Co-ops, Privatization, and Public Policy

Murray Fulton, Brett Fairbairn, and Dionne Pohler

Co-operatives have an important role to play in the economy. Understanding this role is particularly important when markets are undergoing major changes — as in the case of privatization.

The privatization of liquor retailing stores in Saskatchewan provides an excellent example of the need to understand the role co-operatives play in creating well-functioning markets. In this post, we revisit the argument we made in a recent StarPhoenix/Leader-Post op-ed piece and suggest that, according to its privatization announcement, the Saskatchewan government fails to understand this role.

The goal of privatization initiatives should be to create open, healthy, and competitive markets that produce benefits for a wide group of people — consumers, company owners, and citizens, while keeping key regulations in place (e.g., prohibiting the sale of alcohol to minors).

The history of co-operatives illustrates how the presence of different organizational forms diversifies and strengthens modern economies. Co-ops have emerged to address gaps and deficiencies — the unmet needs of members — that were not filled by for-profit businesses, charities, and public enterprises. As a result of such developments over time, many modern economies are a mix of all these types, and are stronger for it. The exact mix varies from place to place and from sector to sector, but is always an important consideration to keep in mind when making policy decisions.

In the same way that a rich mix of different organisms strengthens biological environments, markets may also perform better and be more adaptive when they contain a diversity of business types. Established chains bring experience and brand recognition. Co-operatives provide competition and a means for consumers to express their interests, including a desire for local control. Entrepreneurs can serve niche markets, and employee-owned businesses, including worker co-operatives, can create specific employment opportunities.

In its announcement of the privatization of liquor retail stores, the Government of Saskatchewan appears to have recognized the importance of an organizational mix in this market and took steps to ensure it was created. As Jeremy Harrison, the minister responsible for the Saskatchewan Liquor and Gaming Authority, states, “The successful proponents range from independent businesses and entrepreneurs to larger established chains as well as six locations that will be owned and operated by affected government liquor store employees.”

While the minister is correct if the province as a whole is viewed as the market of interest, the balance of organizational types in any one location — in any specific market — is, in fact, significantly skewed. As the minister suggest, liquor retail outlets were awarded to five different organizational types — local entrepreneurs, co-operatives, independent businesses, employees, and established chains. However, as illustrated in the graph below, the established chains — Metro Liquor, Liquor Depot, and Sobeys — obtained the stores in larger centres with greater populations, specifically Saskatoon, Regina, Yorkton, Moose Jaw, Kindersley, Melville, Tisdale, and Emerald Park/White City (on the outskirts of Regina). In contrast, the other four organizational types were allocated operations in smaller markets. As the figure shows, the magnitude of the distribution imbalance is remarkable, with the average size of the market awarded to the chains more than ten times the average size of the market awarded to any of the other types.

Of course, not all markets are appealing for all business forms. The large established chains might not find the smaller markets attractive; indeed, one of the strengths of the other organizational types, such as consumer co-operatives, is that they are often able to flourish in smaller markets. However, urban markets should be open to everyone, not to just the large chains. There is strong evidence, in fact, that consumer co-operatives would have provided excellent service in the larger centres. Calgary Co-op, for example, transformed the liquor retail environment in Calgary, and Saskatoon Co-op was part of a pilot test that has been exceptionally successful.

As we concluded in our op-ed piece, “Good public policy needs to be well thought out — particularly in areas like privatization, where early entry by certain players can affect the structure and performance of the market for years to come.” Well-thought-out public policy requires an understanding of the role of different organizational types, as well as the political will to make the choices that this understanding suggests. While we do not know why the Saskatchewan government made the decisions it did around the privatization of liquor outlets, it is clear that around the world, in other times and in other situations, co-operatives are often overlooked. This suggests a need to reiterate the importance of co-operatives in the economy and to find ways of showing why a larger co-op presence provides political as well as social and economic benefits.

Murray Fulton, Brett Fairbairn, Dionne Pohler

With thanks to Danielle Potter for converting the original op-ed into a blog post

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