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GOVERNMENT RETAIL IN SWEDEN

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INTRODUCTION

The Sweden economy can be categorized among the most developed economies in the world.  It is quite diverse and more oriented to export which forms the largest proportion of the country’s GDP. The country took a neutral position during the Second World War which means that the country did not experience economic destruction like many other countries in the world. Due to this position the country took during the world war, the economy of the country remained to be a mixed economy.  The economy is more capitalist but with some elements of state control. The government derives most of its income from tax revenue and it is ranked position two in the world after Denmark in terms of the proportion of national income that is derived from the tax revenue. The Sweden economy has been performing well in the past years despite many internal and external challenges. For instance, in 2006 the country was ranked position nine globally in terms of per capita GDP. Despite this level of success in the economy, the Swedish economy has been dominated by the government monopolies which have been a major economic issue in the country and even outside the country. The Government has dominated many sectors of the economy where it acts as the sole provider of many goods and services.  In Sweden the government has been the sole provider of alcoholic drinks, railway services, health care services and many other similar services. However, in the recent past the government has been allowing privatization in some industries like the transport industry.  This paper will look at the government retail monopoly in Sweden and analyze whether they make any economic sense in the country’s economy. This study will also compare this type of economy with other open market economies like Switzerland.

 

PURPOSE OF THE STUDY

The main aim of this study is to explain and understand how retail economies work using the case study of the Sweden economy. The study also seeks to compare this type of economy with other open economies which will help to bring better understanding between them. The finding of this research can be used by the government and other stakeholders when they are making economic policies such as privatization.

LIMITATIONS OF THE STUDY

This study makes some assumptions which may in one way or the other may affect the practical application of the findings of this study. For instance, the Sweden economy is replica of any other developed economy in the world and studies from other developed economies may be applicable in the case of Sweden. Secondly, the economy of the country is stable and it is not affected much by changes in economic conditions.

MONOPOLY

Retail monopoly occurs when there is only one supplier who is supplying goods or services to the whole industry. According to Rowley (2009, pp. 751-761), monopoly of any form is not socially desirable and many economies in the world try to minimize monopolistic effects through regulations. When a certain monopoly attain too much power, interventions are necessary in order to protect public from exploitation by that monopolistic agency. These interventions may be aimed at regulating the monopoly, changing it to public company or even breaking the monopoly.

This concept of monopoly can be dated back in those eras of market development where products, communication, societies, consumers and market place were very different. Traditionally monopoly was viewed in terms of competition within similar businesses. However, in the recent time, market places are becoming very complex. For instance, the market of six model as proposed by Payne et al (2005, pp. 855-871) represent the complexity of the modern market where monopoly may not be looked in terms of competition among businesses only but in a wider dimension. Firms can use many strategies that can give them some market power to dominate the market. Thus in this century monopoly in the market can only be looked in many dimensions. For instance, in the modern market, corporations have shown their commitment to the social environment which they are operating in through corporate social responsibility as noted by (Wood, 1991, pp.691-718; Jones et al, 2005, pp.882-892). This shows that corporations are no longer separate from the society they are operating in as it was the case in the traditional monopoly.

HISTORY OF MONOPOLY IN SWEDEN

The constitution of Sweden allows the operation and existence of retail monopoly that are owned by the state. This provision allow state to operate retail monopoly in some sectors in order to cater for the interests of the public who might be exploited in provision of some goods and services if private firms are given permission to provide them.  The Swedish government also restricts other firms in the provision of some goods for the sake of public health. For instance, alcoholic drinks are considered harmful to the public and therefore the government is the only entity that has the right to import and distribute alcoholic drinks in the whole country. However, this sole right by the government to import and distribute alcohols and other public goods and services has been a bone of contention between the government and the public where public complains of high prices that are charged by the government agencies when it come to the provision of these goods and services. The Swedish government has also experienced a lot of external pressure especially from the European Union and other international bodies that are against market policies of the Swedish government.

MONETARY ASPECT

The Systembolaget is the monopolistic agent of the government in Sweden which import and supply alcoholic beverages in the country. The government tax alcohol according to the alcohol content of that brand which is usually higher than in many other countries in Europe. For instance, Vodka is taxed at the rate SEK 200 per litre which is high compared to other countries like Switzerland which charges a tax of CHF 5.30 per litre. The government has been collecting a lot of revenue from the alcoholic tax and more so due to its monopoly power in the area. Most of the products and services that are supplied by the government are charged higher prices than they could have been charged if competition was allowed in the sector. This pressure from the public and other external forces has agitated the need for the replacement of the current system of government monopoly with privatization system. From the studies which have been done by many researchers, privatization of the government retails will increase competition in those sectors which have been dominated by the government agency thus allowing market forces to control the market. For instance, privatization of the beverage sector like alcohol will increase the consumption of the alcohol resulting to increased sales. This will increase the profit of the firms that are trading in that industry as well as increasing revenue of the government through taxes. The government of Sweden has also been losing a lot of revenue through illegal import of alcohol. Increased shortage of alcohol in the country leads to illegal importation of alcohol. This happens as more people get attracted by high profits from the sale of illegal alcohol. These illegal importers do not pay any tax to the government thus making the government to lose a lot of revenue which could not have been saved if privatization system was adopted. Again, it is expected that privatization will bring competition in most of the Swedish industries. Many companies that are operating in various sectors will compete in order to increase their sales in the market. These firms will use all strategies in order to outdo their rivals in the market. One the strategy they will use is promotion through advertising. Competing firms will go for radio and print advertising as a way of convincing more customers to use their products. Through increased competition, the quality of the products will increase, prices will fall and businesses will grow. This will increase the sales in these businesses such as alcohol distributors and advertising agencies thus raising their profit. Increased profit from these firms will also increase the revenue of the government through tax revenue.

FACTS ABOUT ALCOHOLISM IN SWITZERLAND

Beer comprises about one third of the alcoholic drinks in Switzerland while wine form the most consumed alcoholic drinks. The country is ranked among those with the highest level of alcohol consumption though the rate of consumption has decline in the last two decades. About 300,000 people in the country depend on alcohol according to the research that was done in 2006. Again, the consumption of alcohol takes the lives of about 2,100 people annually according to the survey that was carried in 2001. The cost of alcohol to the society is approximated to be about 6.7 billion franc annually according to the research that was done by Neuchâtel University.

COMPARISON

The figures presented above show that, the rate of alcohol consumption is high in Switzerland compared with that of Sweden. Death rates are also high in Switzerland compared to Sweden. This can be attributed to government regulations that have been in use in Sweden which have controlled the level of alcohol consumption in the country. Switzerland also pays very high social cost as result of high rate of alcohol consumption.

THE RETAIL MONOPOLY AND THE EUROPEAN UNION

The retail monopolistic sale of alcohol in Sweden seems to contradict with the trade policies of the European Union which allows free movement of goods within the member states. According to Greg (1996, P.3), several cases have already been filed in the European Court Justice by various individuals who  accuse Sweden, Finland and Norway for making policies contravening  the provisions of the European union trade agreement. The existences of retail monopolies that are owned by the government in these countries restrict free movement of goods and services as it is advocated by the European Union. For instance, Swedish government restricts other companies not to import alcohol which limit free movement of goods through limited importation from the neighboring countries. This policy has also affected the harmonization of trade among member states in the European Union where most members support anti monopoly policies. According to Christopher and Clare(2003,p.18), Finland and Sweden were permitted to keep their alcoholic restrictions in 1990s when they joined  the European union on the basis of public health but thereafter they were required to liberalize the sale of alcohol.

SOCIAL ECONOMIC ASPECT

Though in terms of revenue there is a lot of money the government may gain from privatization of alcohol, there is also huge social and economic costs that are associated with increased sales of alcohol in countries that have liberated the sale of alcohol like Switzerland, US and many others. For instance in US, eighteen states have established state agencies which are monopolistic in nature in order to control sale and distribution of all alcoholic beverages. According to Spellman and Jorgenson(1982, pp.77-84), those states that have controlled sale of alcohol through government agency  have reported low level of alcoholic consumption, low level of prices and per capita consumption is also low. Thus it makes social sense when Sweden and other countries continue to control sale and distribution of alcoholic drinks in their country. Through the use of retail monopoly, the government of Sweden has managed to control the sale and distribution of alcohol beverages in the country. Strict rules have also been enforced concerning the age limit where alcoholic drinks are only sold to people who are twenty years and above. As Geidne and Eriksson (2009, pp. 259-278) argue, many young people drink alcohol because of its availability and any strategy to reduce the accessibility of alcohol to young people will reduce their drinking habit. The government has also managed to control and reduce the number of hours that people can purchase alcohol. The promotion of alcohol through advertisement has also been restricted in order to discourage consumption of alcohol. Age limit ensure that those people that are under age for example students do not access alcohol which can ruin their lives at a tender age. Limiting the number of purchasing hours will ensure that accessibility of alcohol is limited and one can access alcohol for fewer hours. People are encouraged to drink after work and not at any time of the day.

Though the government of Sweden has managed to control the level of alcohol consumption, a lot of revenue has been lost through low tax revenue due to low consumption and increased smuggling of alcohol across the country’s borders. The move by the government to privatize alcoholic sector will also have some social and economic effects. Little control of sale and distribution of alcohol will lead to increased consumption of alcohol. Increased consumption of alcohol will increase the number of social crimes that are related with alcohol. For instance, cases of fatal accident that are caused by excessive drinking are expected to rise in the roads  as lack of regulations in the industry will make more people to access alcoholic drinks all the time. As Cismaru et al (2009, pp. 292-311) argue, most of the road accidents are related to alcohol and thus controlling excessive drinking will control the number of road accidents in the roads. Aggressive behaviors are also expected to increase which result to cases of child abuse, family separation, homicide and suicide among other crimes. The mortality rate of the population is also expected to decline due to increased drinking habits since many alcoholics are irresponsible. Rate of industrial production in the economy is also expected to decline as the productivity of alcoholics who are employed fall. Alcohol drinking will also cause many people to loose their jobs as result of irresponsible behaviors that come with excess drinking such as job lateness, poor performance and many others.

RETAIL MONOPOLY AND HEALTH RELATED ISSUES

The government of Sweden has tried to minimize the cases of diseases that are related with excessive drinking of alcohol for the past years. However, the privatization of alcohol sale like in other European countries such as Switzerland is likely to increase the number of patients and deaths that result from excessive drinking of alcohol. According to Akinboade and Mokwena(2010, pp. 54-74), heavy drinking of alcohol will cause damage of the body organs , addiction, cognitive impairment, birth defects, reduced productivity and negligence in family responsibilities. Alcoholic abuse will cause hangovers and venereal diseases among the abusers.  All these effects will increase health expenses in the society.  Due to these alcoholic related diseases, a lot of money will be spent in hospitals, nursing home, pharmaceuticals and in health related consultancy. This cost will be catered by the family members, government, employers and other concerned groups in the society.

The country is also expected to register increased death rates from the diseases that are related to excessive alcohol consumption. Diseases such as liver damage that result from excessive drinking of alcohol are expected to take more lives with increased alcohol consumption. More deaths are also expected as a result of increased road accidents that result from excessive drinking of alcohol. Thus the choice of the government to liberalize the sale of alcohol like in other European countries such as Switzerland is expected to increase social cost of the society. The Government expenditure on the public health is expected to increase if the government privatizes the sale of alcohol unless necessary measures are taken just like the case of other countries which have liberalized sale of alcohol.

CONCLUSION

The Sweden economy has been performing well for the past few years indicating that government retail has been making some economic sense. The government has also been able to meet its objectives such as increasing revenue tax and controlling sale of harmful commodities such as alcohol. This control in one way has enabled the government to reduce its expenditure on public health through minimizing cases that are related to alcoholic consumption. On the other hand, the government has lost a lot of revenue through reduced sales and illegal import of alcohol in the country. The rate of unemployment has also been high since controlled economy does not allow creation of jobs through private sectors. The government has also faced a lot of pressure from outside especially from the European Union for limiting free trade in the region as advocated by the European Union. Open market economy such as Switzerland has reaped the benefits of liberalized economy at the expense of other effects that come with open economy such as unhealthy competition and social effects like increased road accident as a result of excessive alcohol consumption.

 

 

 

 

 

 

 

 

 

 

REFERENCES

Akinboade, Oludele Akinloye & Mokwena ,Mandisa Putuma, 2010.The problem and awareness of liquor abuse in South Africa: International Journal of Social Economics Volume: 37 Issue: 1 (pp. 54-74),

Cismaru, Magdalena, Lavack, Anne & Markewich, Evan, 2009. Social marketing campaigns aimed at preventing drunk driving: A review and recommendations. International Marketing Review Volume: 26 Issue: 3 (pp. 292-311).A

Geidne, Susanna & Eriksson, Charli, 2009. Working with or against the stores?: A non-governmental organization working with alcohol purchase attempts. Health Education Volume: 109 Issue: 3 (pp. 259-278)

Greg, McIvor, 1996.Sour grapes over Swedish alcohol laws: State retail monopoly is being challenged in European court; [USA edition].Financial Times. London (UK): Nov 20. (3)

http://www.swissworld.org/en/people/drugs_and_alcohol/alcohol/. Retrieved on March 7, 2011.

Humes, Brown & Christopher, Clare. 2003.The thirst for cheap alcohol draws Swedes across borders: Tax cuts and trade liberalization undermine Nordic governments’ fight against liquor; [London edition]. McCarthy, Financial Times. London (UK): Jan 29, (18)

Jones, P., Comfort, D., Hillier, D. (2005), “Corporate social responsibility and the UK’s top ten retailers”, International Journal of Retail and Distribution Management, Vol. 33 No.12, pp.882-92.

Payne, A., Ballantyne, D., Christopher, M. (2005), “A stakeholder approach to relationship marketing strategy: the development and use of the ‘six markets’ model”, European Journal of Marketing, Vol. 39 No.s. 7-8, (855-71).

Rowley ,Jennifer, 2009.Superpoly: monopoly in the twenty-first century; Management Research News Volume: 32 Issue: 8 (pp. 751-761)

Spellman, William & Jorgenson, Mark,1982.The Social and Revenue Effects of State Alcoholic Beverage Control. The American Journal of Economics and Sociology. Vol. 41, Iss. 1; (77-84)

Wood, D.J. (1991), “Corporate social performance revisited”, Academy of Management Review, Vol. 16 pp.691-718.

 

 

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