“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 …
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!