator (or set of indicators) that is devised to gauge a concept really

measures that concept” (Bryman and Bell, 2007). Internal validity, mainly an issue of

proving causality, was especially necessitated in this case by the aforementioned research

questions (Bryman and Bell 2007). The research design of the study presented above was

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devised to prove causal connections between the independent variables of certain alcohol

policies and alcohol retail models and resulting dependent variables of an economic or social

nature. The causality between increased alcohol consumption and an increase in the plethora

of well known alcohol-related health and crime problems has already been well established

(Holder et al., 2008). Therefore the presented research was greatly directed towards

identifying instances where health or crime variables did not demonstrate an expected

upward trend post-privatization, and on gathering economic data from privatizations and

linking them to arguments based in privatization theory. Through careful source selection the

research has to attempted to avoid bias and and detail only verifiable, objective data.

In terms of external validity, it is the belief of the researchers that the conclusions presented

on the data analyzed here could be applied to any alcohol SOM being operated within the

context of a temperance culture. Bryman and Bell (2007) describe external validity as being

“concerned with the question of whether the results of a study can be generalized beyond the

specific research context” (2007, Page 43). In the opinion of the researchers, the conclusions

on alcohol retail SOM privatization presented herein, while limited in specific scope to

Systembolaget and Sweden, could be applied to these other cultural contexts through careful

self-criticism on the part of the researchers to avoid self-bias and the testing of temperance

culture theory empirically through a variety of samples for the meta-analysis.

2.2.2 Reliability

A key concept in research reliability is stability. As Bryman and Bell explain, “This

consideration entails asking whether or not a measure is stable over time” (2008, p. 158). It is

the opinion of the researchers of this study that the results presented will demonstrate their

own stability as they span a relatively long-term range (over 20 years) with short- and long-

term results not fluctuating greatly in their expected values. Further reliability was provided

by biweekly meetings with our peer study group and student advisor to check on the progress

of our research and report.

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2.3 Limitations

The primary practical limitation of this study was that it was entirely reliant on document

analysis for the body of empirical data analyzed. While the sources of empirical data were

carefully vetted, they still represent secondary information. However, as an undergraduate

research team with an accelerated time schedule, it was simply not possible to gather

significant amounts of primary research from populations spanning several countries and

continents. Secondary limitations include possible cultural bias, although rigorous self-

criticism and periodical peer group critiques were employed to mitigate this factor as much as

possible, and issues with external validity due to possible limitations of our theoretical model

in terms of linking results from different temperance countries to the context of Sweden.

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3 Theoretical Framework

To form a theoretical context with which the empirics could be analyzed it was necessary to

synthesize theory stemming from literature relating to privatization, cultural views of alcohol

consumption, and alcohol policy, especially as it relates to retail. The first section of the

chapter deals with privatization theory. The following section explains the evolution of

theory on state alcohol policy, specifically within the Western cultural context of

“temperance cultures”, and how it was has resulted in the two contemporary models of

alcohol retail present in countries influenced by those cultures. Following this, the next

section outlines how the regulation of alcohol markets is implemented in both retail models

(monopoly vs regulation). The concluding section of the chapter summarizes the current state

of debate on privatization of alcohol retail systems.

3.1 Privatization Theory

Privatization, while not an overly complex concept, can be a misleading term. It is both

politically charged and subject to different cultural interpretations. For example, in the United

States privatization refers to the contracting of government service to private contractors

(Lopez-de-Silanes et al., 1997), while in most of the rest of the world it refers to a process of

transitioning individual firms, industries, or even entire economies from a system of state

control to one of private ownership (Megginson and Netter, 2000). This more international

definition is the one with which privatization is referenced in this paper.

3.1.1 Privatization Theory History

Privatization theory stems from the economic programs implemented by British Prime

Minister Margaret Thatcher in the 1980s which led to the divestment of a high volume of

British SOMs (State Owned Enterprises) to the private (Megginson and Netter, 2000).

Privatization was marketed by its proponents as a way to both raise revenue for the state and

improve efficiency across the economy by reducing government interference in firm activity,

introducing greater competition, and subjecting SOEs to market discipline (Megginson and

Netter, 2000). In some ways, privatization was simply a reversal back to the system of broad

private ownership of the means of production and distribution of goods and services that had

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existed before the twentieth century. The Industrial Revolution had spread this system

throughout Western nations and their colonial empires during the nineteenth century

(Megginson and Netter, 2000). Tumultuous events of the twentieth century including The

Great Depression, the World Wars, the collapse of colonial empires, and the spread of

Communism all shook global society and saw many states take a much more active role in

managing their economies (Megginson and Netter, 2000).

This shift towards broad “nationalization” of economies had become so entrenched by the

1980s that many, including economists, were skeptical of privatization when Thatcher first

proposed it to the British public (Megginson and Netter, 2000). Despite this initial doubt, by

the early 1990s privatization had spread from Britain and been embraced not only in Western

Europe but also by developing economies in Latin America, Asia, Africa and in the countries

of the former Soviet bloc (Megginson and Netter, 2000). As the effects of this political and

economic trend began to be studied differing views arose on the matter. Some economists

supported the argument that privatization improved efficiency while others contended that

cases studies contained methodological flaws such as a lack of data reliability and

consistency or selection bias that were leading to invalid conclusions (Megginson and Netter,

2000). While the privatization phenomenon has slowed down in recent years, and

dissatisfaction with capitalism in general has increased due to global economic downturn,

privatization is still widely viewed as being beneficial for economic development

(Megginson and Netter, 2000).

3.1.2 Privatization Theory Summary

Theoretically, privatization is rooted in basic capitalist economic and political thought in

which it is implicitly assumed that the only role the state should play in the economy should

be to promote efficiency (Megginson and Netter, 2000). These theories, stemming from

fundamental welfare economics, also hold “under strong assumptions” that private ownership

of the means of production and distribution of goods and services creates both a competitive

equilibrium and maximizes efficiency, and that government intervention should only be

sought in the case of market failure (Megginson and Netter, 2000). This theory can be

applied throughout most fields of business.

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For example, an accountant or financier may argue that a lack of general financial discipline

in SOE management is due to the fact that they are not subjected to capital market stresses

and have relatively “soft” budget constraints due to state funding, leading to less

parsimonious management of funds than would be the case in a private firm (Meggginson

and Netter, 2000). If one were to talk to a manufacturer or distributor they might argue that

privatization boosts productive efficiency, something that naturally evolves from competition

in a private setting (Megginson and Netter, 2000). A report on the effect of privatization on

marketing in Poland demonstrated that marketing capabilities were enhanced and became

more pro-active, with specific results including the adoption of longer term priorities,

increased emphasis on delivering superior quality to customers, and improved development

of new products (Shipley et. al., 1998).

States can benefit directly from privatization as well. An article from the National Center for

Policy Analysis states that, “Shifting some or all aspects of government service delivery to

private sector provision is a strategy to lower the costs of government and achieve higher

performance and better outcomes for tax dollars spent” (Leonard Gilroy & Adrian Moore,

2013, p. 1). Also the Ochieng & Ahmed (2014) study demonstrates that privatization not only

fiscally benefits the privatized firm but also the state in some instances where government

subsidies to industries or firms are scaled back as a result of privatization. “Privatization

reduced subsidies to Kenya Airways which led to increase in government income especially

when taxes paid exceeded the sums previously as the government profits when it was a

public utility” (Ochieng & Ahmed, 2014 p. 9). In summary, privatization theory basically

holds that private ownership and operation of a firm is almost always preferable to state

ownership and operation due to the increased economic efficiency brought on by the

mechanism of the free market. Therefore, the divestment of SOEs is fiscally beneficial to

states in the short-term, with greater efficiency developing throughout an economy overtime

in the long-term.

3.1.3 Exceptions to Privatization Theory

There are exceptions to privatization theory in certain instances where the theoretical

assumptions behind it are not met in reality. These exceptions have been noted by academics

16    

and privatization proponents themselves as Megginson and Netter (2000) note. The

exceptions include:

1. Externalities- A text book definition is any cost or benefit incurred by an outside

party to some economic activity, with it being implicit that said party did not not

choose to incur this cost or benefit (Buchanan and Stubblebine, 1962). Negative

examples of this include pollution or, in the context of this paper, societal problems

related to alcohol consumption.

2. Public Goods- Megginson and Netter (2000) explain that states feel the need to

provide public goods, such as national defense, state education, or dissemination of

information deemed important for public knowledge. This tendency is demonstrated

by the Swedish government in its health care system’s support of Systembolaget

(Systembolaget, 2010).

3. Monopolist Market Structure- With the common view being that private

monopolies are the only thing less desirable than a state monopoly, the theoretical

benefits of privatization do not hold in the context of a market that is monopolistic in

structure, such as a utility (Megginson and Netter, 2000).

4. High Information Costs- As with most financial activity, privatization is only

desirable in scenarios with low information costs (Megginson and Netter, 2000),

these being defined as any costs incurred in the process of analyzing the merit capital

investment.

These exceptions are highly relevant to our scenario of a hypothetical Systembolaget

privatization, especially number one, as the need to educate the public on the dangers of high

alcohol consumption and to ultimately minimize irresponsible consumption of alcohol are the

main arguments made for the existence of a Swedish alcohol retail monopoly.

17    

3.2 Temperance Cultures and State Alcohol Policy

The term “temperance cultures” refers to a collection of countries with either Nordic or

English-speaking backgrounds that range geographically across Europe, North America, and

Oceania, which in the nineteenth and early twentieth centuries experienced large-scale and

long-term temperance movements to control and lower societal consumption of alcohol

(Levine, 1993, p 2). The individual countries are depicted in Figure 4 below.

Figure 4: The Temperance Countries’

(Levine, 1993)

As a geo-cultural term temperance culture is meant to differentiate from other Western

nations (i.e. Belgium or Italy) where alcohol consumption is an important part of culture but

where the historical trend of influential temperance movements was not experienced (Levine,

1993). Two other important denominators of temperance cultures noted by Levine are that

all societies exhibited high proportions of their total alcohol consumption being in distilled

18    

liquors (i.e. whiskey, gin, vodka) as well as containing predominantly Protestant populations.

It is interesting to note that the first recorded instance of significant Swedish regulation of

alcohol was over distilled liquor when it was discovered in the fifteenth century

(Systembolaget, 2010). However, Levine contends that it was the impact that Protestantism

had on these cultures and the individuals embedded within them, and not a preference for

distilled liquor, that was the major factor in; the development of temperance cultures.

3.2.1 Development of Temperance Culture Theories on Alcohol Consumption

The argument that Protestant cultural pressure was the driving factor in the formation of

temperance cultures is a persuasive one for two reasons. Firstly, while some temperance

movements did develop in non-Protestant societies, they either did not last or had little effect

(Levine, 1993). Secondly, a major characteristic of these Protestant temperance cultures was

and is a strong ideological commitment to capitalism, a system that is not generally in favor

of state monopolies on any sort of retail (Levine, 1993). This highlights how serious a

problem alcohol consumption was viewed as, so much so that it compelled these states to act

against their economic and political nature in restricting markets. Furthermore, this view can

not be explained only by the “disruption hypothesis” (Levine, 1993, p. 7).

The disruption hypothesis, as Levine (1993) explains, basically states that temperance

movements and culture sprang up as a reaction to drinking preferences and habits (favoring

more potent hard-liquor and binge drinking culture) that caused major social disruption, or, in

terms of this paper, unacceptable levels of negative externalities. Levine goes on to dispute

this hypothesis arguing for one that temperance activity was not significant in other countries

that experienced social disruption from proportionally high consumption of hard liquor (i.e.

Russia or Poland), and that it ignores the relation of the temperance movements to other

progressive movements gaining traction in the Western world at the time (Levine, 1993).

These movements (i.e. prison reform, children’s welfare, sexual liberalization) were focused

on raising the standard of living and protecting groups such as women, children, and other

marginalized demographics. This sentiment is echoed in modern alcohol policy by the

concept of “vulnerable groups”, of which youth are an often discussed section, a term used

by both Holder et al. (2008) and European Commission in their 2006 report for the WHO.

19    

The second argument Levine makes involves the case of Denmark, a Nordic country which

met both the criteria of being dominantly Protestant and favoring distilled-liquor but did not

experience a significant temperance movement. Levine cites (Eriksen, 2009) who further

reveals that it was a specific branch of the religion that gave rise to temperance. This “Anglo-

American revivalist” sect found was comprised of the same American and British Protestant

organizations that were linked to both their native temperance movements and their Nordic

counterparts, including in Sweden. Eventually temperance and the greater body of theory on

alcohol consumption would move from the sphere of religion to the social sciences, and are

today championed in temperance countries largely by academics and now secularized

organizations such as Alcoholics Anonymous (Levine, 1993). Eriksen and Levine strongly

link this development of cultural, political, and economic theories on alcohol in Sweden and

the Nordic countries to their parallel development in North America.

3.2.2 Contemporary Alcohol Retail Models in Temperance Countries

The general consensus in North America and Scandinavia, and most other places, is that

alcohol causes problems, and that regulating the retail of alcohol is the best way to minimize

the consequences. To this end two models have been devised. One is of course the model of

an SOM, exemplified by Systembolaget and its other Nordic counterparts. However,

examples also exist in the United States and all the provinces of Canada with the exception of

Alberta. The second model is that of the private retail system.

As mentioned earlier, alcohol retail SOMs are most prominent in the Nordic countries,

though they are also the norm in Canada and are the mode of retail in a minority of US States

(Campanella and Flanagan, 2012; Cisneros Örnberg and Ólafsdóttir, 2008). North American

and Nordic alcohol retail SOMs share common strategic and political orientations in that they

are operated with the goal of addressing social welfare and public health concerns and not

profit maximization (Room, 2001). The concept of a retail monopoly on alcohol was the first

“self-conscious” form of alcohol market control to be proposed, in that it arose from a public

discourse on controlling alcohol to promote public order and health, and was not imposed

from above by a monarchy (Room, 1991). The generally given reason for the SOM alcohol

retail model is that it reduces alcohol-related problems better than private alcohol retail

models because regulations such as age restrictions and tax compliance are more easily and

20    

effectively enforced by an SOM than by profit-motivated entities in a privatized model

(Holder et al., 2008; Room, 1991; European Commission, 2006).

3.2.2.1 Nordic Models

Although temperance culture was spread from English-speaking nations to Scandinavia, it

was in Sweden in 1859 that the first modern alcohol retail SOM was proposed in the

“Gothenburg System” (Robin, 1991). From here it spread to both the English-speaking world

and the other Nordic states all of which, besides Denmark apart from the Faroe Islands,

currently maintain SOMs on alcohol retail (Levine, 1993). These monopolies evolved over

the twentieth century from localized monopolies to national ones (Cisneros Örnberg and

Ólafsdóttir, 2008), with Systembolaget being formed while the post-World War II

nationalization trend was in full swing (Megginson and Netter, 2000). The individual national

models of the Nordic retail SOMs function in essentially identical ways, with Sweden and

Norway’s being noticeably similar (Cisneros Örnberg and Ólafsdóttir, 2008). As described in

the introduction, in recent years the Nordic countries have attempted some degree of alcohol

tax harmonization to bring about comparable alcohol prices and have also worked towards

creating a unified Nordic alcohol policy within the EU.

3.2.2.2 North American Models

The United States and Canada, unlike the Nordic countries with the single standout of

Denmark, have for some time decentralized alcohol retail policy within their respective

federal frameworks. In the United States alcohol retail model is decided on a state by state

basis, while in Canada it is left to the provinces. Both countries have examples of both types

of alcohol retail models.

3.2.2.2.1 North American Retail SOMs

In the United States, adopting an SOM model for alcohol retail was seen as an alternative to

the failed policy of prohibition (Room, 1991). When alcohol retail was re-legalized 18 US

states opted to adopt the SOM model in lieu of a private one and became known as “control”

states (NABCA, 2014). Today the term control state no longer implies that the state

21    

represents a true SOM model, as all but 3 of the original 18 have privatized some or all

aspects of alcohol retail (Gilroy, 2011). An obvious difference found between American and

Nordic SOM models are jurisdictional scale, with the American monopolies in individual

states being reminiscent of the prototype local and regional Nordic SOMs, though in terms of

relative scale many of the control states and their respective SOMs are comparable to their

Nordic counterparts. Another major difference is that the American SOMs have historically

faced greater pressure to compete with private retail systems in neighboring states, resulting

in greater pressure to privatize themselves (Robin, 1991). It is in this context that American

SOMs have seen a transition from control mentalities to marketing mentalities, with resulting

“enormous profitability” being their main political capital, as opposed to the public health

arguments of Nordic monopolies (Robin, 1991).

The Canadian SOM model is more akin to the Nordic one as it was formerly a nationwide

policy, albeit operated in separate entities at the provincial level, although like its

counterparts in the United States it’s existence was the result of a failed experience with total

prohibition (Campanella and Flanagan, 2012). That is generally where the similarities

between the Canadian and American SOM models end as Campanella and Flanagan (2012)

explain that, “In Canada, liquor prices are too low to allow governments to recoup all of the

costs related to the public health and social consequences of alcohol consumption” (p. 5).

Essentially, as they incur net losses to provincial budgets due to low prices, Canadian SOMs

are wholly reliant on public health and order arguments and are also mostly reliant on

measures to limit the physical availability of alcohol.

3.2.2.2.2 Private North American Alcohol Retail Models

While 18 states chose to adopt SOM models for alcohol retail when prohibition was repealed,

it is perhaps unsurprising that in a country with an economic attitude as notoriously laissez-

faire as the United States the vast majority of states opted for the alternative of private retail,

with Alaska and Hawaii also taking this route upon their respective entrances into the Union

a few decades later (NABCA, 2014; Gilroy, 2012). While a private retail model is the norm

in the United States, the specific variations on this trend are many. As mentioned before

some states, including some “control states”, have fully privatized retail, with state control

only being exercised in the form of regulatory laws (Gilroy, 2012). Certain non-SOM model

22    

“control states” operate through contract systems, ostensibly controlled by the state but with

management contracted to private individuals, that function essentially as private firms

motivated by competition and profit-maximization (Gilroy, 2011). Models also exist that

have been partially privatized by type of beverage, generally with the state maintaining a

monopoly on the retail of spirits but permitting private sales of beer and wine, sometimes in

conjunction with a contract system (Gilroy, 2011).

The private alcohol retail model, also known as the “license” model, is typified by the control

of alcohol retail outlets by private owners or state-licensed private agents who behave in

essentially the same way (European Commission, 2006; Cook, 2014). The obvious practical

difference between this model and the SOM model is that private alcohol retailers operate

according to fundamental capitalist economics of profit maximization. In terms of

philosophical differences, the private model is implemented when the state, voters, and

consumers reach consensus that alcohol consumption can be controlled at least equally as

well by regulation as by monopoly. It should also be noted that private models also include

partially privatized models, a concept that will be expounded upon in more depth in the

following subsections.

Governments allowing private retail of alcohol use taxes to regulate prices just as

governments maintaining an SOM model do (European Commission, 2006). All US states

are authorized to set their own excise taxes on alcohol sales, as well as decide if general state

sales tax applies to alcohol (Tax Admin, 2014). Controls on physical availability vis-a-vis

number of outlets and outlet density are determined by regulatory laws, also differing in each

state (Gilroy, 2011). Essentially since the repeal of prohibition the United States theory on

alcohol retail models, and alcohol policy in general, has been one of decentralization, with

each state being left to assess its own alcohol situation and decide on policy accordingly. The

only universal aspect of alcohol retail models in the 50 states is that the legal age to be

eligible to purchase alcohol is 21 years in all states.

23    

3.2.2.2.3 The Special Cases of Maryland and Alberta

Maryland, located on the northeastern seaboard of the United States, is worth mentioning

because it features a unique form of partial privatization. This form will be defined here as

geographical privatization. It is denoted as such because, although Maryland is technically a

license state permitting private sales of all types of alcohol by authorized vendors, three

counties maintain localized SOMs on retail of all types of alcohol within their county borders

(American Medical Association, 2004). This demonstrates another variation of partial

privatization which can implemented to maintain a degree of control, in this instance

delineated geographically, on the alcohol market.

Alberta, the only Canadian province to date to have privatized its alcohol retail monopoly,

provides a reverse example of geographical privatization. In 1991 the Liquor Control

Amendment Act was passed in Alberta granting new liquor administration regulation with it,

this paved the way for full privatization two years later (AGLC, 1994). All assets of the

Alberta SOM were sold, many being reopened as private liquor stores, and new laws

established a license system along the lines of American versions (AGLC, 1994). In some

ways it is like the opposite of the example set by the three Maryland counties, in that it is a

holdout of private retail otherwise surrounded by SOM retail models.

3.3 The Alcohol Retail Privatization Debate

In its contemporary context privatization of alcohol retail arose as an issue of public debate in

Canada and the Nordic region, countries strongly aligned to SOM retail of alcohol, in the

1990s before fading in importance, at least in the Nordic countries, over the following years

(Cisneros Örnberg and Ólafsdóttir, 2008; Campanella and Flanagan, 2012). In the United

States the debate has existed at the level of state politics since the repeal of Prohibition but

since 2009 has increasingly come to the forefront of discourse in some states due to the

perceived economic benefits privatization could have during a time of downturn in the

aftermath of the financial crisis (Gilroy, 2011). Essentially the debate is between proponents

of these economic benefits, and detractors who cite the negative consequences for health and

public order (Campanella and Flanagan, 2012).

24    

The economic arguments for alcohol retail privatization include lowering prices for

consumers, increasing tax revenue on alcohol sales, raising employment by creating more

jobs in the alcohol industry, and improving efficiency in the market by lowering government

interference (European Commission, 2006; Campanella and Flanagan, 2012; Gilroy, 2011).

While the data on many of these arguments is inconclusive, the rationale for maintaining

SOMs on alcohol retail has never been an economic one, just as the rationale for their

privatization has generally never been that it will improve public health or order. Therefore,

the debate over alcohol retail privatization necessitates a cost-benefit analysis in regards to

whether or not the economic merits of a private system outweigh the social merits of a public

one within a determined context.

3.4 Alcohol Policy in Implementation

The main reason for any government of any scale to regulate alcohol markets stems from a

desire to control overall consumption and minimize these consequences, which include

negative externalities (Holder et al., 2008; Campanella and Flanagan, 2012). The

management of externalities has been well noted as an exception to private markets theory

(Megginson and Netter, 2000). However, this section demonstrates that states generally have

the same set of alcohol control policy methods at their disposal regardless of whether they

preside over a monopolistic or private market.

Figure 5 demonstrates that it is the interaction between the total volume of alcohol consumed

by a population and the patterns of drinking present in that population that determines the

nature and frequency of alcohol-related health and social problems. Therefore government

policies that seek to curb negative externalities and consequences for alcohol consumers must

address both of these factors.

25    

Figure 5: The Relationship Between Alcohol Consumption and Alcohol Issues

(Rehm et al., 2004)

While applicable in most conceivable alcohol market settings, the alcohol policy methods

discussed in this section are generally those that have evolved in a Western geo-cultural

context as European Commission (2006) note that most of the studies that form the body of

alcohol policy theory have been conducted within North American, European, or Oceanic

contexts. They name five types of alcohol policies that governments can implement:

Alcohol Policy Methods

1. Policies that reduce drinking and driving

2. Policies that support education, communication, training and public awareness

3. Policies that regulate the alcohol market

4. Policies that support the reduction of harm in drinking and surrounding

environments

5. Policies that support interventions for individuals

(European Commission, 2006, p. 240)

26    

As the subject of this paper is Systembolaget and other alcohol retail SOMs, which are

technically only examples of the third policy type enumerated by European Commission

(2006), the regulation of alcohol markets, this is the type of alcohol policy methods that is

focused on in this section. While the wider mission of Systembolaget encompasses the first

and fourth policy types in an indirect manner as it seeks to keep alcohol consumption levels

down, and drinking behavior appropriate, it does so only peripherally and therefore a more

detailed examination of these methods is beyond the scope of this paper.

Policies that regulate the alcohol market include those that regulate the price of alcohol

(defined here as price availability), the location, density, and opening hours of sales outlets

(defined here as physical availability), and those that regulate the promotion and advertising

of alcoholic beverages (European Commission, 2006). The authors cite a study in which

these policies have been found to have a significant impact on reducing negative externalities

related to drunk driving (Grube and Stewart, 2004). They also argue that there is “very strong

evidence for the effectiveness of policies that regulate the alcohol market in reducing the

harm done by alcohol” (2004, p. 7). This section will detail theories on reducing harm from

alcohol through regulating availability and promotion.

3.4.1 Measures for Regulating Availability Measures of Alcohol

When discussing market goods, availability is a very broad term. In this paper we break

down the availability of alcohol as a good in terms of price and in a physical sense. States

seeking to lower total consumption of alcohol and instill responsible drinking habits in their

citizens must regulate the availability of alcoholic beverages in both these senses. This

subsection breaks down these two main approaches to regulating an alcohol market, both of

which are necessary to lower the total volume of alcohol consumed by a population and to

hopefully instill responsible patterns of drinking within a population.

3.4.2 Physical Alcohol Availability Regulation

As mentioned earlier, physical availability of a good is defined within this paper as the ability

of the customer to encounter and acquire that good in the physical marketplace and. In terms

27    

of an alcohol market, European Commission (2006) state that physical availability of

beverages is determined by factors such as outlet density (number of stores), the business

hours of those stores, the product range of beverages carried at these stores, and eligibility

restrictions on the purchase and sale of alcoholic beverages. Regulation of physical

availability is carried out in both private and SOM alcohol retail systems.

Under a monopoly system like Systembolaget, the state obviously exercises total control over

factors of physical availability as it maintains ownership and management of all retail outlets,

allowing it to control the number of outlets and all their retail activities more or less directly.

In a privatized alcohol retail setting, the state can still set policy controls over physical

availability through licensing, in which authorization from some local or central state

administration in the form of a license is needed for private citizens to be eligible to sell

alcohol for consumption either on or off of the premises of sale (European Commission,

2006). Licensing systems are useful for regulation of private alcohol retail markets as they

allow states to maintain controls on outlet density and other availability standards such as age

limits or business hours (Lehto, 1995).

In 2003 the Oxford Medical Publication presented a publication, Alcohol: No Ordinary

Commodity (Babor et al., 2003), which analyzed the effectiveness of different policies for

regulating the physical availability of alcohol. They concluded that minimum drinking age

laws and maintaining a SOM on alcohol retail outlets were the most effective policies for

reducing the physical availability of alcohol, with regulating outlet density and business

hours of outlets being somewhat less effective policies. This conclusion is also supported by

the WHO, as depicted in Figure 7 below. This is unsurprising as a state will inherently have

greater control of physical availability if it directly operates all alcohol retail outlets and

manages their day-to-day activity through a monopoly instead of trying to maintain an

indirect control by regulating the activity of privately licensed owners.

28    

FIGURE 6 WHO Ranking of Alcohol Policy Effectiveness

(Campanella and Flanagan, 2012, p. 18)

3.4.3 Alcohol Price Availability Regulation

Of all potential alcohol policies the most studied has been the impact of changes in price

availability on consumption levels (European Commission, 2006). The report for the

European Commission cites several studies as demonstrating that “price-elasticities for

alcoholic beverages estimated in different studies have shown that when other factors remain

unchanged, an increase in price has generally led to a decrease in alcohol consumption, and

that a decrease in price has usually led to an increase in alcohol consumption, with the size of

the elasticities sometimes dependent on the relative presence or absence of other alcohol

policy measures” (p. 259). Besides the effects of other policy measures, the report found that

alcohol-price elasticity was also influenced by national context, with certain types of

beverages having differing elasticities from country to country. It also concluded that, “The

price elasticities indicate that demand for alcoholic beverages is more easily controllable by

excise taxes in the northern European countries than elsewhere” (p. 260).

29    

American studies have also concluded that a majority of research supports the thesis that

increasing alcohol prices by increasing excise taxes can effectively reduce total alcohol

consumption and therefore reduce alcohol consumption-related harms and negative

externalities, and that taxes on specific types of beverages can impact consumption

reductions in targeted groups such as teenagers and young adults (Chaloupka, Grossman, and

Saffer, 2002). It is interesting to note that, although alcohol retail SOMs like Systembolaget

control pricing of all significant alcoholic beverages, the Nordic countries choose to utilize

excise taxes to set prices high as is done in the United States, rather than raising them

artificially through their monopoly leverage (European Commission, 2006). This is likely due

to Systembolaget and other Nordic alcohol monopolies obligation to their respective publics

and to the European Union to be non-profit motivated and non-discriminatory towards

products.

3.4.4 Alcohol Advertising and Promotion Regulation Policies

A number of studies dealing with the effect of advertising and if it has a direct correlation to

consumption of alcohol will be discussed in the upcoming section. In 2012 Spirits Europe

(2014) produced an article on alcohol advertising and consumption. They make the point

that “alcohol advertising does not create the desire to consume, therefore banning advertising

will not significantly reduce consumption, and alcohol related harm will not automatically

decline” (Alcohol Advertising and Consumption, 2012, p. 1).

Anderson et al (2009) reviewed 13 studies (two of which were European), and found that

twelve of the thirteen studies concluded an impact of exposure on subsequent alcohol use,

including initiation of drinking and heavier drinking amongst existing drinkers. Smith and

Foxcroft (2009) reviewed a quasi-similar body of literature and observed that ‘the effect of

alcohol portrayals and advertising on the drinking behaviour of young people is a matter of

much debate’. This review shows a modest relationship between exposure to marketing and

drinking among young people, with the the strength of the association varying between

individual studies. This study concludes with a question: ‘Does this systematic review

provide evidence that limiting alcohol advertising will have an impact on alcohol

consumption amongst young people? Not directly:..we cannot rule out that the effects

30    

demonstrated in these studies are due to residual confounding’ (Alcohol Advertising and

Consumption, 2012, p. 3 ).

Lastly in Nelson’s (2010) study, which reviewed a body of literature very similar to the two

previous studies mentioned, he concludes that a ‘brief review demonstrates that the evidence

on alcohol advertising and youth is mixed, contradictory and inconclusive (Nelson, 2010). He

also states, “Although studies present a conflicting set of results they are cited in an uncritical

manner” (p.3). In a 2010 comprehensive review of all the literature – not only the

longitudinal ones – Nelson finds that there is evidence of a “selection bias in the

interpretation and use of results by researchers and health policy interest groups... Most

research claiming to evidence a causal link indeed rely on a “cherry picking” selection of

literature – often excluding “neutral” or negative studies – the ones which do not find

evidence” (p. 3). A main conclusion of Nelson’s (2010) meta-analysis is that ‘the effect of

alcohol marketing on adolescent drinking is modest, but the evidence indicates that it may

not exist at all for mass media and other exposures.

In all, these studies show that the balance of evidence does not support a direct link between

alcohol advertising and young people’s drinking levels. Additionally a study done by

Donovan (2004) though shows that the principal influences on youth drinking are mostly

from parents and peers. Even so, the EU has actually set up legislative framework that lays

down a series of provisions to protect children and young people from exposure to alcohol

advertising (Alcohol Advertising and Consumption, 2012).

The EU Audiovisual Media Services Directive prohibits advertising for alcoholic beverages

aimed “specifically at minors”, and the 2001 Council recommendation prohibits references to

youth culture and ads featuring children or underage people (Alcohol Advertising and

Consumption, 2012). In addition to this legal framework, advertisers have voluntarily agreed

to a number of detailed rules specifically for minors, including on the content of their

advertising, and the media used for commercial communication. Alcohol advertisers have

committed not to advertise in media “of particular appeal” to underage audience (Alcohol

Advertising and Consumption, 2012). This means that any media with more than 30% share

of underage audience does not contain alcohol advertising.

31    

An international study conducted on whether alcohol advertising broadcast bans were

effective (Letho, 1995) analysed the effects of advertising bans in 17 Organisation for

Economic Co-operation and Development (OECD) countries between 1977 and 1995.

Results indicate that advertising bans have not led to the decrease of alcohol consumption or

alcohol abuse. There have also been studies of the effects of alcohol advertising bans that

have been conducted in Canada, where some provinces have outlawed alcohol advertising

and subsequently lifted them. For example in Manitoba, a 7-year long beer advertising ban

did not reduce beer sales but on the contrary they increased (Malkowsky et al., 1991).

32    

4 Empirical Framework

This chapter presents the data collected during the empirical phase of the research process of

this paper. The opening section presents empirical data gathered from the selected cases of

alcohol retail SOM privatizations in Alberta, West Virginia, and Washington followed by

data of Systembolaget in Sweden. The chapter concludes with a section dedicated to the two

qualitative e-mail interviews that were conducted with a respective representative of

Systembolaget and the Moderate Party, the only mainstream political group in Sweden to

have voiced support for a privatization of Systembolaget.

4.1 Empirical Cases of Alcohol Retail SOM Privatizations

The data is presented case by case in this order: Alberta, Canada; West Virginia, United

States; and Washington, United States. The cases were carefully selected to meet the criteria

of a temperance culture context and also provide empirics on both short- and long-term

outcomes of alcohol retail privatization. This section is followed by a section dealing with

empirical data on academic estimates of changes in health/social variable values and the

online presence post-privatization for Systembolaget in Sweden.

4.1.1 Alberta Privatization

Until 1993 Alberta, like the rest of Canada, maintained a SOM over alcohol retail throughout

the province. The Alberta Liquor Control Board controlled 208 stores, with another 530

Hotel off-sales, and 65 additional private retailers for a total of 803 total liquor retailers in the

Alberta area, which in total carried 2,200 products that were made available to the public

(AGLC, 2014). Privatization led to gradual market growth; compared to a provincial grand

total of 803 alcohol retail outlets in 1993, by 2013 there were 1,333 privately licensed retail

liquor stores alone (AGLC, 2014). Furthermore, Alberta’s store hours are now quite long,

being allowed to remain open from 10:00am till 2:00am on Monday through Saturday and

are also open on Sundays. In total, Alberta has 112 hours per week of alcohol availability

(Campanella and Flanagan, 2012).

33    

Despite this the privatization of the Alberta alcohol retail SOM was carried out with

conscientious effort made towards maintaining a healthy drinking culture, as their official

strategy highlighted, Six priorities are identified for the Alberta Alcohol Strategy they are as

follows:

1. Promote healthy perceptions, attitudes and behavior toward alcohol use.

2. Ensure social responsibility in the production, distribution, regulation

and service of beverage alcohol.

3. Foster the development of context-specific alcohol policies.

4. Enhance the province wide continuum of alcohol treatment services.

5. Expand harm reduction programs for alcohol.

6. Support enforcement efforts to reduce alcohol-related crime.

(Alberta Alcohol Strategy, 2008)

With the following goals in mind for Alberta’s alcohol safety: reducing intoxication, heavy

drinking and other risky patterns of alcohol consumption, improving community safety by

reducing alcohol-related harm, and increasing public awareness of the risks associated with

alcohol consumption, they created two special training programs to better train bartenders

and security staff at bars (AGLC, 2014). Alberta also created a comprehensive licence system

to enforce these alcohol strategy priorities (AGLC, 2014).

4.1.1.1 Alberta Economic Data

When Alberta privatized “the large expansion of retail outlets raised the costs of product

distribution, marketing and retailing and to the surprise of the Albertan government, and

Albertan consumers, prices increased. The ensuing negative consumer reaction required

Alberta to reduce alcohol taxes on three occasions following privatization in an ultimately

unsuccessful attempt to stabilize prices” (Flanagan, 2014, p. 2). Going into greater detail

Flanagan found that Alberta retail liquor prices were up 8.5% (1993-1996), while wholesale

prices dropped 3.4% (Fraser Institute, 2003).

A comparison of Alberta with its close neighbor Saskatchewan (which maintains an alcohol

monopoly), shows that prices at Albertan private retailers are 18% higher than Saskatchewan

34    

government prices (Boyd, 2011). Since 1993, retail alcohol prices in Alberta have increased

by a whopping 67% (Flanagan, 2014). Flanagan also concluded that a move to a more costly

and less efficient deregulated liquor sales system will result in higher, not lower, consumer

prices unless significant tax reductions occur to compensate for increased retail and

distribution costs. This can be further explained as a result of a recent provincial government

tax hike, and rising warehouse and distribution costs (SGEU, 2013).

Some of Flanagan’s findings have been disputed. According to Mark Milke of the Fraser

Institute said that, “Alberta’s privatization model has its critics. The self-labelled Consumers

Association once claimed Alberta’s prices were mostly higher than British Columbia. One

University think tank claimed the Alberta government lost $1.5 billion in revenue since

privatization..Both claims are incorrect..The Consumers’ study used median prices (not the

lowest prices available in Alberta) and surveyed just 53 products. Also, the group ignored

one of the cheapest sources of beer wine and spirits in Alberta: the Real Canadian

Liquorstore chain (a division of the Superstore/Loblaws group)” (Milke, 2013, p. 1).

With this, it is also important to note that with the privatization of alcohol in Alberta that

employment increased. Employment increased in retail stores from around 1,300 to 4,000

(Dick, 2013). As for the satisfaction of this privatized alcohol market, 82% of Albertans are

satisfied with the conducts of Alberta’s liquor business (AGLC, 2014). Alberta made $729

million dollars in tax revenue from alcohol in 2013 compared to $404.8 million in 1993

(AGLC, 2014).

4.1.1.2 Alberta Health and Social Data

According to some studies privatization of Alberta’s retail system was associated with an

increase in spirits consumption (Trolldal, 2005), with suicide (Zalcman & Mann, 2007),

criminal activity such as break-ins (Laxer et al., 1994), but not with alcohol-related traffic

crashes or fatalities (Trolldal, 2005). Data recovered from cases examined by the Alberta

Alcohol Strategy (2008, pp. 11-12), it is said, “based on annual sales data, trends since the

early 1990s indicate that Albertans continue to drink more per capita and spend more on

alcohol than the national average” (Statistics Canada, 2006). The spousal homicide rate in

Alberta is considerably higher than the national rate, and in the years directly following

35    

privatization the majority of cases of spousal homicide involved consumption of alcohol or

other drugs at the time of the incident, also this rate decreased over time (Statistics Canada,

2006).

Figure 7: Percentage of Spousal Homicides Involving Drug/Alcohol Consumption as a

Contributing Factor

(Statistic Canada, 2006)

Dick (2013) showed a different view on the effects of privatization in Alberta. Citing a 2009

Frontier Centre study he found that Saskatchewan, a province with a plethora of government

run liquor stores and comparatively low overall sales and alcohol consumption rates, still

showed the highest, second highest, or third-highest rates of alcohol-related harm with

respect to friendships, marriage, work, studies, employment, finances, legal problems and

physical violence.

36    

4.1.2 West Virginia Privatization

Sales of alcohol at both the wholesale and retail level were under the control of the state in

West Virginia until the early 1990s. Some control was maintained through the ABC (Alcohol

Beverage Control) stores until they fully privatized (West Virginia Budget Division, 2011).

Privatization legislation included the creation of the Retail Liquor Licensing Board (RLLB)

to establish market zones and manage bids for retail liquor outlets throughout West Virginia

(West Virginia Alcohol Beverage Control Administration, 2013). During the fiscal year of

1991 public bids were held at auction resulting in the sale of retail liquor stores licenses in

many places throughout the state, the result being possible market growth of up to 214

privately owned liquor stores, with 178 privately owned liquor stores now operating in West

Virginia 22 years later. (West Virginia Alcohol Beverage Control Administration, 2013).

Like Alberta, West Virginia privatized through creation of a license system. In 2012, the

Class A retail license was passed to conduct responsible nonintoxicating beer and liquor

sampling events with certain requirements on any day but Sunday (West Virginia Alcohol

Beverage Control Administration, 2012). The Class B license created in the same year

allowed wine sales at professional baseball stadiums (West Virginia Alcohol Beverage

Control Administration, 2012).

4.1.2.1 West Virginia Economic Data

Since 1977 there has been a slow and steady increase of the alcohol tax revenue that West

Virginia accrued as seen in the table below (Tax Policy Center, 2013).

37    

Figure 8: Alcohol Tax Revenue

(Tax Policy Center, 2013)

4.1.2.2 West Virginia Health and Social Data

The figure below demonstrates data obtained from Alcohol Alert (2014), showing traffic

fatality statistics from West Virginia between 1982 and 2011, also detailing which cases

involved alcohol consumption, and which involved DUI consumption (i.e. involving alcohol

consumption over the legal blood alcohol content level of 0.08%). It shows a downward trend

in the number of traffic fatalities involving alcohol.

38    

Figure 9: DUI Fatalities

(Alcohol Alert, 2014)

4.1.3 Washington Privatization

In November 2010 two initiatives were proposed in Washington state that would have

privatized the sale and distribution of alcohol were rejected by Washington voters. However,

39    

a year later in November 2011 voters approved an initiative which would cease state liquor

distribution operations by June in 2012 (Washington State Liquor Control Board, 2011).

With privatization, the state believed 1,500 retail licenses would be a reasonable

accommodation of consumer convenience (Gilroy, 2012). Since its recent privatization

alcohol stores have grown from 329 state run stores to 1,400 private retailers in just about a

years time (The Columbian, 2013). “There are now 10 times as many retailers selling spirits,

including national retailers like BevMo and Total Wine — increasing selection for not just

liquor drinkers, but beer and wine as well” (Minton, 2013, p. 1). Keeping in mind that

Washington’s privatization was very recent the data presented in this section still shown

discernable short-term trends.

4.1.3.1 Washington Economic Data

About $392 million dollars in tax revenue was collected by Washington in fiscal 2013, up

from $309 million in fiscal 2011, and the total is estimated to reach $425 million before the

end of fiscal year 2014 (The Columbian, 2013). According to Flanagan (2014) when

Washington privatized its retail prices rose in similar fashion to what occurred in Alberta.

The prices raised so much that many people went to Oregon (a close neighbor outside of

Washington) to buy their alcohol and sales in Oregon increased by 30%-35% (Flanagan,

2014). According to Keystone Politics (2013) prices in Washington increased because of

new taxes, not privatization. With intention to raise state revenue, the ballot measure created

a new 17% retail license fee for all spirit sales revenue with an annual retail license renewal

fee of $166, plus a new distributor license fee of 10% of yearly revenue (which would drop

after three years) with a yearly renewal fee of $1,320 per distributor license. If these taxes

and fees do not generate enough revenue for the government in 2013, distributors would have

to pay another one-time fee (Keystone Politics, 2013).

4.1.3.2 Washington Health

Figure 11 demonstrates data obtained from Alcohol Alert (2014) that shows traffic fatality

statistics involving alcohol from Washington between 1982 and 2011. The figure shows a

40    

downward trend in the number of traffic fatalities involving alcohol similar to the one seen in

West Virginia.

Figure 10: Alcohol-Related Traffic Fatalities in Washington by Year

(Alcohol Alert, 2014)

41    

The most recent drunk driving fatality statistics that could be obtained are from 2012 and

demonstrated the downward trend continued with 157 alcohol related traffic fatalities

(MAAD, 2012).

In an article by Michelle Minton (2013) she examined the case of Washington and the fact

that now that consumers can purchase their liquor while they do their food shopping, the

likelihood that they will be sober when they do their alcohol purchasing is greater. This is

backed up by other studies she examined including one done by Patrick McCarthy (2003).

McCarthy examined 111 California cities and found that a higher number of take-away

alcohol stores actually correlated with decreases in fatal and non fatal alcohol related car

accidents. In a study done by, Tenaya Marie Sunbury (2010), she discovered that a higher

alcohol retail density actually correlated with lower alcohol consumption, lower rates of

binge drinking, and fewer rates of drunk driving.

Further information demonstrates that alcohol crimes have decreased since Washington’s

privatization. According to Competitive Enterprise Institute (2013) minors in possession of

alcohol has decreased since privatization. There were 1,483 instances from 2008-2009 and

only 777 during 2012-2013 (Minton, 2013a). Other alcohol-related arrests have also been on

the decline, as shown in Figure 12.

Figure 11: Alcohol Related Arrests Washington 2008-2013

(NBC, 2013)

42    

4.1.4 Swedish Health and Social Data

According to the Swedish Retail Institute (2009) in the official statistics, the total Swedish

alcohol consumption, compared to other European countries, has been low for many years.

However, during the past 15 years a change has occurred. Swedish alcohol consumption has

sharply increased, by almost 30%. The foremost reason behind this trend is the substantial

increase in personal imports by travellers and smuggling from other countries with

significantly lower alcohol taxes than Sweden (Swedish Retail Institute, 2009). Adding on,

“Systembolaget, which through high prices and restricted availability is meant to keep

alcohol consumption low. However, due to the free movement within Europe of both people

and goods, the Swedish alcohol policy has encountered problems. The possibility of legally

bringing in large quantities of alcohol or buying via other people who have been abroad and

purchased alcohol (smuggling) is large” (Swedish Retail Institute, 2009, p. 5).

Information from the Swedish Retail Institute (2009) almost 30% of the beer over 3.5%

alcohol that is consumed today comes from personal imports by travellers or smuggling and

is, thus, neither taxed in Sweden nor sold via legal channels within the country. During the

last 15 years, a sharp transition from weaker to stronger beer has also occurred. In 1994, beer

with an alcohol content of up to 3.5 percent constituted 64 percent of all beer consumed

while today it only constitutes 33 percent. Swedes, thus, drink more of stronger beer and a

great part of this increase comes from private imports and smuggling (Swedish Retail

Institute, 2009).

When comparing Sweden to other countries in terms of alcohol related traffic accidents it

ranks quite low just like the other privatized cases were. Figure 12 below shows that in 2004

Sweden had one of the lowest rates of alcohol-related traffic accidents of the selected

European countries (World Health Organization, 2004). It is important to note that some

other outside factors may have contributed to the conclusion of this data.

43    

Figure 12: European Alcohol Related Traffic Accidents by Country

(World Health Organization, 2004)

In a report from 1995 (Holder et al., 1995) a group of leading scientists studying alcoholic

behavior predicted that a 1-litre increase in per capita-consumption would result in a 9.5%

increase in total alcohol-related mortality in Sweden. Since then the consumption per capita

in Sweden has increased by more than 2 liters which, according to those predictions, would

have lead to an increase in alcohol-related mortality by more than 20%. There are no official

statistics supporting such a development or something even close to it. (Swedish Retail

Institute, 2009)

Another study conducted by the World Health Organization (2002) surveyed the number of

deaths from alcohol liver disease, and as Figure 14 demonstrates Sweden again ranked very

low amongst European countries (Swedish Retail Institute, 2009).

44    

Figure 13: 2002 Death Rates from Alcohol-Related Liver Disease by European Country

(Swedish Retail Institute, 2009)

4.2 Interviews

While theoretical frameworks and case studies provide the foundation upon which this thesis

is built it is important to recognize the Swedish perception. To accomplish this interviews

were utilized to gain the perception of Swedish citizens in authority positions who stand on

both sides of this debate. The interviews while not important in numbers allow access to

information on where different parties stand on the issues of systembolaget, privatization, and

alcohol policy. In order for any model of privatization to be implemented there will need to

be consensus throughout the country and political system. These interviews help us to gauge

the current climate of the debate.

45    

4.2.1 Systembolaget Interview

On May 6, 2012 data was obtained from the Head of Public Relations at Systembolaget. Her

name is Ann-Therese Enarsson. The data that was obtained was from a set of interview

questions sent to her via email. The questions asked were as follows along with the answers

given:

1.) Do you perceive external significant pressure from the EU or the WTO

privatize?

“NO”

2.) Is there a strategy/contingency plan that has ever been discussed if Systembolaget

were privatized? If so, what was it?

“NO”

3.) Do you think regulation could help minimize the negative societal effects of

alcohol consumption?

“That is why we exist as a state owned retail monopoly, if you need scientific

arguments please visit WHO homepage.”

4.) Do you think Systembolaget could still carry out its mission of maintaining a

healthy culture in a partially privatized environment perhaps by maintain it's harder

alcohol?

“Our mission is to limit alcohol as a monopoly. Partially privatized would increase

consumption and therefore increase the harmful effects of alcohol. A monopoly does

not exist in a partially privatized environment.”

46    

4.2.2 Moderate Party

On the 15th of May, 2014 an email was sent to the Linköping Deputy Mayor and Moderate

Party councilor Christian Gustavsson that contained the same interview questions sent to the

Systembolaget Head of Public Relations. The interview was conducted in order to understand

a Swedish viewpoint on Systembolaget dissenting from the majority consensus. A Moderate

Party representative was selected to

1.) Do you perceive significant external pressure from international organizations

such as the EU or the WTO to privatize Swedish alcohol retail?

“The model of government controlled retail stores for alcohol, Systembolaget, was an

issue when Sweden joined the EU. Sweden has been able to keep the the retail

monopoly, after opening up our borders for private import and opening up the market

for competition for non-consumer distribution.”

2.) Is there a strategy or contingency plan that has ever been discussed if

Systembolaget were to be privatized? If so, what was it?

“The issue has been discussed, and are always discussed, within The Moderate Party

and the government coalition. At the moment there are no plans to privatize

Systembolaget, or to open up the market for competition. There is an ongoing

discussion within the government coalition about opening up the consumer market

when it comes to small farming businesses selling locally produced alcohol (wine,

beer).”

3.) Do you think regulation could help minimize the negative societal effects of

alcohol consumption?

“I believe there are scientists with different opinions. A believe there are small

benefits when it comes to controlling consumption of alcohol, but today alcohol is

also quite accessible in society in other ways.”

47    

4.) Do you think Systembolaget could still carry out it's mission of maintaing a

healthy culture in a partially privatized environment, perhaps by maintaining it's

monopoly on hard-alcohol?

“Yes, but as long as other retail stores only have the possibility to sell alcohol within

a controlled license.”

48    

5 Analysis

In this chapter the theoretical framework synthesized earlier is applied to the empirics

detailed in the preceding section to analyze theories of alcohol retail and privatization within

the context of temperance country examples. The first section contains a meta-analysis of

overlapping data from the three selected cases of alcohol retail SOM privatizations as well as

data relating to Sweden and Systembolaget. The next section analyzes the qualitative data

concerning advertising and Swedish opinions of Systembolaget. The final section analyzes

the qualitative interviews performed.

5.1 Analysis of Privatization Case Data

The meta-analysis of the cases of alcohol retail privatization in Alberta, West Virginia, and

Washington is carried out here, at some points in conjecture with Swedish data. The first

section analyzes the details of how each privatization was implemented. The following

section analyzes a set of data presented can be broadly categorized as “health/social” data,

while the second set is that which describe the economic and business consequences of

privatization.

5.1.1 Analysis of Privatization Models

Alberta, Washington, and West Virginia all employed markedly similar privatization

models (AGLC, 2014; West Virginia Alcohol Beverage Control Administration, 2013;

Gilroy, 2012). All three chose to replace their monopolies with license systems. All three also

sold off their assets through a bidding process. This would seem to indicate that this has

become the prefered method of privatization.

5.2 Health and Social Data

The varying health, social, and crime statistics gathered via the case studies and their

relationship to privatization are analyzed below. The analysis takes into account figures such

49    

as alcohol related traffic accidents and alcohol related crimes, and compares and discusses

the numbers in terms of the privatized market as well as the SOM.

5.2.1 Alcohol-Related Traffic Accidents

A common trend found in Washington and West Virginia was that alcohol-related traffic

fatalities actually decreased following privatization. This trend is represented in Table 15

(Alcohol Alert, 2011, 2014; MAAD, 2012). It is important to note that Washington

privatized in 2011 while West Virginia privatized a 20 years earlier in 1991.

Figure 14: Alcohol Related Traffic Fatalities in Washington and W. Virginia

(Alcohol Alert, 2011, 2014; MAAD, 2012)

While hard numbers on fatalities in Alberta were hard to come by, Trolldal (2005) states that

there was no relationship between privatization and drunk driving fatalities between his

50    

studies from 1950 to 2000.This analysis offers strong evidence that drunk driving is not

significantly influenced by the alcohol retail models. Furthermore as Figure 11 demonstrated

earlier Sweden ranked low amongst other European countries in the category of alcohol

related traffic accidents. Taken together this data seems to suggest that a shift to a privatized

alcohol model would not have significant effects on the alcohol related traffic accidents in

Sweden.

5.2.2 Alcohol and Crime

In Alberta privatization was followed by increases in crimes ranging in seriousness from

burglary to homicide (Statistics Canada, 2006). However, when compared by Dick (2014)

with its SOM retail neighbor Saskatchewan, Alberta had lower rates of legal problems and

physical violence. This seems to suggest that the apparent correlation between alcohol

consumption and violent crime could be due to confounding variables. When contrasted with

Washington data on post-privatization crime the picture becomes even more muddied.

According to the Competitive Enterprise Institute (2013) the stats on minors in possession

and sale to minors have been decreasing since privatization (Minton, 2013a). While it seems

clear that alcohol consumption has some sort of causal relationship with crime, the dynamics

of the relationship may not be as well understood as previously thought, and as Anderson and

Baumberg (2006) suggest, is highly influenced by the presence of other alcohol control

policies besides ones which regulate the market.

5.3 Analysis of Economic Data

In the following sections we will be presenting financial and economic data to support our

idea of the privatization of Systembolaget. With the move to a commercially driven market it

is important that privatization improves the financial circumstances for not only the consumer

but for the alcohol market and national economy as well. While goals of privatization often

include fiscal benchmarks it’s important that these economic factors not only improve but do

so in a responsible way. By analyzing the cases presented we hope to find a trend of

improvement in economic factors such as job creation and tax revenue. It is important to

prove and establish how much economic variables can be improved, because factors such as

employment and revenue can have far reaching effects into other areas such as government

51    

spending in social-works projects, and increased spending in the consumer marketplace.

While the privatization shift may appear to create a change in market goals from controlling

and protecting consumers within the market, to that of purely financial means, it is important

to establish that this is not necessarily the case.

5.3.1 Job Creation Data

After privatization the number of retail outlets in Alberta rose from 803 locations in 1993 to

1,333 in 2013 (AGLC, 2014). “Along with this increased number of outlets came a nearly

fourfold increase in employees within the sector” (Cowan, 2014). While it was too recent for

highly exact data to be extracted, Washington likewise experienced an increase in outlets

post-privatization, with around 1,400 new private stores up-and-running, compared to only

329 in 2011 before privatization (The Columbian, 2013). Although increase in outlets does

not necessarily equate to increase in employment, the case of Alberta demonstrates a positive

correlation between the two.

In the case of Sweden, it is possible that privatizing Systembolaget could also lead to

increased employment because of increased outlets as well as increased consumption. Holder

et al. (2008), and possibly common sense as well, indicate that privatization would lead to

increases in both. However, as mentioned before, there has been inconclusive evidence

supporting positive correlation between consumption and employment in all situations, as

Figure 16 demonstrates.

52    

Figure 15: Heterogeneity of Correlations between Alcohol Consumption and

Employment

(European Commison, 2006, p. 58)

While at first glance Figure 16 may cast doubt on the job creation theory, further analysis

reveals that it may actually support it, at least in Sweden’s case. The chart depicting

consumption and employment in Finland shows a strong correlation in net increases of both

over the period of 1995 to 2001. This demonstrates a triangulation of data from three separate

temperance countries supporting the theory that increased consumption leads to increased

employment. This suggests that a privatization of Systembolaget would result in increased

employment in Sweden in the alcohol industry.

5.3.2 Tax Revenue

One of the more prominent economic arguments for alcohol retail privatization has been an

increase in tax revenue from alcohol sales. In 1993 Alberta made $404.8 million in tax

revenue (AGLC, 2014). While this is not a low number, in 2013 Alberta made $729 million

dollars in tax revenue respectively (AGLC, 2014). Adjusted for inflation this represents an

11.8% increase in revenue. Additional support of this argument of this can be seen in the

privatization of West Virginia and Washington.

While West Virginia's privatization process wasn’t as immediate as Alberta’s, spanning from

1981 to 1991, yet the results of the transition are similar. According to figure 8 (Tax Policy

53    

Center, 2013), in 1992 West Virginia had tax revenue of $12 million. As the graph shows by

2011 this value had nearly doubled to around $24 million. Adjusting for inflation this

represents a 21% increase in revenue since privatization. Similarly Washington saw large

gains after privatizing. “About $392 million has been collected by the state in fiscal 2013, up

from $309 million in fiscal 2011, and the total is expected to reach $425 million before the

fiscal year ends on June 30, 2014” (The Columbian, 2013, p. 1). Assuming the state of

Washington makes its projected $425 million on alcohol tax revenue in 2014, this would

represent a 27.3% increase when adjusting for inflation.

While privatizing a market seems innately beneficial, many problems can be associated with

the shift. It is important for those involved to understand how the new system can affect the

market. For example, Alberta experienced “...the large expansion of retail outlets which

raised the costs of product distribution, marketing and retailing and to the surprise of the

Albertan government, and Albertan consumers, prices increased. The ensuing negative

consumer reaction required Alberta to reduce alcohol taxes on three occasions following

privatization in an ultimately unsuccessful attempt to stabilize prices.” (Flanagan, 2014, p. 2).

Conversely when Sweden privatized Apoteket they were able to keep consumer prices low

with efficient deregulation and competition exerting downward pressure on prices as more

providers enter the market (Willach Pharmacy Solutions, 2010).

5.4 Interview Analysis

The interview held with Ann-Therese Enarsson, the head of public relations at

Systembolaget, showed that they are ignoring that there is any debate at all just because at the

moment they are in a good position. Contrast this with the Linköping Deputy Mayor and

Moderate Party Councilor, Christian Gustavsson, remarks about the frequency with which it

is discussed within the Moderate party and this quickly becomes a rather apparently short-

sighted attitude. Even though there is no current plan for a privatization for Systembolaget,

the fact that the Moderate Party Counselor and Deputy Mayor of Linköping both supports a

move to regulated “license” private market in theory and is actively discussing small-scale

privatization (their plan to open consumer market for locally produced beer and wine on

farms), then one would think that the agency they are putting pressure on would at least take

note of it. This is indicative that Systembolaget is somewhat out of touch and not forward-

54    

looking, something that could become more apparent and result in actual changes in the

future as societies move farther away from collectivist towards individualistic orientations

((Cisneros Örnberg and Ólafsdóttir, 2008)).

55    

6 Discussion and Conclusion

The research presented in this paper has been conducted in the hope of objectively assessing

what the function of Systembolaget in present day Sweden should be. It could also be more

broadly applied towards an assessment of what place alcohol retail SOMs should have in an

increasingly liberalized and integrated world economy. This is an understandably sensitive

topic to many people, with cultural and political implications that run deeper than mere

conjecture on the merits of public versus private ownership of a market. Due to this, the

research and writing process was carefully directed towards including differing viewpoints

on the subject, and objectively attempting to answer the two research questions presented in

the methodology chapter. Discussion of the analysis of this research has led to these

conclusions on the research questions.

1. Do accepted theories on alcohol consumption and its resulting negative externalities and

how they relate to certain models of alcohol retail hold up when examined with empirics

from alcohol retail privatizations within a relevant cultural context?

Upon analysis certain sets of data reacted in anticipated ways after privatization. The increase

in crime in Alberta following privatization would seem to lend credence to the theories

postulated by Holder et al, in that private alcohol retail leads to increased consumption and as

a result, increased crime. However, one cannot rule out the possibility of confounding

factors, especially since Albertan crime statistics compare favorably to neighboring

Saskatchewan, which has a SOM on alcohol retail. This suggests that other factors, such as

the presence of other alcohol policies mentioned by Anderson and Baumberg in their WHO

report or even factors completely unrelated to alcohol consumption, influence crime to an

equal or greater degree than alcohol retail models.

This theory is supported by analyzed trends in other sets of data that followed unexpected

patterns post-privatization. The marked decrease in alcohol-related arrests over such a short

time scale in Washington, including for crimes such as minor possession of alcohol or sale of

alcohol to minors, stands in stark contrast to established theory on alcohol retail models. The

lack of impact privatization had on drunk driving statistics from all three cases also supports

56    

the idea that many other factors besides retail model play into negative externalities of

alcohol consumption.

Not enough data could be collected on alcohol-related health statistics to conclusively answer

the first research question positively or negatively. However, enough of the analyzed research

contradicted accepted theory to warrant further research into how great a causal relationship

alcohol retail models have on negative externalities of alcohol consumption.

1. Can the results of the first question be extrapolated from to comment on the necessity of

Systembolaget and open a discussion on the merits of privatization of the Swedish market in

alcohol retail?

Due to limitations in the ability of the research to answer question 1, and the generally larger

bias in the studied literature focusing on negative effects of alcohol retail privatization, it is

impossible to comment directly on how necessary a role Systembolaget has to play towards

promoting public health and order in Sweden. However, it is the opinion of this paper that the

results of the first question strongly push the case for opening a wider discussion on the

merits of Systembolaget and SOM on alcohol retail in general. Analysis of the qualitative

interviews also supports this argument.

The opinion of Systembolaget, as demonstrated by the comments of their head of public

relations, seems arguably shortsighted when contrasted with the viewpoint of the Moderate

Party councilor. It is somewhat surprising that Systembolaget would not be more open to a

discussion on privatization, when the major party of the ruling coalition is somewhat

receptive to the idea. While there is no widespread public support for privatization at the

moment, this could conceivably change in the future if the Moderate Party grows its base of

support in light of the current trend of “a slow transition from a collectivist solidarity

perspective to a more individualistic lifestyle perspective [that] can be discerned” (Cisneros

Örnberg and Ólafsdóttir, 2008, p. 1).

Again, this is not to downplay or disregard the very real health and social concerns over

alcohol consumption. The correlation definitely exists, especially in regards to hard liquor,

between increased consumption and a plethora of societal problems. It seems increasingly

57    

possible however, that these problems can be mitigated by regulation within the framework

of a private retail system, especially one tailored to fit its cultural and political context.In the

case of Sweden this would probably mean a partial privatization.

This could be implemented through a variety of models. A geographic partial privatization, in

the vein of the Maryland control counties or Alberta, could be implemented with

Systembolaget being maintained in areas deemed exceptionally vulnerable to problems

associated with alcohol abuse or at border points to prevent cross border trade and

smuggling. Partial privatization could also be implemented along the lines of beverage type,

with private retail of beer and wine being permitted by Systembolaget maintaing a monopoly

on hard liquor. In the opinion of this paper, a combination of these methods would probably

be ideal, phased over time to ensure proper oversight and weigh costs and benefits

Furthermore, under any degree of privatization the Swedish government would still be able to

maintain controls on availability of alcohol, physically and price-wise, through whatever

regulatory framework it saw fit to implement. The cases of Alberta and Washington, where

prices rose post-privatization, contradict excepted theories that privatization should lead to a

drop in price and a rise in consumption, and it is likely that this would be the case in Sweden

since the early-2000s era tax cuts, enacted to counter the abolishment of traveler’s

allowances, could be repealed or raised slightly to create a price floor and maintain

harmonization with prices in other Nordic countries.

The cases presented in this paper suggest that Sweden could enjoy many economic benefits,

including job creation, lower prices (to a socially responsible point) for consumers, and

increased tax revenue for the state. Furthermore, it casts some doubt on certain pessimistic

predictions of severe increases in the frequency of negative externalities of alcohol

consumption. While the results of the study are too inconclusive to carry out an effective

cost-benefit analysis of a privatization of Systembolaget, they do suggest that the time has

come for a more open and unbiased discussion on alcohol retail models both in Sweden and

globally.

58    

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