Alcohol consumption and why minimum prices will not work

EurActiv came up with a very interesting news story on alcohol consumption and minimum pricing. They note:

Representatives of Europe’s wine and spirits industries have joined with the Scotch Whisky Association in a legal battle aiming to halt the minimum pricing of alcohol.

The Scottish Parliament overwhelmingly passed a bill in May that introduced a £0.50 (€0.63) minimum price for a unit of alcohol, the first legally-binding minimum price within the European Union.

From as early as April 2013, cut-price alcoholic beverages will be outlawed in Scotland. The bill is intended to reduce binge drinking - and thus improve health and crime levels.

I want to draw some economic remarks out of this report, which have universal application. At first we always need to distinguish between the motives and the outcomes of a legislation. I have no doubt that the law-makers who approved this law, did so under the sincerest and most altruistic of intentions, in their efforts to promote the social good of better public health. However this does not mean that they will actually meet such a laudable end, as minimum prices do not tackle the very habit of alcohol (over-)consumption, but only increase its price, thus making the collateral damage even greater. A higher price will indeed be calamitous for those segments of society that will cling on to their drinking habits, as they will have to allocate an even greater part of their income for the satisfaction of their consuming needs.

We know that higher drug prices do not deter addicts, or that preposterously high taxes on smoking and other restrictions have not really combatted bad smoking habits. So why should an artificially higher price combat alcohol related issues? If individuals receive higher utility from their alcohol consumption, they will adjust to the higher price by cutting back on other activities, or by finding other means to sustain the same level of consumption. They will not be deterred from consuming that which they cherish the most. Indeed the evidence in support of this claim, from our experience with other types of addictions, is overwhelming. After all, is it not artificially high prices that force drug addicts to laboriously seek exorbitant sums of money to buy their dose, even if that requires stealing or other criminal/illegal acts? If the very motive for consuming remains, then a higher price may only engender other activities and behavior for gaining access to the commodity, often with far-reaching implications.

Putting aside such concerns, whom does a higher price really hurt? The consumers of low-priced alcoholic drinks are most probably low-income people who can only afford lower prices. If they are deprived of access to cheap alcohol, then they are practically being punished for their poverty.

In addition a minimum price creates artificially higher prices, thus benefiting the established firms over the less prolific ones. If the price of a good from a less-known brand is artificially priced closer to the same good of a better-known brand, then the comparative advantage of the former is obliterated. In other words, such a policy will benefit the big corporations in the alcohol industry, by pricing out competition and by erecting a barrier for new entrants in the alcohol business.

Moreover, the very ethic of such a policy is spurious. The law-makers arbitrarily define what is a "proper" way of drinking, or of choosing in general. They thus interfere with the decisions of individuals within the scope of their private life. One might say that they do so to save money from the public health services; but such an excuse is incorrect, for it considers public health services as a priori flawless (no talk is made about incentives, perverse or not), while placing the entire burden on the choices of the individual.

If this arbitrariness of the law-makers were to be taken as a universal axiom, then we would also have to price out fast food on the grounds that it is full of fat and/or unhealthy; and then we would have to apply the same (non-)logic on soft drinks, sweets, meat etc. But why stop there? If public health is an end in itself, then why not prohibit people from skiing or cycling or driving a car on the grounds that they can injure themselves, sometimes fatally. The ramifications are indeed numerous and understandably all that would be ridiculous, unless we sacrifice our basic freedom to make decisions to the chimerical belief that a few people can decide in our stead what we should consume or occupy our selves with (also read When the EU naively protects individuals from their selves).

Alcohol addiction can indeed be a problem, just like any other addiction or indeed anything else that seems to disrupt the ideal state of being. I am not suggesting that I have a clear-cut answer to such an issue. However what is rather obvious is that the law-makers have erroneously invented a causality between low prices and excessive consumption. The reasons people end up drinking can be numerous (poverty for example), but they certainly are not a function of price and quality. In my view, a minimum price will do nothing to meet the ends it seeks, while it will further impoverish the low-income people who consume cheap alcohol and will benefit established firms by artificially pricing out competition from less-recognizable ones. Prohibiting or pricing out a commodity for which there are consumers has always been a failing policy with many unpleasant unintended side-effects.

Picture credit: Wikipedia

Copyleft (ɔ) 2013 Protesilaos Stavrou—All wrongs reserved
Article source: http://www.protesilaos.com/2012/07/alcohol-consumption-minimum-prices.html
Protesilaos Stavrou—Analyses on European Union politics and political economy by Protesilaos Stavrou is licensed under a Creative Commons Attribution-ShareAlike 3.0 Unported License. All original works are hosted on www.protesilaos.com
The full scope of this license may be read at www.protesilaos.com/p/rights.html, while further permissions can be requested at www.protesilaos.com/p/contact.html