For European monarchies, granting crown monopolies was a win-win arrangement that enriched the treasury while rewarding courtiers. But for subjects, the arrangement was a lose-lose proposition that inflicted higher prices for often-inferior products. Fortunately for American consumers, state monopolies are relatively few. But states do still grant exclusive rights for some commercial activities. Maine has recently found itself entangled in complicated arrangements born of state monopolies in liquor, gambling and waste disposal.

A series of Maine governors have proposed that the state abandon its retail and wholesale liquor distribution business. Religious concerns and labor union opposition have slowed and complicated this process. There was also a small budgetary point: The state was earning profits from its monopoly distribution business, in effect a hidden tax. This hidden tax presented a unique opportunity for a clever administration: The future net revenues from this hidden tax could be sold to the highest bidder and the revenues booked to fill this year’s budget gap. In essence, the state could engage in off-book borrowing against future liquor profits.

A competitive bidding process yielded the state a loan rate of about 8 percent, not unreasonable given the business being sold. But the state would have paid a much lower interest rate, near 4 percent, for a commercial loan. In selling its liquor business, the state moved its budget problems into the future and paid a relatively high interest rate to do so.

The courtiers questing for a piece of the gambling monopoly used the referendum process to end-run opposition in the Blaine House. The result has hardly been pretty. The two firms that supported and financed the racino referendum have alternately been allies and antagonists. The state faces the prospect of regulating an industry under rules written solely by the industry. (Imagine a public utility commission whose legislation had been written by the electric industry!)

Maine voters almost certainly would not have voted a multi-million-dollar public subsidy for the harness racing industry (which is already protected from other kinds of racing competition). But they were willing to bestow monopoly franchises on Bangor and Scarborough, because the subsidy was hidden and the profits divided in a politically adroit formula. In this case, the profits to be made from grabbing the state monopoly have been hard to conceal. Press reports indicate that Capital Seven stands to earn a $30 million return on its $3 million investment in the racino referendum.

As part of a plan to help keep the Old Town paper mill open, the state agreed to buy Georgia-Pacific’s landfill in West Old Town. While the state did get real estate and assets in the transaction, the valuable asset being transferred was the state-granted license to dispose of waste. And Maine agreed to pay not the current value of the license, but rather what the license would be worth if its own Department of Environmental Protection were to approve conversion of the special-purpose, mill-waste-only license into a general-purpose waste license for incinerator ash, demolition debris, and other municipal waste.

Coincidentally, the state was presented with an opportunity to avoid a looming political battle to open a new state landfill for municipal waste. Because Old Town supported the package, the usual local political obstacles to a general-purpose landfill were largely absent. The state put operation of the expandable license up for auction, under terms derived from negotiations between Georgia-Pacific and Casella. The bid terms proved too specialized to attract any bidder but Casella.

The issue is not that the current administration has done a particularly poor job of managing these state monopolies. The administration has been on all sides of this issue, opposing gambling referendums and trying to fix the racino regulations, selling off the state liquor business, and in the middle of a complicated arrangement between Georgia-Pacific and Casella. Nor are the private companies doing anything more than pursuing the profits that motivate all private firms. But the confluence of private economic interests, camouflaged taxes and subsidies, and ancillary political objectives are an inherently dangerous concoction, one that produces convoluted arrangements.

It is difficult to resist the temptation to capitalize some of the monopoly profits into deals that subsidize this constituency or promote that political objective. The best legal minds and most experienced political operatives are marshaled to beguile politicians (and the public, in the case of referendums) with sugarplums to be plucked in the monopoly garden. The implications of these confused deals often become clear only after the private monopolies are firmly ensconced.

This process damages both the economy and the political process. Lack of competition undermines economic growth. Lack of transparency undermines political legitimacy. In fact, this process may look uncomfortably close to the crony capitalism that subverts political institutions and economic development in all too many emerging democracies.

Ralph Townsend is a professor of economics at the University of Maine.