Missed Opportunities

In response to proposals in Ontario and New Brunswick to privatize liquor retailing Finance Minister Steele has declared that Nova Scotia would not be pursuing the idea. He argues that the price that could be achieved is not adequate compensation for the revenue stream that would be foregone.

Several early comments understood the article to advocate sale to a single buyer. This article has been amended to clarify that this is not the intent.

Superficially, he is right. The NSLC’s profits ($223 million or 38% of sales in 2011) service a great deal of provincial debt at today’s low interest rates. Any purchaser is almost certain to pay higher interest rates than the province, so it would be unwilling to adequately compensate the province for the lost revenue.

But there is a version under which the Minister could keep his revenue and still make a profitable sale. The province could sell retail outlets with the condition that:

1) the NSLC would continue to set wholesale and retail prices in the same manner that it does today
2) the purchaser would continue to pay to the government as a tariff the same % of sales that the province presently receives
3) the pay and benefit levels of existing NSLC staff will be protected.

The retail outlets would be sold one at a time to a variety of bidders so as to eliminate the current near monopoly. Those smaller stores, particularly in rural areas, which did not receive attractive bids should be retained by NSLC.

Who would bid on such an arrangement? Actually any organization that thought they could do a better job of retailing than NSLC. For example, consider Sobey’s and Superstore, who are already landlords to a number of NSLC stores. By integrating inventory management, storage, and checkout (which would also be a convenience to customers) and applying their merchandising knowhow they could add to the profit margins and would be willing to pay for the right to do so. Note that the retail outlets would be sold individually so as to not continue the monopoly.

Minister Steele is smart enough to know this but he is unlikely to pursue the opportunity. The problem is that although the province would benefit and individual employees be protected the public sector unions would be adversely impacted. Apparently this is a no-go zone for this government.

For evidence look at the health care sector. The district health authorities have been instructed to reduce spending by 3% after a freeze the prior year. Government then made the absurd suggestion that this could be done without affecting patient care. Doing the best they could, the authorities found that they could make savings by outsourcing things like cafeteria and laundry. Again this could be done and savings achieved while protecting the pay and benefits of existing employees. Nevertheless, the province vetoed the proposal. So the savings will instead have to be made in areas that more directly affect patient care. This appears to rank lower in the government’s priorities than the interests of public sector unions.

It is the responsibility of government to use our limited financial resources to get the best possible education, health care, community services, and regulatory environment. Selling booze, doing laundry, or running restaurants are not exactly core functions. Outsourcing these can free up more funds for the things that matter.