The Wane Of a Monopoly

"The CEO of Alko makes over 36 000 € in a month. But it is quite clear when you take a look at the challenging job description: Selling vodka to Finns in a monopoly-market." -Iikka Kivi, comedian

During the past week, the Finnish government announced changes in the country's alcohol legislation. The reform includes for example more liberal marketing of alcohol and dispensing, allowing bars and pubs to sell "take-away"-alcohol, the allowance of small breweries to sell beverages directly to consumers, and most of all, the allowance of selling 5,5% alcohol by volume beverages in grocery stores when the previous limit was 4,7% alcohol by volume. Although the current Juha Sipilä's government has been highly unpopular, the reform should make many Finns satisfied. But the organization that most definitely isn't happy, is Alko Oy.

Established in 1932, Alko Oy is the national alcoholic beverage retailing monopoly in Finland and it is a government-owned enterprise. When established, the purpose of Alko was to sell exclusively alcohol beverages in Finland under the supervision of the state after the years of prohibition in 1919-1932. Still in the 21st Century and 85 years later, the status of Alko is still pretty similar; It holds the exclusion to sell alcohol beverages over 4,7% alcohol by volume. Until this very day.

One of the main arguments for the monopoly is the fact, that by supervising and regulating the sales of alcohol, the negative externalities of consumption (social effects of consuming) are minimized. Thereby Alko is also obligated to report to the Finnish Ministry of Health and Social Affairs. Thereby Alko is also obligated to report to the Finnish Ministry of Health and Social Affairs Also the marketing of alcohol is strictly regulated by the Finnish state, which manifested in 2014 in the prohibition of the usage of the word Viski (=whiskey) in the name of an event. 

As stated in Feeling Lucky Everyday, the European Union, free-market capitalism and globalization threat constantly these kinds of monopolies. In a internet-society where the existence of asymmetric information is becoming less and less common, people can try to get around these monopolies in many different ways. High ABV alcohol beverages can be easily ordered online for example from Germany, Estonia, the Netherlands and the United Kingdom. This alone is a major loophole for the Alko's justified monopoly.

Already in 2005, the Finnish Food Marketing Association asked the European Union to challenge the legality of Alko's monopoly, which it disputes. The small breweries want to make business as any other firm, the pubs and bars want to decide themselves from their business without any government intervention and the people want to satisfy their needs in the easiest way. The reform of the alcohol legislation might even give the domestic industry of Finland the boost it needs by creating more consumption, investments and maybe even employment in industries producing, selling and serving alcohol.

But the reform is also a major setback to Alko. Now when grocery stores are allowed to sell 5,5% alcohol by volume beverages, the level of monopoly and the revenue of Alko will most certainly decrease. So the question is, how long will Alko survive before competition in the alcohol-market becomes more fierce? When is the time when you can buy yourself a nice bottle of fresh Koskenkorva from the local R-Kioski? I would say that the time of this might be sooner than everyone thinks. Wine is going to be the next product released from regulation and showing up to the shelves of grocery stores, right next to beef and fish. But WHISKEY, vodka, liqueurs and other over 22% alcohol by volume beverages might stay in the hands of regulation a bit longer, because of the major health risks of over-consumption compared to milder alcoholic beverages.

We still must keep in mind that alcohol is a demerit good that is considered as harmful for the users and for the people close to the users. The regulation of selling these kinds of demerit goods is justified, but not for eternity. In some point, the society changes in a way when the liberalization might have more positive effects than negative. The only way to find out the effects is by trial and then examining the results. Hopefully we don't fumble this up.

The only thing we know, is that the situation of Alko is going to very challenging in the future. In a state which suffers from a huge lack of competitiveness in a free-market world, liberal economic reforms will unfortunately become more and more common.

The wane of the monopoly might just have just begun.

Text: SW
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