Introduction This is the third Institute foray into the black market; the other two being Sin-Tax Failure: The Market in Contraband Tobacco and Public Safety (January 1994) and Mis-Fire: The Black Market and Gun Control (May, 1995). By now, the basic dynamics of an underground economy have become easy to understand, but never before has contraband activity seemed so flagrant in the province.

In Canada, and in Ontario particularly, there is a tradition of experimentation in social engineering through legislation. Value conflicts, idealistic crusades, a persistent (but changing) political elite and a government sense that the populace must be controlled have had a number of effects. Repeated lessons about the role of paradox in guiding human affairs seem to be forgotten shortly after they are learned.

In recent years, attempts to curb smoking through increasingly heavy sin-taxes had some part in gradually diminishing tobacco use – but then a huge black market in tobacco appeared. Currently, consecutive federal governments have pushed gun control only to create a burgeoning black market and drive an unknown percentage of the legally owned inventory underground. Career criminals were connected to the firearms black market even before Bills C-17 and C-68 came down.

The classic North American experiment in forcing social change through legislation came out of the Prohibition Era. A middle class with recent rural ties endeavoured to force anti- alcohol “Temperance” values on the whole of society. The United States added the prohibition of alcohol to their Constitution in 1919. Some 13 years later, after teaching millions of citizens to casually break the law and turning scattered poorly organized criminal gangs into a powerful syndicate (the Mafia), the whole experiment was called off.

Various Canadian provinces flirted with temperance laws and prohibitions of their own- usually to find, then as now, that ordinary Canadians can be remarkably subversive when it comes to government regulation of their private affairs.

Ontario itself instituted Prohibition measures from 1916 to 1927. However, Ontario’s wineries were specifically exempted, and many breweries and distilleries remained open to serve the export market (anyone with access to a doctor might be able to beg for a prescription of rum or whiskey for “medicinal” purposes). The export market boomed with prohibition in the United States. Shipment upon shipment left Ontario, with excise taxes paid, handled by residents who were not allowed to touch a drop of the stuff themselves.

The end of Ontario’s prohibition experiment only came gradually. Many residents remember an entire series of asinine laws and regulations, many of which were enforced by the newly created Liquor Control Board of Ontario (LCBO) and the Liquor Licensing Board of Ontario (LLBO).

For example, until about 1970, Ontario’s bars were required to have a separate Ladies entrance and a room where escorted gentlewomen might enjoy a beverage with a respectable male companion. Otherwise, alcohol-inflamed men might attempt to take liberties… Lest maddened drinkers fall to unseemly brawling, it was forbidden for a patron in a bar to ever stand up with drink in his hand. Ifhe wanted to move to another table, a waiter had to carry his unfinished drink for him. These measures finally ebbed in the 1970s. Limits on glass sizes for draft beer, and the numbers of drinks per person allowed on a table lasted into the 1980s.

The Lord’s Day Act and controls on the public consumption of alcohol also lasted until the 1980s. All taverns and bars were closed on Sundays (starting at midnight on Saturday), and no alcohol could be sold in restaurants – unless sold with food. This resulted in over-handled food items such as stale sandwiches sitting on the tables of drinkers. Outdoor patios, cafes and beer gardens were virtually unknown in Ontario until the 1980s. Likewise, restaurants were forbidden to cook with alcohol until the 1970s, lest forbidden nectars suddenly incite intemperate behaviour among diners.

LCBO stores (the only places were liquor and wines were legally sold), were Calvinistically dreary places. Consumers were not allowed anywhere near the shelves lest they become overwhelmed with thirst and temptation – never mind choice. Instead customers had to fill out a little card with their desires and hand it to a clerk, who would then disappear into the rear of the store and hopefully re-emerge with the right products – packed (by regulation) in a plain brown paper bag. Until the late 1960s, the cards had to be signed and the customer’s address had to be clearly marked.

War-time rationing of alcohol seemingly extended well into the 1950s at LCBO stores. A customer could leave with two bottles of spirits or two cases of beer, nothing more. Revolutionary marketing concepts such as brand displays, comparative pricing, check-out counters and attractive premises made a tentative appearance in the late 1960s and only became universal iri the early 1980s.

In addition to all the strange regulations, Federal and Provincial governments heaped a number of taxes and duties on alcohol, and continue to keep them high. Currently, only a few restrictions remain on consumer choice, but prohibition’s hangover still affects brewers, vintners and distillers. The production and sale of alcohol in the Province are still tightly controlled – but a number of minor quirks (usually representing half-hearted attempts to improve matters) have crept into the system. Taxes and duties have created a vast gulf between real production costs and consumer prices, and regulations are both complex and mixed in their applicaton. The certain and sure result of both is today’s black market.

The Font of the Black Market

An underground economy is based either on the provision of wholly illegal products (narcotics and automatic weapons for example) or otherwise legal products through illegal means. The latter kind of black market is invariably the bastard child of over-taxation and over-regulation. Consumers have demands that will be met. If the price is too high or is inflated artificially through taxes and duties, alternative sources will emerge. If compliance with regulations is seen as a burden, consumers and suppliers will subvert or ignore them. If regulations are regarded by some as unfair, or seem too complex, they will be bypassed.

Whether this seems deserved or not, Ontario’s black market in alcohol owes its existence to the Federal and Provincial governments. Acting in loose concert, Ottawa and Queen’s Park have artificially inflated the price of alcohol with high duties and taxes, while convoluted policies have created significant problems of their own. The underground sale of illegal or untaxed alcohol is a problem throughout Canada, but seems especially prevalent in Ontario. The province is Canada’s most populous (over a third of all citizens live here) and contains 10 of the country’s 25 largest metropolitan areas. Transportation links to the US are excellent, and some good smuggling routes are very hard to adequately police.

As an example of Canadian taxing structures and alcohol, the Association of Canadian Distillers helpfully drew up a little chart in their 1996 Annual Statistical Report. It concerns the pricing of a “typical” 750ml bottle of standard Canadian spirits:

A) A completed bottle of Old Panther Sweat Sipping Whisky arrives at the retail outlet; total production and shipping costs (allowing for a decent profit by the concerned parties) equals some $3.43.

B) The Federal Government adds $3.32 in Federal Excise Duty

C) The Provincial Government tacks on $9.63 in sundry taxes

D) The combined Provincial and Federal Sales taxes add on another $3.12.