Monday, December 2, 2019

Why are there wine monopolies in Scandinavia?

Few people mention the “Railway Monopoly” or the “Road Monopoly” when referring to government-owned (and funded) railways and roads, but if the government owns alcohol distribution then they always mention a “Wine Monopoly“. There seems to be an unclear distinction here.

If a government takes control of any of these things, there is always the same intended good reason for it. They are providing a service in an industry where cutting corners, with the incentive of increasing profit, may not be a good idea.

For example, the railways of the USA cannot support modern high-speed trains because the initial lines were built “on the cheap“ by industry, whose motive was to make money, not provide transportation. On the other hand, in Europe and elsewhere the lines were often built with government funds, and those governments have continued to maintain the networks. (See: The rest of the industrialized world has high-speed rail, why can’t the U.S.?) The USA has moved almost entirely to road (and air) transport, with a lot of lobbying from the road-based interests, and rail has been sadly neglected. Times may change — after all, China laid down the world’s largest high-speed rail network in just two decades (to replace its high-polluting domestic air business).


For alcohol, on the other hand, government control usually has to do with health. Indeed, current consumer surveys continue to list health as the main reason for voluntarily abstaining from alcohol intake, especially amongst Millenials. However, government edicts are hardly voluntary, at least compared to government support for the current Dry January campaigns.

The temperance movements have long presented both health and moral arguments against alcohol. Most of my readers will be familiar with the anti-alcohol movements in English-speaking countries. As recently noted by Paul Nugent: “The temperance movements ... were well-organized, globally-connected, typically led by Protestant evangelicals and very largely driven by ordinary women.”

Similar temperance pressure has also existed elsewhere, often with very different effects from the alcohol bans that you are familiar with. For example, Joseph Bohling explains (2018. The Sober Revolution: Appellation Wine and the Transformation of France) that the effect in France was to create the modern system of clearly demarcated high-quality wine-making regions, in order to encourage people away from drinking large amounts of cheap wine. In the second half of the 1900s, wine consumption per capita halved, while appellation wines rose to >50% of the volume consumed.

Alcohol problems occur notably in societies where binge drinking of spirits has long been accepted cultural behavior. You can see the current list of countries with problems in the following map, where an increasing amount of blue indicates increasing prevalence of alcohol-use health problems (Alcohol Use Disorders DALYs, Age-Standardized Rate, 2017).

From American Association of Wine Economists

Note that these problem countries tend to be in the colder northern regions — spirits can keep you warm during the long dark winters. However, some of the tropical countries are not excluded, for entirely different reasons.

In the (Protestant) Nordic countries (Finland plus the Scandinavian countries; Scandinavia = Denmark, Iceland, Norway, Sweden) binge drinking used to be part of the culture. Traditionally, fruit (ie. non-grape) wines and beer might be consumed with food, or might not. However, the drinking of spirits was part of a completely separate set of activities. The basic idea was to keep drinking until you literally couldn’t continue — it was more like a sports challenge than anything else, with the participants mostly being male.

So, the idea that the governments might try to take control of this situation should not come as a surprise — “Sell ​​alcohol without any profit, and then we can limit the negative effects of alcohol on society” was the motto. The argument was that if the governments got control of the supply, then two things could happen: (i) individuals acquiring unreasonable amounts of alcohol would be made very difficult, especially for drunk persons; and (ii) the populace could be educated to consume alcohol in the manner of southern Europe — that is, in moderation, with meals.

The alternative approach to control has always been high taxes, of course. At various times, all of the Nordic countries have been world-renowned for their alcohol taxes, although currently none of them are particularly onerous. The idea of introducing Prohibition was not really an option, given the failure of that approach in the USA. Sweden actually rejected it in a 1922 referendum, while Norway briefly tried it on spirits (from 1921-1926) and fortified wine (1921-1923). However, Iceland did have Prohibition of one sort or another from 1915 onwards, but dropped the ban on wine in 1922, spirits and low-alcohol beer in 1935, and strong beer in 1989 (!).

The current situation

Denmark, unlike the other countries, never has had government control of alcohol, except in the semi-independent Faroe Islands, which has had an alcohol monopoly since 1992 (through the Rúsdrekkasøla Landsites stores). It may not be insignificant that Denmark’s colour in the above map is quite dark, compared to the other Nordic countries.

Norway is not a member of the European Union (EU), but it is a part of the European Free Trade Association, and therefore abides by many EU requirements. Its government has had complete control over alcohol sales since 1922 (through Vinmonopolet = The Wine Monopoly), currently including spirits, wine and non-low-alcohol beer. Note that, in the above map, Norway is light blue, which paler colour is probably not accidental. The government previously also held monopolies over alcohol importation and wholesaling, but these were dropped in 1996, as part of the European Free Trade agreement.

Iceland is also a member of the European Free Trade Association, rather than the EU. Its government has had complete control over alcohol sales since 1961 (through Vínbúðin = The Wine Shop). It is worth noting that for both Iceland and Norway, the problematic aspect of their flirtation with Prohibition was wine sales, because banning wine meant that the European countries with which they traded fish (especially France and Spain) refused to take any seafood unless they could send wine in return. The governments therefore needed to take control of wine sales, rather than trying to prevent them.

Finland still has government control of alcohol sales (through Alko Oy), although when it joined the EU in 1995 its concomitant monopolies over alcohol production and bulk importation had to be dropped. Sadly, total consumption of alcohol in Finland increased up until to 2007, and alcohol-related problems were also recorded to increase (see Upward trends in alcohol consumption and related harm in Finland). More than a decade ago, I was in Helsinki just before morning peak-hour, and the park outside my hotel was well-populated by people who were “under the weather” (all male) — they were literally cleared away by the police just before the morning commuters arrived.

Things have apparently improved greatly since then (see Alcohol consumption in Finland has decreased, but over half a million are still at risk from excessive drinking), although the color of Finland in the map above is still rather bluish. Moreover, Finland recently introduced a new alcohol act of parliament, allowing, for example, stronger beverages to now be sold in grocery stores — the results are being monitored, of course (Finland has avoided dreaded effects of new alcohol act, so far).

Sweden has the biggest population of the Nordic countries, and also produces the biggest alcohol-consumption revenue, being 21st worldwide (Finland =29, Norway = 30, Denmark = 32).

The Swedish government did not have alcohol production or importation monopolies when it joined the EU (unlike Finland and Norway), but it did retain a monopoly over sales. However, a few years ago Sweden dropped control of trade sales (restaurants, bars, caterers, etc), while still retaining control of retail sales (through Systembolaget = The System Company). In the above map, Sweden is yellowish, the best of all the Nordic countries.

Sweden’s Systembolaget was founded in 1955, when a large number of regional sales outlets, based on a strict rationing system that had been in place since World War I, were merged into a single national company (originally called Systemet = The System). As the company itself puts it: “The old System stores were largely located on hidden back streets. The signs were unobtrusive, and the windows advertised completely different goods, such as clothes and shoes. But when the new Systembolaget was founded in 1955, the management decided to bring the stores into the city centre.”

I first encountered Systembolaget in 1998; and it was as primitive as you are all expecting a monopoly to be, in terms of service. You had to ask for your bottles across a counter, having waited patiently in a ticketed queue; the weekday opening hours were rather short (10 am to 3 pm); and the queues on Friday afternoon (open until 5 pm) were extensive, because the shops were not open on weekends.

Actually, the shops apparently originally were open on Saturdays, because it was a workday (and a school day!). So, it was 1982 when Saturday closing was introduced; and this remained in force until 2001 (although even now the stores still close at 3 pm on Saturday). A few partial self-service stores started to appear from 1984, with the first fully self-service store opening in 1991. However, it was not until 2013 that all of the stores had adopted this format. Limited online-ordering was instituted in 2001, culminating in full home delivery in 2012, which became nationwide in 2019. There are also numerous agents that will receive ordered alcohol, and keep it until you can collect it.

So, my previous blog posts about Systembolaget (click the keyword search in the column to the right) describe the current situation, not the past. Today, it really does behave like a liquor chain of international standing (with 3,500 employees), in spite of my pet peeves. The fact that it is government-owned is not, in practice, relevant, other than the positive effect of the increased purchasing power that can be achieved by a truly national chain.

Footnote on the downside of large monopolies:

Back in 2005-2008 there was a large corruption court case in Sweden, in which 92 people were indicted for receiving or giving bribes. Of these, 77 of them were Systembolaget employees, accused of receiving money, travel and other gifts from suppliers in exchange for promoting their goods. At least 65 people were found guilty.


  1. Should this sentence . . .

    "Note that these problem countries tend to be in the colder northern regions — spirits can keep you warm during the long dark winters."

    . . . be followed by a parenthetical ("Wink!  Wink!") and a photo of a rescue St. Bernard with a mini-barrel of brandy strapped around its neck?


  2. Adding to David's bibliography . . .

    "Amtrak, Seeking to Break Even, Sees Some Light at the End of the Tunnel
    The Wall Street Journal online - posted November 8, 2019


    -- and --

    "High-Speed Rail in the US Remains Elusive: Illinois Shows Why"
    The Wall Street Journal online - posted March 4, 2019


    -- and --

    "Federal Government to Cancel Funds for California High-Speed Rail"
    The Wall Street Journal online -- posted February 19, 2019


    -- and in response --

    "California Trims Its High-Speed Rail Ambitions"
    The Wall Street Journal online - posted February 12, 2019


    In the U.S., the historical use (abuse?) of "eminent domain" by government agencies to take private lands away from owners, and convert them to public lands for transportation systems (in the past, multi-lane high speed freeways; today, elevated high-speed rail) is now discredited.

    "Not In My Back Yard" (NIMBY) dominates land use planning.

  3. Quoting from this Wall Street Journal article titled "California Trims Its High-Speed Rail Ambitions"

    "California [high-speed dedicated track rail] . . . price tag for its long-running project rose to an estimated $77 billion. Gov. Gavin Newsom said in mid-February the ambitious plan would cost too much and take too long, adding: 'There simply isn’t a path to get from Sacramento to San Diego, let alone from San Francisco to LA.'"

    Here in California, we have a "no frills," bargain-priced, single "class" seating airline known as Southwest.

    A one-way flight from Los Angeles to San Francisco -- replicating the intended high-speed rail system -- costs as little as U.S. $54.

    Double that and your round-trip fare is just north of U.S. $100.

    At the risk of turning this comment into a STEM lecture, let's do some "back of the envelope" math.

    The projected U.S. $77 billion (and climbing) construction cost for high-speed rail could alternately fund -- at $100 each -- some 770 million round-trip airfares on Southwest Airlines.

    The U.S. Census Bureau projects the population of California is 39,557,045 .

    The projected percentage of the state population 18 years or older is 77.3%, which calculates to 30,577,596 "adults."

    770 million round-trip airfares divided by 30.577 million California adult residents equals 25 round-trip U.S. $100 airfares to every California adult resident.

    For half of that projected U.S. $77 billion construction cost, the state of California could buy outright Southwest Airlines (current market capitalization is U.S. $30.33 billion).

    Then issue taxpayer-funded round-trip flight vouchers to all California adult residents.

    How many flights does Southwest fly each day?  This many:

    From Los Angeles airport (LAX) to San Francisco airport (SFO), there are 20 daily one-way flights.

    From San Francisco airport to Los Angeles airport, there are 17 daily one-way flights.

    From Los Angeles airport to Oakland airport (OAK) across the bay from San Francisco, there are 23 daily one-way flights.

    From Oakland airport (OAK) to Los Angeles airport, there are 23 daily one-way flights.

    From Los Angeles airport to San Jose airport (SJC) [located one hour's driving time south of San Francisco], there are 21 daily one-way flights.

    From San Jose airport to Los Angeles airport, there are 20 daily one-way flights.

    From Burbank airport (BUR) [located one hour's driving time north of LAX] to Oakland airport, there are 19 daily one-way flights.
    From Oakland airport to Burbank airport, there are 21 daily one-way flights.

    Clearly, California has a vibrant air transportation system between Los Angeles and its suburb Burbank, and the three-city destinations comprising the San Francisco Bay Area.

    The average one-way flight time is between 60 minutes and 90 minutes.  Air travelers get to their destination cheaper and sooner than high-speed rail.

    Citing one of Albert Einstein's less famous discoveries:


    U.S. $77 billion (and climbing) funds A LOT of round-trip airfares for California adult residents.

    And that is why observers question the logic and economic viability of high-speed rail between Los Angeles and San Francisco.

    [As the late U.S. Senator Everett Dirksen observed: "A billion here, a billion there, pretty soon, you're talking real money."]

  4. As usual, you overstate the benefits of the monopoly (or monopolies). And you are mistaken about road and rail. Not monopolies.

    The only monopoly that remains in Sweden is on alcohol retail. The last but one, on gambling, was abolished not long ago.

    One could also point out that the monopoly exists more or less in its current form since around the 1930s (the structure changed in the 50s) and during all this time alcohol consumption has steadily risen.

    It rose and rose under the monopoly, whose sole motivation for existence is to limit alcohol consumption, until quite recently when it stopped going up and even slightly decreased. Interestingly, that change towards less consumption coincides with a period when Swedish alcohol regulations was made significantly more liberal.

    And as to the "benefits" of being a big buyer... Well, to some extent that is partially true. But the other side of that is that most wines that come to Sweden are made by huge producers, industrial-type of wines. Very few smaller producers manage to get into the Swedish market. So, perhaps yes, some purchasing power, but the result is that Sweden see very few smaller (and more interesting) producers. If I look at what wines are available in Sweden it is very, very predictable, it is generally big groups with marketing clout. On average a quite uninspiring range of wines.

    1. My research indicates that the current arrangements for Systembolaget were put in place long after the 1930s, when things were very different — it is before my time, though. Moreover, things have changed significantly in the past 10 years. My experience, comparing Australia with Sweden, is very positive, and I am not overstating this. There are those who hate monopolies on principle, and I am not one of them.

      As for railways, they are monopolies in places like Australia, where wine is not a monopoly.

  5. As I mentioned, monopoly existed well before 1955, which is the date when all the local/regional monopolies were put under one umbrella, Systembolaget. More of a cosmetic change than one of principle.

    In fact, the history of the monopoly goes back to the 1850s when owners of the mine in Falun petitioned the king to obtain a monopoly on alcohol locally, since they lost so many workers due to alcohol and the bosses were getting the costly charge of taking care of widows and fatherless children. This, in time, grew into a monopolies all over the country. And it was a very close call that Sweden actually did get prohibition. (And by the way, opening hours was never until 3PM, nor 5PM, on weekdays.)

    My experience is quite different, that the market for wine in Sweden (and Finland) is extremely limited in the range of wines it offers to the wine-loving public. This is not a question of principle, it is a fact. Compare it to any of the other non-monopoly markets in Europe and you will find that the range of wines available in Sweden is very limited and very focussed on "big brand" producers. I am not familiar with the market in Australia.

    And in addition to the monopoly leading to a poor choice for wine lovers it has proven to be very bad at "safeguarding public health" which is its sole raison d'etre. This failure is even of course more important than the other aspects. Sweden (and Finland and Norway) deserves a better "alcohol politics" that serves public health better.