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July 23rd 2003

Goteborg, Sweden



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Licensing and Temperance


CRITICISM of the Gothenburg System as a whole must necessarily be based on (1) principles and (2) actual results, and prominently among the former one must place the assumed elimination of all motives of private interest. Here the first question to be asked is, Has such elimination really taken place ?
If those who financed the companies did so without expecting any return whatever on their money, and gave us reason for assuming that they were actuated by philanthropy pure and simple, one could more readily accept the theory of an entire absence of private interest. But the 5 per cent, which is assured to them before any question arises with respect to actual profits is by no means a bad return from a financial point of view, especially as no real risk is run. It is conceivable that a very large number of persons with money to invest would be only too glad to have the opportunity of a ' good thing' such as this without making any pretence that they were merely seeking to promote the welfare of their fellow-men. Such a position becomes still more tenable when one thinks of the enormous sums of money invested in commercial undertakings which do not yield anything like 5 per cent. Taking the case of ordinary stock in the railways of the United Kingdom, I find that in 1905 no less than £56,691,000 received no interest or dividend at all; on £16,969,000 the amount of dividend paid did not exceed 1 per cent.; on £42,821,000 it was between 1 and 2 per cent.; on £126,692,000 it was between 2 and 3 per cent.; and on £78,934,000 it was between 3 and 4 per cent. To talk, especially, to the holders of the £56,000,000 ordinary railway stock yielding no return whatever about the beneficence of the shareholders in the Gothenburg System companies who are ' content' with 5 per cent, preference dividends would be something like a mockery. Even in the case of the highest yielding companies in the United Kingdom stock can hardly be bought now to yield 5 per cent., and this notwithstanding the recent heavy decline in prices.
Certain it is, also, that such a return on capital compares favourably with that which is obtained from investments in other companies in Norway, at least. Writing on this subject in 1893, Mr. Michell, then Consul-General at Christiania, said:
' A preferential payment of 5 per cent, on the shares of the association is an exceedingly strong inducement for promoting the prosperity and extension of the associations. Their 400-kronor (about £22) shares have never fallen below par, and'when money is cheap they fetch as much as 430 kronor in the financial market.
' The right of the municipalities to buy up at par, within a certain number of years, all the shares of an association alone prevents the shares from being constantly at a premium.
' The best Government securities (loans) and the bonds of the Land Mortgage Bank of Norway do not yield a higher rate of interest than 3 to 4 per cent. Their value is at the same time liable to be swayed by a variety of circumstances. The financial credit of Governments, as well as that of land mortgage banks, comes and goes, but as drink is likely to go on for ever to an extent, at least, that cannot fail to give its vendors a benefit of 5 per cent, on invested capital, it is not surprising to find that all towns in Norway have been eager, if only from that point of view, to avail themselves of the advantages offered by the Gothenburg System.'
The idea, therefore, of shareholders having no private interest in the liquor business merely because they are willing to accept ' only' 5 per cent, is really absurd. One must remember, again, that the Gothenburg System companies have played an important local role as distributors of the profits for public purposes, securing in this way a position of influence in the community that might almost be regarded as equivalent to a substantial bonus. For a man wanting to secure a certain position in a small community (in addition to 5 per cent, for himself), nothing could suit his purpose better than to become a leading member of a licensing company.
Then it is assumed that if the licensing business is only left in the hands of Governments or municipalities there will be a complete disappearance of any desire for financial gain, and that the good of the community will be the sole aim kept in view. Such an assumption is wholly inconsistent alike with past history and present experience. The fact is, rather, that Governments in all lands have generally been as keen to raise revenue out of the liquor trade as any private individual could be to secure profits for his own pocket, and this tendency on the part of Governments has been reproduced more or less under the various modifications of municipal control of licenses.
Mr. Michell said on this point in regard to conditions in Norway :
' The municipalities themselves are strongly interested, not only in the establishment of associations for the sale of spirits, but also in their prosperity.
' The larger the surplus at the disposal of an association, the greater are the benefits which the town expects to reap. Roads, parks, waterworks, railways, schools, museums, etc., are priceless benefits in a country relatively so poor, and in which taxation, local or central (already very high in towns), cannot always be resorted to for the attainment of such objects.
'The favour with which the municipalities and the Government itself regard the associations in question facilitates the establishment of their dealings on a basis satisfactory to all parties concerned—namely, the shareholders, the municipalities, and the central Government.'
He gave one or two illustrations of how the liquor business was, at that time, really being promoted, in spite of statements to the contrary, and went on:
' On all the above grounds it may boldly be asserted that the original, purely philanthropic, object of the associations (considered collectively) has been gradually departed from, and that the old licensed victualler, often under circumstances of great hardship, has been replaced throughout the great part of the country by hundreds of
holders of 5 per cent, shares, by administrators practically and otherwise interested in the distribution of larger and larger surpluses from the sale of spirits, and by municipalities well content to improve and embellish their towns without recourse to direct communal taxation for those purposes.
The Rev. Joseph M'Leod, a member of the Canadian Royal Commission on the Liquor Traffic in Canada, wrote of the system in his minority report:
' However unselfish the original intentions of the Gothenburg System, there is much reason to believe that, as at present managed, it is simply a profitable monopoly of the liquor traffic, in which the shareholders in the companies, the municipalities, and the central Government participate';
while in his' Conclusions/ set forth in this report, he said on the same subject:
' The original purpose of the system has largely been lost sight of. Intended to save the liquor traffic from the dangerous features supposed to arise out of the greed of individual licenses, it has degenerated into a system to encourage and satisfy the greed of shareholders scattered all over the country. It also appeals to the cupidity of municipal authorities and to that large class, found in every community, who think they see in the revenues derived from the traffic a relief from taxation.
Then the House of Lords Committee on Licensing said of the Gothenburg System:
' It cannot be denied that the almost universal adoption of this system was not due simply to the desire of promoting temperance, but also, and perhaps mainly, to the hope of applying the large profits derived from the sale of liquors to the reduction of local taxation.
Other authorities have been no less condemnatory, and I am bound to say, as the result of my own investigations, that the whole system certainly does lend itself to a good deal of criticism from the financial standpoint. Whatever view may be taken as to the ' elimination' of direct ' private profit,' it must be admitted that there has been substituted for it (assuming such elimination to have taken place) a public gain which is really only private advantage in another form, and is, in effect, proving an even stronger incentive for the conduct of| the business on strictly business lines. Instead of private individuals, whole communities are now interested in the profits, to which they look as a means either of keeping down the demands jnade upon them by the rate-collector, or of securing a host of public improvements or ' charities ' which they would otherwise have to pay for or support out of their own pockets, if they wished to have them at all. Assuming that the communities do not really want to ' press' the sales, there are local expressions of regret if those sales go down and the available profits decrease. The ' brandy money' has become, in fact, a most important element in municipal finance, and, although the salaried officers of the Bolag may proclaim absolute indifference whether the profits are £5,000 or £10,000 more or less in a year, I doubt if a local municipality regards the matter from quite so independent a standpoint. The whole idea of 'disinterested management' has proved to be only a delusion and a snare.
A significant story as to the way in which
matters have been worked is told by Dr. Gould in respect to an incident that once occurred at Sogne Fjord, Norway. A physician asked the local company for a contribution towards a certain hospital in which he was interested, but the company pleaded lack of funds. At that time it was usual to close the spirit bars and retail liquor shops in Sogne Fjord whenever the fishermen returned home with successful catches, so that they should not spend their money in drink. Acting on a suggestion made by the physician, the company withdrew this regulation, kept the places open on the said occasions, and increased their business to such an extent that in due course they were able to let the doctor have the desired subscription.
Some years ago the prohibitionist party in Norway, as the result of persistent agitation, secured a vote of no-license in several of the smaller towns, and the ' Samlags' were consequently closed. Much ill-feeling was caused thereby, but the main grievance advanced by the press was that the communities had lost large sources of income, and must either do without advantages previously enjoyed, or pay for them out of their own pocket.
The number of towns in Sweden where the Gothenburg System is now in operation is 101. In fact, there are only seven towns in Sweden with a population of less than 1,000 each where it has not been put in force. One is asked to assume that these 101 towns have all been inspired by purely philanthropic motives in what they have done. But, when one looks at matter-of-fact details, one finds that the net profits on such philanthropy amounted, in 1905, to 11,338,860 kronor (£629,936). This was in addition to 440,237 kronor (£24,458) which the Bolags had already paid on liquor duties, so that the gain to the communities represented a total of 11,779, 097 kronor (£654,394).
It would be really childish to expect one to believe that these very substantial pickings have not influenced the local communities in any way. I asked a leading citizen in Gothenburg what would be thought of the position if the temperance societies in Sweden were suddenly to convert all the working classes to total abstinence from brandy-drinking. A look akin to consternation came over his face as he replied: ' I do not know what we should do without the brandy money. We depend on it for so many things.' While, however, there has been every inducement hitherto for the towns to work the trade on business lines (philanthropy notwithstanding), there has for some years past been great dissatisfaction on the part of the country districts because they have not participated to a larger extent in the financial benefits. Farmers and farm labourers, they say, go to the towns for their branvin, and not only do they take their money out of the district, but the municipalities gain the advantage. There is also a party which holds that the State acted unwisely at the outset in allowing the local authorities to have the handling of so much money. The profits should, they argue, be used to a much greater] extent for national, in preference to local, purposes. This argument would
probably have prevailed years ago but for the influence of the municipalities.
The somewhat undignified quarrel that has taken place over the profits of a business which Swedish ' philanthropy' would have us regard as pernicious has been one of the reasons for the passing of a new Liquor Act, to come into force, in towns, on October 1,1907, and, in the country, on November 1, 1907. Without going into somewhat complicated details, it may be said that under this new law the towns will be able to keep only a substantially smaller proportion of the Bolag profits for purely local purposes, and will be required to send much more to Stockholm than they do at present for distribution among the rural districts. Thus the latter will gain at the expense of the former, though the effect will be (as even one of the most earnest supporters of the Bolag system admitted to me) that ' the towns will have less inducement to try to make money out of the traffic.'
Under existing conditions, the Bolag at Gothenburg gives seven-tenths of its profits to the town authorities, one-tenth to the county agricultural society, and sends the remaining two-tenths to Stockholm for division amongthe country parishes. It is estimated that for 1906 the seven-tenths thus to be paid into the town treasury will be £46,666, of which £20,291 will be used for the ordinary purposes of local government, thus presumably keeping down the demands on the ratepayers, and £26,375 will go to local 'philanthropic ' purposes, included in this definition being schools (one of which gets £6,000), institutes for working men, domestic economy classes for workmen's children, meals for poor children, Bolag reading-rooms and waiting-rooms, concerts for working people, parks, a home for consumptives, a labour bureau, museums, libraries, subsidies to lawyers who give gratuitous advice to poor people, a committee for the encouragement of sports, and so on.
But for the existence of the Bolag system, various of these objects would, as in England, have to be met either directly out of the rates or out of the purses of the charitable. The individual members of the community, therefore, have a direct pecuniary interest in regard alike to the £20,291 added to the municipal revenue and to the £26,375 devoted to local 'philanthropic ' purposes. Whether they want to 'press' the branvin traffic or not, the fact remains that the greater the profits the more they will collectively and individually benefit. I fail to see, therefore, how it can really be said that the Gothenburg System ' eliminates' the element of ' private gain.' There is ' private gain' to every person in the local community upon whose purse fewer demands are made because of the branvin money being available, and the talk about ' restrictions ' on the traffic must be considerably discounted by the fact that any sudden cessation of the profits would be regarded by the general body of ratepayers and citizens in the light almost of a financial disaster.
One resident in Gothenburg, who had watched the system for many years, said to me, when I asked for his candid opinion :
' Taking the movement as a whole, there is too great a leaning towards profits. To-day there is very little philanthropy in the affair. If they would only give up the idea of making money out of the business, they could do a great deal more to promote the sobriety of the people.'
A similar view seemed to be taken by a Salvation Army officer, who, in answer to my question as to whether or not he thought the system was doing good, replied:
' I do not think the Bolag is making much for temperance. In one respect it places more difficulties in the way. When the trade was in the hands of private individuals we could go to them whenever we saw anything wrong, and make a personal appeal to have the matter remedied. But the Bolag is a different matter. The leading people in the place are connected with it, and they will tell you how much good the brandy-money is doing in the way of public improvements or in maintaining charities. As to raising the prices of the spirits sold, I do not think any real good is done by that. When the men want drink they will get it, whatever the price. If the time should come when they really cannot afford to buy branvin, they will have methylated spirits instead, and that is much worse for them. If, again, you keep them from the bars, it means they will take more spirits into their own homes; and, though this may reduce the risk of bad companionship, it will have a bad effect on the children. Much more useful, in my opinion, is the reduction in the alcoholic strength of the branvin,* but no really lasting reform will be brought about until you get down to the hearts of the people.1
* The alcoholic strength of the branvin sold by the Gothenburg Bolag stood at 47 per cent, from 1866 to 1883. Since then reductions have been made as follows: 1884, 46£ per cent.; 1888, 45 per cent.; 1899, 44 per cent.; 1902,43 per cent.; 1904, 42 per cent.; 1905, 41 per cent.; 1906, 40-2 per cent.
For still another view on the general subject I take the following from an address delivered by the Rev. Elis Heuman, Court Chaplain, at a temperance meeting held in Stockholm in April, 1905:
' Who is it that causes the public-houses to be embellished so as to become elegant and inviting in order to allure men and women away from their less decorated and more humble home ? Who is it that distributes public-houses all around the church, and gives the traffic the misleading name of the " Gothenburg System "? Is it not Society yearning after vile profit ? And if anyone desires to substitute a dram-shop by a temperance eating-house, Society does not permit this to be done. Every proposal in any such direction is made in vain. It would diminish Society's profits on the traffic in intoxicants.1
The extreme keenness of local authorities to get these profits into their own hands is well shown by an incident for the truth of which I can vouch absolutely. An Englishman settled in Sweden had the disposal (as trustee) of some hotel property in a town of 3,000 inhabitants, and he put it up to auction. The sale was attended by a leading member of the local municipal body, who tried so successfully to depreciate the value of the property that he was the only bidder, though the bid he made was so absurdly small that it was refused. Steps were then taken to effect a sale by private treaty, and a widow lady agreed to purchase, if she could make sure of a license. On the strength of a letter written by a member of the municipal council, stating that the license would certainly be granted, she bought the property ; but there-
upon the council repudiated the letter of the member in question, and definitely refused the license. In the end the lady was obliged to let the municipality take over the place on their own terms.
This may or may not be an isolated case ; but it illustrates the risks that are run where a local authority has a powerful financial incentive to get control of the trade, or even a portion of the trade, in alcoholic drinks. Nor can the fact be denied that abuses of other kinds have been introduced into the application of the system in Sweden, especially in the case of small towns, where the rents of Bolag premises have been manipulated to the advantage either of the municipality or of private persons; where the ' companies' have consisted of two or three individuals ; where the representatives of particular distilleries have joined in the movement with the idea of getting contracts ; or where profits have been distributed among charities started in the interests less of the poor than of the salaried officers. While it is admitted that such practices did, unhappily, prevail at one time (See Appendix), it is said they do not now occur; yet, when I mentioned the subject to one gentleman at Gothenburg, he at once pointed to a paragraph in a local newspaper of the previous day, stating that the accounts of two Swedish Bolags (the names of which were given) had just been condemned by the auditing authority, and the matter had been referred to the King. It is not a little significant, also, that, at the end of forty years' operations, the necessity should have arisen practically to reconstruct the system in one of its most essential features, the distribution of the profits, so as to check the rapacity of the towns, and satisfy the rival claims of the State and of the country districts.
How the profits have worked out in the case of the Gothenburg Bolag is shown by the following table, which I take from the official report for 1905:

It will be seen from this table that the net profits of the company, given in pounds sterling, increased from £2,821 in 1866 to £73,249 in 1905.
The reader will further observe that since 1866 the company have made substantial advances in the prices charged for their branvin, whether sold at the bar or in the bottle. The reason given for these advances in price is that the company have been inspired by a philantnropic wish to check the consumption; and this, they say, they have done. But it will be seen that this policy has in no way checked the profits, which have swollen substantially with each such advance, whether regarded from the point of view of sum total or per litre sold. Possibly the company would have us believe that this very substantial increase in net profits is one of the inconveniences to which philanthropy must be prepared to submit when it is working for the public good—on business lines. This at least is certain, that each increase in price throws a greater burden on the consumer, to the advantage of classes higher in the social scale.
Whatever the precise view taken of the steady advance in the price of branvin from time to time, one undoubted effect thereof on habitual drinkers of the most hardened, as well as of the poorest, type has been to cause them to leave the more expensive branvin for special domestic or other occasions, and take to the cheaper methylated spirits as a steady drink. The cost of a litre of methylated spirits in Sweden is from 35 to 40 ore the litre, as against 1 kr. 35 ore the litre for branvin. ( 100 ore = 1 krone = 1s 1-1/3d). The patron of the former in Sweden first of all obtains some bones, and burns them to powder, through which he filters the methylated spirits, thus depriving them of part of their most noxious taste. Even then the effects (I was told) are ' horribly intoxicating.'
Not so many years ago there was a remarkable and, at first, unaccountable outbreak of drunkenness in the parish of Lindome, near to Gothen-burg. It was known that no exceptional quantity of branvin had been brought into the place, yet the amount of insobriety was far in excess of that in other parishes in the neighbourhood. Inquiries eventually showed that a large proportion of the local artisans, carpenters by trade, had given themselves up to the drinking of methylated spirits, their intoxication thus being accounted for.
Opinions differ as to the extent to which the consumption of methylated spirits has been carried in Sweden. In some quarters I was assured it was ' enormous.' On the other hand, the chief of police at Gothenburg told me that he had given instructions to his force to distinguish in their reports between drunkenness arising from methylated spirits and drunkenness due to other beverages (a difference easily noticeable on account of the odour of the methylated spirits), and he had found there were not very many cases of the former. I suspect the real truth lies between the two statements, and that, inasmuch as the methylated spirits would be consumed, not at public bars, but in private houses, much may be taken, and much drunkenness caused thereby, without the matter coming under the notice of the police in the streets. In any case the evil has gone so far that in the new Act which comes into force in October, 1907, the statement is made: ' With regard to the conditions of selling so-called methylated spirits, H.M. the King has issued special regulations relating to this traffic.' There would surely have been no need for these special regulations unless the mischief had undergone serious development. The resort to substitutes for branvin has not been so great in Sweden as in Norway, the restrictions on the sale of native spirits being less severe in the former country than in the latter; but in considering the official figures as to consumption of branvin the point here mentioned must certainly not be overlooked.

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