When towns compete with local businesses

Marketplace’s David Brancaccio raises a fascinating question today: If a municipality starts a business that could compete with private business — say, a municipal liquor store like the one in more than 200 Minnesota communities — is it socialism?

Brancaccio reports on a town in Kentucky that was frustrated by high gasoline prices charged by retailers in Somerset, Ky. So the town started its own gas station to try to force prices down to the ones encountered by drivers in other towns in the area.

I looked around for some precedents and they are interesting. Some cities have long had municipal public utilities. The power company in San Francisco is owned by the city and county, for instance. In North Dakota, there has been a state-owned bank that for 95 years has been serving as a kind of mini-Federal Reserve for the region to target cheaper loans to projects deemed in the public interest, like nurturing local entrepreneurs.

There are precedents in the retail sector as well. The town of Kotzebue, Alaska, owns its own liquor store. In Minnesota, 207 municipalities own their own booze emporiums.

More typically, however, the response to high prices or other perceived market failures has not been ownership of the retail outlet by a municipality. Instead, the solution is more often local citizens banding together. Heating fuel co-ops are common, in which locals pool resources to get a better price on oil by buying in bulk. In Powell, Wyoming, there is even a department store called Powell Mercantile owned by a group of 500 local shareholders. The store is popular enough to have become a tourist destination.

“Every holiday, every weekend, I’ve seen gasoline jump here 30, 40, 50 cents on the gallon just overnight, for no reason, and our neighboring towns — until the last two or three weeks — you could drive anywhere in a 50-mile radius and buy gas cheaper than you could in Somerset,” said John Minton, a Somerset councilman since 1994.

  • Moffitt

    I thought the Somerset mayor made a strong case for this unusual move.

  • Dave

    “is it socialism?”

    Depends who you ask. I have no problem with a city or anyone owning and running a business, but I do think it’s anti-competitive when a city has a monopoly. Eden Prairie, for example, I believe, owns liquor stores but does not allow private stores.

    Gasoline, on the other hand, is a commodity. It’s the same product everywhere. If a town can run a gas station and acquire its product at market rates and sell it without losing money, why not?

    • DavidG

      The liquor laws in Minnesota do not allow a town to have both municipal and private liquor stores. And depending on when the municipal store was established, a town may have to shut down the municipal operation once the population reaches 10,000.

      The anti-competitive aspect isn’t really an issue for the metro area: Someone in Eden Prairie probably only has to go a couple of blocks to reach a privately owned Minneapolis store. Perhaps a larger issue in smaller rural areas, but then, I kind of doubt a private operator is likely to set open a store in someplace like Elizabeth MN.

      • Moffitt

        That said, the prices and selection at the Columbia Heights owned Tru Value stores are much better than most other liquor stores in the north metro.

    • Veronica

      In my city, we have 4 municipal liquor stores, and 2 of the 4 burbs we touch have private liquor stores. The muni stores benefit the city by giving us millions, and, for a town with a tiny footprint, 4 stores is PLENTY. Like others said, in the MSP metro area, you always have other options.

      4 years ago, when I ran for city council, one opponent was gunning to switch to private liquor stores, claiming the license fees would make for the difference. Once I pointed out how many stores we’d have to open to make up for the lost revenue, he changed tunes.

      I prefer our municipal stores. They are clean, rarely seem dangerous at night, have good prices and great employees.