A sideways look at economics

For most British people, buying a bottle of wine on a Friday night after work, or picking up a few cold beers in preparation for Super Sunday, seems like the most natural thing in the world. If Boris Johnson suddenly announced that this wasn’t allowed, it would probably cause outrage. However, this is the grim reality for Swedes like myself, who grew up in a country with a state alcohol monopoly. When I lived in Sweden, there were few things more frustrating than making last minute Saturday plans with your friends to make cocktails or have a party, only to realise that it was already after 3pm and you wouldn’t be able to buy alcohol anywhere in the entire country until 10am the following Monday. However, while controls on the sale of booze are a hassle (and ruined many of my spontaneous weekend plans), the government does have its reasons for imposing them.

Systembolaget, colloquially referred to as Systemet (“the system”), is the only retailer in Sweden that is allowed to sell alcohol stronger than 3.5%. It is government-owned, and therefore does not have the same goals as a normal corporation. It does not aim to maximise sales or profit, but rather the opposite — it wants its customers to purchase as little as possible. In order to achieve this rather unusual objective there are many rules in place, including that you need to be 20-years-old to buy, and that discounts and deals are forbidden. The advertising is usually educational, highlighting the risks of alcohol consumption. There are no restrictions on how much you can purchase, but outlets keep limited opening hours: on weekdays they are generally open between 10am-7pm, 10am-3pm on Saturdays and closed on Sundays. This seems like a lot of trouble to go to just to stop the Swedish population from picking up a bottle of wine for dinner on Sunday, so why is the government choosing to be such a buzzkill?

The reason, of course, is that excessive alcohol consumption is bad for us, and by extension for society as a whole. This can be explained using the microeconomic concept of externalities, essentially defined as when production or consumption occurs without taking into account the spillover benefits or costs to a third party, in this case society. Spillovers can be positive, as is the case with education; it benefits the consumer by creating better career opportunities and making the individual grow and feel fulfilled, and it creates a spillover benefit to society since it makes the population more productive and promotes economic growth. In the case of alcohol however, the external effects are generally negative. These include things such as traffic accidents, higher crime rates and costs to healthcare. These externalities are not taken into account in a free market, creating a divergence between private and social cost which results in a consumption of alcohol that is beyond what is optimal for society.

A state-owned alcohol monopoly is a policy designed to reduce the size and impact of such externalities. It is a strategy chosen by some US states, Canada, India and all Nordic countries except for Denmark. It enables the government to set high prices without having to worry about the consumer turning elsewhere to satisfy their demand, and it ensures the quality of the products sold. Additionally, an alcohol monopoly creates non-monetary costs to purchasing alcohol, such as making it inconvenient through having a separate store just for alcohol and limiting the number of branches. The nearest Systembolaget from my family home in Stockholm is a 15-minute drive away, which has on many occasions been enough of an obstacle for me to settle for drinking soda instead. Then there are rules that seem more random: for example, many are surprised to hear that the beer Systembolaget sells is not allowed to be cold. It must be kept at room temperature in the store at all times, in an attempt to prevent people from drinking it straight after buying it.

Is this an effective way of reducing alcohol consumption? The heat map below outlines alcohol consumption per capita in Europe in 2016, where a darker red colour indicates higher consumption. The countries with alcohol monopolies, i.e., Iceland, Norway, Sweden and Finland, all seem to have a lower alcohol consumption than most of continental Europe and the UK. Sweden consumes 9.20 litres of pure alcohol per capita annually, compared to the UK’s 11.40 and the EU’s average of 11.31 litres. However, this could be explained by societal and cultural factors such as differences in social acceptance of drinking, rather than by legal restrictions on alcohol, and so is not necessarily due to the existence of an alcohol monopoly.

The reasons to limit alcohol sales

One main externality caused by excessive alcohol consumption is the extra cost to healthcare. An EU cross-country comparison of differences in healthcare spending on alcohol and drug treatment[1], which looked at hospital data on general, mental health and specialty care in 2010, found that Sweden averaged 11 days of hospital treatment for alcohol per 1000 capita compared to an EU average of 28. These data clearly suggest a lower rate of alcohol abuse in Sweden. However with a standard deviation of 19 for the EU average, the difference between Sweden and many other EU countries is not as extreme as it may initially seem. So although Sweden has a lower-than-average rate of alcohol abuse, it is not an outlier.

Another major way in which alcohol consumption creates spillover costs for third parties is through drunk driving. The SARTRE 4 project[2] (Social Attitudes to Road Traffic Risk in Europe) is a survey across European countries examining awareness and attitudes to traffic laws and road safety. Statistics from the report show that Sweden is among the lowest when it comes to frequency of driving after having drunk alcohol, frequency of driving over the legal alcohol limit in the past month and percentage of car drivers who believe you can drink and drive if you drive carefully. This suggests that Swedes have a more careful outlook on road safety and drink-driving than people in many other European countries. This could be in part attributable to the existence of an alcohol monopoly, which prompts people to regulate their alcohol consumption and makes them more aware of its risks. It is also likely to be due to Sweden’s stricter drink drive limits, making drivers more cautious.

So for Sweden, it seems, a paternalistic approach by the state to limiting the availability of alcohol is having a positive impact. But are there drawbacks? Can such a paternalistic approach become a crutch, for example? Sweden has operated under this system since 1955, and before that strict rationing was in place. People are used to the regulations and perhaps even rely on them, so what would happen if Systembolaget was abolished, and alcohol sales were privatised? How would the Swedes cope if they were all of a sudden free to make their own consumption decisions?

A study[3] attempting to estimate the impact of privatising alcohol sales in Sweden found that it could lead to annual consumption increasing to 12.07 litres per capita, higher than both the UK and the EU average. The same study also estimated that up to 1418 additional deaths per year could occur as a result of such a policy change. To accurately forecast the true effects of privatisation is essentially impossible, and so these results should naturally be taken with a large pinch of salt. However it is interesting to see that if Swedes were suddenly in control of their alcohol consumption, just as British people are, it is possible that the subsequent externalities could have such detrimental effects on public health.

Looking at all of this, it does seem like an alcohol monopoly might have made Swedes more aware of the harmful effects of alcohol. However, the evidence to support that is not conclusive since differences in consumption can come from a range of factors. It also seems like the alcohol monopoly has made Swedes consume more cautiously than they would if sales were privatised, suggesting a certain dependence on the system to help them make good consumption decisions. Whether it is the best way to correct for such externalities is up for debate. Many will feel that the potential benefits of such a policy are heavily outweighed by the infringement on one’s liberty, and indeed some Swedes are unhappy with it. But with 73.9% of the Swedish population supporting Systembolaget in 2019[4] it seems that it is here to stay, at least for the time being. Personally, as much as I enjoy cheap wine and cold beer, I’m okay with giving that up for a healthier population. As for the spontaneous weekend plans, I’ve learnt the hard way to always have a decent supply of bottles at home.

[1] https://www.ncbi.nlm.nih.gov/pmc/articles/PMC4083336/


[3] https://www.ncbi.nlm.nih.gov/pmc/articles/PMC6303908/

[4] https://www.omsystembolaget.se/folkhalsa/samhalle/alkoholpolitik/sa-sager-folket/