Editors note: what follows is an opinion piece written by recent AIMS Intern Leo Plumer. This piece was originally written for NALCEF, and is reprinted here with permission. Leo is a founding director of the organization, which can be found at http://www.nalcef.com
By Leo Plumer, AIMS Intern
I like my local beer, and it’s hard to avoid discussing the ubiquitous Labatt- and Molson-owned brands like India, Blue Star and Dominion. Why do these two macrobreweries dominate our corner stores to begin with? Do people simply prefer making the trek to the Liquor Store to get imported brands? Unlikely.
In fact, regulation stipulates that only locally-brewed beer may be sold in corner stores. This is at the chopping block in interprovincial trade talks, and it’s got its beneficiaries justifiably worried. More than 100 people work at Labatt and Molson breweries in St. John’s, and their representatives have voiced opposition to lifting the provision. Their livelihoods depend on the big brewers keeping production in the province, and they fear that retail liberalization may lead to painful job cuts.
Let’s deconstruct why this may happen. This legislation exists to incentivize out-of-province brewers to produce locally – ostensibly creating local jobs – by securing them an inflated share of the local market. The fear is that, without this special protection, it would no longer be worth it for the macros to keep production in-province on efficiency grounds.
From an economic perspective, regulations that allow private firms to be shielded from competition are a classic example of “rent-seeking.” There’s a strong incentive to lobby for this kind of legislation: rather than competing in the rough and tumble of the marketplace, it is often easier to get the government to intervene for you. It should be clear that this, in theory, is a bad thing. Instead of helping new entrepreneurs, it concentrates power in the most influential companies. Instead of innovating or bringing in new products at lower prices, it increases prices and promotes stagnation. Firms can, instead of creating wealth, extract wealth from their artificial market share. It benefits them at the expense of everyone else.
Public policy should be made in the long-run public interest, and unfortunately these provisions run counter to that notion. With recent economic mismanagement in mind, NL must change course in its thinking. While it may seem prudent to do anything to protect existing local jobs, this reasoning can quickly get out of hand. Should we restrict, say, the sale of Coca-Cola to protect locally-bottled Pepsi products? NL needs to be working on integrating with the national – moreover global – economy. We should be gearing policy towards improving competitiveness and finding our niche in a constantly growing marketplace, and restricting consumers’ access to goods and businesses’ ability to provide them works against this. Another way to think about it: if you need special protections to stay in business here, perhaps those resources could have been put into ventures that can stand on their own two feet.
Less abstractly, liberalizing the beer trade will result in lower prices for consumers – NL has some of the highest in Canada. This may mean more demand for retailers, or induce some to open business selling specialty beer. Importantly, it also allows consumers much more variety and convenience.
On the producer’s side, it’s not entirely obvious that the Big Two will close down simply because they’ll have more competition. After all, a large portion of their production consists of brands unique to the local market. More plausibly, there may be some downsizing. On the other hand, craft beer is poised to boom in NL, and opening up consumer selection would only further cultivate demand. If macros contract, while homegrown brewers expand, we may yet see net job gains. Many other jurisdictions across North America lack our retail restrictions, yet thousands of independent breweries blossom.
Repealing these regulations would be a small step, but in the right direction. If we allow bad ideas to aggregate, over time we will feel their effects as a drag on badly needed dynamism and growth. For the record, I won’t say no to a cold Black Horse, no matter where it’s brewed.