The Swedish Solution

“We are all socialists now.”  That’s what my wife Sue said yesterday as we drove back from the airport listening to radio reports about the U.S. plan to stabilize American bank capital by making direct government investments in financial firms. Yes, I thought, like Sweden (and its solution to an earlier banking crisis).  Then I started thinking about the Swedish solution to wine …

Systembolaget

Here’s a paradox.  The Swedes have relatively low levels of alcohol consumption, but are home to one of the world’s largest alcoholic beverage retailers. How can we reconcile this paradox?  The answer is Systembolaget, the Swedish wine and liquor monopoly.

Systembolaget, until recently the world’s largest single purchaser of alcoholic beverages, reflects an interesting Swedish viewpoint.  Capitalism is pretty good — profit incentives are very powerful.  And alcohol is OK, too.  But when you mix the two of them, well you only get trouble.  So you need a non-profit state monopoly to handle alcohol sales.

Here’s how the Systembolaget website explains it.

The monopoly is based on the principle that there should be no private profit motive in the sale of alcohol. (Without any private profit motive, there is no reason to try to persuade customers to buy as much as possible, and no reason to sell to people less than 20 years old). This idea has proved highly effective in practice. Alcohol consumption in Sweden, which in the early 1800s was among the highest in Europe, is today among the lowest.

The idea seems to be for the organization to respond to “demand pull” for wine and spirits but not to use a “supply push” to encourage excess alcohol consumption.  Unlike some state-run systems I have known Systembolaget seems to be relatively responsive to consumer needs (perhaps Swedish readers can leave comments regarding this observation).  This is partly driven by the system’s continuous need to justify its existence in the face of EU regulations that challenge its right to monopoly status. The stores, of which there are many, are bright and well organized, the staff gets continuing education on food and drink topics  and there are regular tastings and other events.  A recent study suggests that eliminating the monopoly would be detrimental to Swedish public health.

Systembolaget seems to work in a typically different Swedish fashion, although it is certainly not above criticism.  I reject the fundamental assumption, which is common here in the U.S., too, that alcohol is alcohol and the rules that government hard liquor should apply to table wine.  It seems to me that wine is associated with the culture of temperance rather than alcohol abuse.  But this is an old debate and I don’t expect to be able to resolve it here. (Here in Washington State where I live the state has a monopoly on spirit sales but wine, although still tightly controlled, is available through both state and private sector retail outlets.)

The Swedish Solution?

Certainly Systembolaget represents an alternative to the market as a way to satisfy the demand for wine.  A monopoly that puts public health first is not necessarily a bad thing, especially if it can avoid becoming a “lazy monopolist,” to use Albert O. Hirschmann‘s phrase, and ignore legitimate consumer interests.

This got me thinking about the financial crisis again.  What if the Swedes are right that the profit motive is dangerous in some markets.  Alcohol?  Well, that’s the idea behind Systembolaget.  Banking?  Hmmm.  Is finance like booze — useful, but potentially lethal?  Fine when legitimate needs are addressed, but explosive when the profit motive leads to abuse?

It is heresy for an economist to say these things.  But it looks like this financial crisis is pushing us to adopt a Systembolaget system of banking.  Wine is life!

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8 responses

  1. “The monopoly is based on the principle that there should be no private profit motive in the sale of alcohol.”
    — It is important to note the word “private” in the sentence. The state (who owns the monopoly) clearly has a profit motive. It has set a profit target for the monopoly of X% (I don’t remember the exact figure, but think it is 8%). Which they regularly achieve. Nice business. You define the profit you want to have and then you ‘just do it’.

    Contrary to most published annual reports in the Systembolaget one you have to dig deep to find any financial data. But if you do you can read that the profit was 337 million SEK in 2007 and 559 M SEK in 2007. Without profit motive?

    That’s perhaps the beauty of monopolies?

    It is also worth noting that the consumption of alcohol has gone up more in Sweden than in almost any other western country.

    http://monopolet.blogspot.com/2005/11/alkoholkonsumtionen-kar-mest-i-sverige.html

    And in a recent study of 15 EU countries Sweden was the country where wine consumption was up most: +9%, well ahead of the #2: Ireland with +3.6%. http://monopolet.blogspot.com/2008/05/sverige-kar-mest-vindrickande-inom-eu.html

    Is this a good measure of a “successful model”?

    Another interesting aspect of the Systembolaget policies: They have very successfully launched bag-in-box wines, which now represent some 55% of total consumption in Sweden. BiB is by some considered a key factor in increasing alcohol consumption and “hidden domestic” alcoholism so Systembolaget’s enthusiasm for it seems contradictory.

    Likewise, Systembolaget is transforming most of its 450+ outlets into self-service shops (they were previously over-the-counter shops), making it easier to browse and pick-and-choose as you want before you put the bottles in your shopping cart. This is perhaps not the best way to reduce or restrict alcohol consumption (which is one of Systembolaget’s aims).

    So the position of Systembolaget seems highly contradictory.

    And one can also wonder how important a tool it is. Only some 50% of all alcohol consumed in Sweden originates from Systembolaget. The rest comes from other sources. Can the monopoly really be considered an effective tool with barely a 50% market share?

    “A recent study suggests that eliminating the monopoly would be detrimental to Swedish public health.”
    — The “study” is actually not based on any research. It was written on by a group of “experts” (whose starting point and opinions will be of no surprise to anyone) who sat down and basically asked themselves the question “If we make a guess, how much will alcohol consumption go up if….?”. Call it a study if you wish but it was not based on research. A good example of Systembolaget scaremongering propaganda.

    “Unlike some state-run systems I have known Systembolaget seems to be relatively responsive to consumer needs (perhaps Swedish readers can leave comments regarding this observation).”
    — Perhaps, if you compare it to other state-run systems (like what?). But if you compare it to a free market model the Swedish consumers have a lamentable wine selection and generally poor service. (Although most Swedes actually believes the opposite. The Systembolaget has a very effective publicity department with a substantial budget…)

  2. Its only anecdotal but I have heard from a number of Swedes and others who have spent time there, that the highly punitive alcohol taxes make drinking out extremely expensive – leading many to become home distillers of vodka. So the statement “Alcohol consumption in Sweden, which in the early 1800s was among the highest in Europe, is today among the lowest” may be misleading as it would only tally the official and excised volumes of alcoholic drinks, and would exclude illegal home brewed drinks which are far more likely to lead to alcoholism and health problems than, say, wine. And to continue Per’s point, hopefully wine in a bottle.

  3. As in other countries with state monopolies, e.g. Canada, you will find upon visiting a Systembolaget store (even the numner one store in Regeringsgatan in Stockholm, that the choice is very limited (though prices on the high-end premium wines that are available are very good).

  4. There are problems as mentioned above with Systembolaget. The price of alcohol is not their fault, it due to high taxes that would impact any retailer selling alcohol.

    The major problem with SB and a monopoly is that it becomes a one size fits all. And I must admit for a large share of the Swedish population that works well, with a good assortment of wine, beer and spirits. But for me as a wine-nerd it works less well. The standard assortment in SB has too be able to serve all of Sweden – 9 million people. That only leaves big suppliers of “basic” wines to qualify into that, i.e, wines being available in all stores all the time.

    Then there are new wines coming in once or twice a month, in small quantities. Here you can find interesting wines, but they are in high demand and small supply. Result: people stand in line to get those wines:

    So if you do not have the opportunity to stand in line a few hours to get your wine you are out of luck for the gems

    Then there is an assortment where you can order from the importers. I think SB had to have this not to discriminate vs anybody and follow the EU rules. However they do not promote this and make it easy for you to do these orders (2009 there is still no way to order over the internet (!!!!), and of course no way to get delivery). Here you can find some interesting wines to, basically via mail order.

    So for me as a wine-nerd I think SB gives a bit of a boring choices for wine, and I miss talking to a wine merchant as in e.g., Italy that is specialized on a region etc. and have wine from small interesting producers.

    But for the majority of people in Sweden, buying masses of beer and cheap wine in Tetra Pak SB works well.

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