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Competition and Innovation in Postal Services.

The 13 chapters in this book represent the work of professional, academic, and governmental economists. It is an impressive exchange of views between "the practical thinkers and the thinking practitioners." The discussants, both international and United States citizens, include seven economists working directly for the British Post Office, the United States Postal Service, or an International Post Office. The book results from a conference held at Coton House, the Post Office Management College, in Great Britain, July 22-25, 1990. The papers discuss the condition of entry, natural monopoly, regulation, privatization, and the effects of monopoly on labor unions. The consensus is to allow competition into the Postal Service market. Counter arguments are presented whether a natural monopoly exists and the effects of subsidization on consumer surplus. There is considerable agreement that productivity can and should be improved; money wages of postal workers are inordinately high as compared with similarly skilled free market workers; prices generally do not reflect costs; political realities must be recognized when discussing economic theories; and some postal services will most likely not be attractive to entrants (rural delivery) and therefore some transitional program is necessary if delivery becomes competitive. The papers have a decidedly international slant, discussing the postal arrangements in Australia, Canada, Germany, Great Britain, New Zealand, and the United States. Rather than examine individual proposals, some key issues of the anthology are reviewed.

The major issues align themselves into four broad categories. These are the relationship between price and cost (the appropriateness of uniform pricing), the political as opposed to the economic realities of the governmental monopoly, the need for the Post Offices to innovate and allow competition in at least some areas of service, and the welfare benefits from the continuing monopoly status quo compared to its removal.

The problems caused by price being set above cost in many postal services are fundamental. Several papers defend cross subsidization on the basis of welfare benefits. Uniform pricing began with Sir Rowland Hill in Great Britain in the mid-1800s. Hill justified it as a consequence of uniformity of cost, not a goal in itself In the United States, the historical motive behind uniform pricing was to discourage isolation of the frontier settlers and therefore hold the nation together. Now that this goal has been achieved, uniform pricing should be abandoned so that the true costs of residing in a certain area will be absorbed by the causer. Delivery costs constitute about 40% of all costs. Presently delivery costs are not priced separately, but they should be unbundled and open to competition. This idea traces back to Hill's proposal of a secondary distribution of the mail that encompasses delivery. He proposed delivery service should be opened up so its costs can be internalized by the community. The community could choose between high or low frequency delivery or no door delivery. The quality of delivery and its cost can and should be considered when choosing a particular locale. The International Post Office needs to differentiate prices to make allowance for cost differences around the world. It seems willing to change only when faced with the competition that lessens its market share and therefore its revenues. Price increases are in many countries and should in all others be limited to productivity-adjusted changes in the CPI. There is a need to examine the political realities of the postal monopoly. All developed countries have granted their respective posts a monopoly status. The government has continually reaffirmed its commitment to the monopoly, stressing the need for universal service and uniform pricing. Until there is a great public outcry for competition, there is little hope politicians will battle with the powerful special interest groups who enjoy the status quo of the uniform prices and premium wages of the postal monopoly. The next best proposal to a completely free market is some less extreme form of the current situation with some areas of service competitive.

In the 1500s the British Crown claimed privileged rights to conveyance of the post in the interest of national security. In the 1600s revenue generation became the motive. Only in the 1800s was public service considered a motive for monopoly protection of the post. Sir Rowland Hill attacked colorfully the postal monopoly this way, "Any management that has tasted the fruit of monopoly prefers that arrangement to the chill of competition."

Many discussants emphasize the need for innovation in postal services. Over half of today's mail could be shifted to electronic form, thereby bypassing postal service altogether. The change in Post Office revenue patterns in the past ten years is traced to alternative means of communication including FAX machines, Email, and computer networks. Innovation is needed to respond to market changes or the postal services will continue to lose markets. Offering discounts for services performed by the customer that ease labor time, such as presorting, offering barcoded customer return envelopes, or picking up mail at the local post office is desirable. Customer welfare and consumer surplus would be affected if universal service is abandoned. If competition is allowed, some level of service should be offered to those patrons not included in the entrants' service area, at least during transition. A tax on new entrants is proposed to allow continuation of the cross subsidy to keep prices low to Post Office patrons using noncompetitive classes of service. Because of cream skimming, if entrants are attracted only to high-profit areas (low-cost routes and services) prices would not continue to exceed costs. Since all above-normal profits would be competed away, prices should be aligned with cost now to remove the incentive for entry.

Postal services cause interesting welfare issues because consumption is joint between the receiver and sender, but only the sender pays. Some maintain postal service is a basic necessity, like health care. They propose the government must protect universal service and uniform pricing for the benefit of the citizenry because this encourages the diversity of opinions necessary in a free democracy.

The consensus is for continued research on all levels. The usefulness of more complete, higher-quality cost data from the Post Offices is unambiguous. The pressure continues for competition in at least some areas of protected service. But when it will occur and what form it will take are not certain at this time.
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Author:Hampton, Gena F.
Publication:Southern Economic Journal
Article Type:Book Review
Date:Jul 1, 1992
Previous Article:Perspectives on the History of Economic Thought, vol. 5-6.
Next Article:Carl Menger and His Legacy in Economics.

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