Core functions of government, illustrated by what could be done with money-losing postal service

Posted on March 24, 2017  /  0 Comments

The distinction between public goods and activities with significant positive externalities was developed in conversation the our Advisory Council Member Randy Spence. I used it develop a schema that people could use as they think through what government should and should not do. I illustrated the positive externalities discussion using the postal service, because it had explicitly come up in discussions within a statist political party.

People are used to government-operated postal monopolies. In country after country, they are losing money and failing to provide services of adequate quality. Even after people stop writing letters and all bills are delivered electronically, there would still be a need for package delivery (until 3-D printing becomes the norm!). The senders and the receivers would directly benefit, but there are external benefits such as less demand for expensive real estate for bricks-and-mortar retail facilities.

Quality and price are best addressed through competition. But like in any network industry, competing providers will require interconnection. New entrants will face major barriers unless fair interconnection is enforced to allow packages from one network to be carried by another, or at least delivered to the same mailboxes. This means regulation as in telecommunications, but lighter. Attention may also have to be paid to ensuring service in high-cost areas, if competition fails to do so.

Ideally, the government’s role would be limited to that of regulator, with all competing providers being private. But given a pre-existing organisation and work force, it is likely that a legacy provider will be present. Unless its work culture is changed, it will be unable to compete with lean competitors and continue to be a burden on the taxpayer. The only way to avoid this would be through a public-private partnership, whereby a private entity would be empowered to introduce a new work culture. Gradually, government ownership may be phased out, leaving only the regulatory function.

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