Licensing laws fail to boost efficiency or curb drinking

Ireland is among the most difficult places in the world to open an Irish pub. Since 1902 the law has limited the number of pubs.

Somebody who wants to open a new one must first buy a pub licence elsewhere in the country and close it down. Then they must persuade a court of law that, among other things, the new pub will not affect the viability of existing pubs in the area.

In this way, the law targets new pubs which might threaten the market status quo by offering better value, quality or innovation.

Preventing efficient new entry seriously restricts the development and innovation of any market. It protects existing pubs from competition, enabling them to increase prices, reduces incentives to cut costs, and makes them care less about customer needs.

Supply responds to growing demand by the expansion of existing premises and the licences increase in value, not because of capital investment, but because of their protected profit stream. These characteristics are all evident in the Irish pub market, which is distorted in several ways.

First, approximately 35 per cent of the population (residents of Dublin) is supplied by just 10 per cent of the pubs. Thus areas like Tallaght, with the same population as Galway, are supplied by a few very large pubs, while rural areas where population has declined since 1902 have many that are unprofitable.

Second, while Ireland has exported the Irish pub concept to the rest of the world, the licensing system here has destroyed many traditional pubs in Dublin. Yet Ireland is largely deprived of innovations like French-style cafes, which sell a broad range of products.

Third, huge amounts of time, money and effort are wasted on lobbying by the existing pub owners to keep the system in place.

Ultimately, this restrictive system has imposed a huge cost on consumers in terms of high prices, poor quality, lack of choice and little innovation.

Excessive alcohol consumption can have serious detrimental social and economic effects and requires a policy response. Binge and under-age drinking are the most serious manifestations of a culture that encourages drinking alcohol as a social activity in its own right.

Some argue that controlling the number of outlets is a useful way of tackling alcohol problems, either because the restriction of competition pushes up prices to reduce the level of demand or because the limited number of outlets makes it more difficult to buy a drink.

Not so:

First, controlling the number of outlets is relatively ineffective because outlets can expand in size. Its application is uneven, as it has controlled only the number of outlets in urban areas where population has grown.

Second, if raising the price is the issue, then restricting competition is far inferior to raising taxes. Restricting competition has the perverse effect of giving "tax" receipts to the sellers of alcohol, rather than to the State where it could be used to deter alcohol-related problems.

Taxation is more equitable in its incidence over regions and citizens; less costly to consumers because competition would increase efficiency; and does not affect the rights of individuals to earn their livelihood in a trade for which they are well qualified.

Third, the regime rewards publicans who expand their premises and focus exclusively on alcohol. It is unprofitable to "waste" a full pub licence by selling alcohol in small quantities or combining it with food, sport or cultural pursuits.

This forces consumers to choose between alcohol and food, rather than consume them together in a balanced way, supporting a culture in which alcohol is an end in itself rather than an accompaniment to other social activities, and it may even encourage binge drinking.

Fourth, the current system strongly favours large anonymous premises over small neighbour

hood bars where customers are generally known to proprietors and staff. Common sense suggests that this aggravates the social problems associated with drinking.

Large premises make it more difficult to control under-age drinking and create safety and public order problems when they empty vast crowds at closing time.

Sparsely located super-pubs undermine efforts against drinking and driving and penalise the moderate or social drinker who would like to stroll to his or her local.

Ultimately, restricting outlets has distorted the market so as to support a culture where drinking is an end it itself, while preventing responsible drinking as part of a balanced lifestyle.

Greater competition in this sector should be seen, not as unfettered deregulation, but rather as one element in a package of regulatory reform that includes better education, improved enforcement and greater use of creative licensing.

Removing entry barriers would make it viable for outlets to sell alcohol in small quantities and thus contribute to a positive shift in cultural attitudes towards alcohol.

On top of this, it would offer huge benefits for responsible consumers in terms of improved quality of service, a wider variety of retail outlets, and greater efficiency.

Regulatory reform in other markets such as airlines and telecommunications and, most recently, taxis, was generally opposed vigorously by the existing suppliers who were protected from competition. Typically, dire and frightening scenarios were predicted. The positive experience in those sectors should encourage us to question such scare tactics by vested interests.

Regulatory reform done properly has the potential to tackle the serious social problems associated with drinking alcohol, while delivering lower prices and increased quality. Conversely, keeping the current restrictive system will continue to undermine efforts to reduce these problems, and do so at an extortionate cost to the consumer.

John Fingleton is chairman of the Competition Authority