Wednesday, 1 March 2017

Does Canada still need Canada Post?




I ask the indulgence of my non-Canadian readers; hopefully, you will find it beneficial to apply these thoughts to your own postal system

            As Canadians have, increasingly, turned to emails and social media for speedy communication, Canada Post, our monopoly letter delivery system, has seen its volume of mail drop significantly. In response to the resulting financial pressure, Canada Post began to phase out door-to-door mail delivery in favour of community mail boxes in urban areas. Of course, customers, municipalities and postal unions complained vigorously against this decline in service! No one likes to lose anything they’ve been receiving free forever! During the 2015 federal election, the--then in opposition—Liberals led by Justin Trudeau, promised to stop this conversion and restore door-to-door mail delivery and remove community boxes in those areas where they had just been installed-- at great cost. Trudeau is now our PM. The conversion program was stopped but his government is still “consulting” about the future of Canada Post and his promise concerning the recently installed boxes. In its recently released report[1], a Liberal dominated committee of Parliament, The Standing Committee On Government Operations And Estimates, has, as could be expected, concluded that Canada Post  should “continue the moratorium on community mailboxes conversion, and develop a plan to re-instate door-to-door delivery for communities that were converted after 3 August 2015.”  Is this conclusion really justified? In fact, should Canada Post not just be abolished?

The Problem

 

While the switch to electronic communication is the major cause of our Post Office’s woes, its problems are not just of recent origin. The Committee notes that

The frequency of labour strikes in the 1960s and 1970s affected the reliability of the postal service. The Post Office Department incurred losses approaching $500 million in 1980-1981.

While it has been profitable “in almost every year since 1995”[2], that is not surprising since, with a monopoly on first-class mail, it been able to raise its prices frequently—at least on that part of its business.  In 2015, a further increase of more than 10 percent (from $0.85 to $0.95 per letter) was proposed but not carried through because of the current review.  As it is, Canadian letter rates well exceed U.S. rates[3] for example. While it costs 85 cents to mail a letter within Canada, Americans can do so for 62 cents [4]The difference is even more striking for international mail- $2.50 in Canada, Can$ 1.51 for Americans. In fact, business contributors to the Committee’s discussion noted that “ Over the last few years, postage rates have increased at a faster pace than all other business expenses[294]” and “Raising prices would increase Canada Post revenues in the short term, but in the long term it would encourage users  even more to switch to digital solutions.[298]

The current situation is “not viable over the long term”, according to consultants Ernst & Young. They forecasted that by 2026, annual losses of at least $700 million are anticipated. They concluded that Canada Post’s costs will continue to increase because more than 170,000 new addresses are being added to its delivery network each year while mail volumes are decreasing.  In addition, Canada Post faces a large unfunded deficit in its employees’ pension plan since it has been exempted from the requirement faced by private companies of making regular payments to make up this deficiency.

To deal with this foreseeable financial crisis, Canada Post has, among other things, introduced its controversial community mailbox conversion program which was estimated to generate savings of $400 to $500 million per year. To date, 830,000 addresses (16 % of the planned 5,000,000) have been converted, which will result in annual savings of $80 million.

Before, I consider whether or not this conversion should be continued let’s turn to the more general question.

Is Canada Post a Necessary Public Good?


In an earlier post[5], I noted that there are certain goods that will not be produced in a free market or will be produced in insufficient amounts. Pure public goods such as defense, policing and street lighting will not be provided by private business because they are indivisible and the exclusion principle does not hold. That is, you cannot divide the service into little bits that can be bought and sold individually; the Canadian armed services defend all of Canada and you can’t buy your own little bit of defense[6]--defense is not divisible. Moreover, the provider of the service—the government—cannot exclude anyone from the defense shield because they choose not to pay—unlike the groceries you buy in the store. If you don’t pay for them, you don’t get them—you are excluded from the service.  Mail delivery is certainly not a pure public good. The service can readily be divided into the delivery of individual items—it is divisible. Moreover, if you don’t pay for the service—pay the postage--you can’t send anything[7].

Even though not a pure public good, is it perhaps a necessary good that would not be provided in sufficient quantities if left to the market?  Is it perhaps like elementary education which, if  left to the market, would leave the poor who cannot pay the tuition, untaught? In that case there are positive neighbourhood effects—we are all better off if all citizens are reasonably educated. Is that the case for the postal service?

Let’s imagine for a moment, life without Canada Post and its monopoly. As it is, most cities have myriad private courier services that provide “same day” delivery within the city. There are also various country wide parcel delivery services such as UPS and FEDEX. In a free competitive world these businesses would no doubt happily expand to fill the void left by Canada Post. Of course, they would have to develop a more comprehensive system of transferring the mail to competitors where they do not have facilities in place. Canadian banks have years ago developed cheque clearing facilities to permit monetary exchanges between them. I’m sure the delivery industry could do the same for all mail and parcels. There is no doubt that private industry could readily fill any void left by Canada Post.

The question is, however, at what cost? Would the cost of mail delivery rise to excessive heights? With free entry and exit of new companies, competition would no doubt keep costs for delivery in most of Canada quite reasonable—perhaps even reduce them. In any case, competition would ensure that the users of the service pay the real cost of providing the service. There may, however, be various remote areas which would end up paying prices so high that we would all agree it is unacceptable; perhaps, no company would even choose to offer a service there. For these areas, a government subsidy would be in order since there are positive neighbourhood effects—we are all better off if,e.g. far Northern communities have reasonable postal service-- if only, for the purpose of maintaining Canadian sovereignty through thriving communities. The government could put these routes up for competitive tender and let the winner provide the service. The extra cost would then fairly come out of the general purse—not be forced on other postal users only.

Now, this imaginary private enterprise system would, of course, be politically impossible to implement, but it illustrates that Canada Post, as such, is not indispensable. We could make a start, by simply abolishing Canada Post’s monopoly on first class mail and let them compete fairly. With their large established network, they would retain an inherent advantage but who knows what would develop? If even that is a step too far, perhaps we could simply pass legislation which would automatically remove Canada Post’s monopoly after one day of a postal strike.[8] Canada Post and its unions would then be under pressure to continue to provide service. Obstinacy, would lead to guaranteed job losses. Wouldn’t it be nice to have that tool in place before the next possible strike in July?  Certainly, there is no need to keep Canada Post alive artificially through, for example, reintroducing postal banking--as was suggested by some.

Door-to-Door Delivery


Recognizing then, that Canadians could well get along without Canada Post as presently constituted, we can approach the issue of door-to-door delivery perhaps a bit more realistically. Given the financial problems noted above, Canada Post must clearly operate in an efficient, business-like manner—keeping customer needs in mind. If not, let’s let private industry do it. Perhaps, they would decide direct to door delivery is essential; perhaps they would not..

In the meantime, I personally believe the door-to-door delivery is not a big thing. If Canada Post believes there are major savings there—let them go full steam ahead (Trudeau’s election promises not withstanding). I live in one of the neighbourhoods where the conversion took place last year. In my walks around,[9] I have noted that none of the recently placed boxes are much more than two blocks away from any residence. For most people, that should not provide an obstacle. In fact, even such a short daily walk will have health benefits; people should be encouraged to “walk for the mail” rather than stopping their car in the street to pick up the mail on their way elsewhere. Moreover, these days none of the mail we receive is so essential that we have to check our boxes daily.

Now there are some individuals who really are physically not able to walk the required distance and lack care-givers and friendly neighbours who could take on this task. Canada Post has, in fact, made arrangements to help these people out. If that service is inadequate, it should be improved.  It would not, however, be out of the question that a small charge is made for this service for those who can afford it. Not all, the seniors and disabled are poor!  It is generally, recognized that as we get older some costs go up; we must, for example, pay for lawn care and other services which we used to perform ourselves. Why should mail delivery be different?
In any case, continuing with conversion to community boxes is only fair to those who have already been forced to pick up their mail from somewhere. As the table below (from the report) shows, only 27 percent of the people receive door-to -door delivery –at a cost more than twice as much as that of group mailboxes! Why should such a small percentage of customers continue to receive this specialized service? Is that really fair? Note that 11 percent pick up their mail from post offices. That trip is likely longer than the one to the community mail boxes. It has been the required practice in small towns for years[10]!

Table 3 – Number of Addresses Served by Canada Post by Delivery Method and Average Annual Cost per Address, as of 31 December 2015
Delivery Method
Number of Addresses
Percentage of Total Addresses
Average Cost per Address ($)
Door-to-door
4,255,742
27
286
Centralized point (e.g.,apartment lobby lockbox)
4,033,516
26
121
Group mailbox, community mailbox, kiosk
5,060,871
32
127
Delivery facility (postal box, general delivery)
1,754,973
11
72
Rural mailbox
708,909
4
196
All methods
15,814,011
100
170

Now, critics of the conversion program of have pointed to the litter left at mail-boxes by anti-social patrons who are too lazy to take their junk-mail home and dispose of it their blue recycling containers. In my walks, I have found only one set of mail boxes where that was a problem. Surely, some signs disparaging this anti-social activity—e.g. Please do not impose your litter on your neighbours?—could educate these misfits. If necessary, the postal delivers could have a container in their little trucks and pick up the worst of the lot? Is this really a reason to stop the conversion process?

Furthermore, municipalities have come out strongly against the process for traffic safety concerns.  Their solution, however, has been that municipal staff should review all box placement and municipalities be paid a fee—thus reducing the potential savings to Canada Post. Wouldn’t a more cooperative, non-territorial stance solve the few disputed location issues?

Overall, I see no valid reason to prevent Canada Post with continuing its planned conversion. To reverse what was recently done as--was promised by Trudeau-- would be the height of folly.

Other Relevant Posts

Choice of Economic Systems: A Conditional Preference for the Market—what does that mean?


[2] In 1981, it was reorganized as a crown corporation from a government department thus reducing political influences and more business-like practices.
[3] Published rates before inauguration of Donald Trump.
[4] (U.S.$ 0.47) local, (1.15 U.S.$)  international
[6]  You can buy the services of personal armed guards but they won’t defend you against North Korea.
[7]  Alternatively, you could easily be charged on receipt basis—C.O.D.
[8]  Or more than 2 days in any one month.
[9] Under doctor’s order, I must walk an hour a day.
[10] I experienced it in the 1970’s in Sombra, Ontario and Port Cartier, Quebec.

Saturday, 7 January 2017

Why should Africa be made to suffer by western anti-fossil-fuel hypocrites?



As this is my first post in the new year, I take this opportunity to wish all readers a blessed 2017.

I was struck recently by a short article in the National Post  entitled simply “Nota Bene.”  When I checked the online version at


I found it carried the title of this post. The article--an excerpt from, “The World Needs More Energy”, by Steven Lyazi from Uganda, raises major concerns about the consequence of Climate Change policies and reminds us that economic policies have costs as well as benefits.

Consequences for poor countries

 

Lyazi  notes that for most of history, the only energy available was “human or animal muscle, wood and animal dung, water power, and plant or animal oil”. Then, almost suddenly, we began to use coal, then oil, natural gas, hydro-electric and nuclear energy creating undreamed of prosperity in many countries. However, many countries lagged far behind, and many still do. These countries are “held back condemned to continued energy poverty—and thus to real poverty and the diseases, malnutrition, and desperation that go with the absence of modern energy.”

While Lyazi admits this is partly due to corruption and incompetent leadership, it is, according to him, also because

Callous, imperialistic people in rich countries use exaggerated, imaginary or phony environmental concerns and fake disasters to justify laws, regulations and excuses not to let poor countries use fossil fuels or nuclear power of develop their economies.

While most of the developed world only uses a little renewable energy, “they” want the poor countries to use only renewable. While he supports clean energy and a clean environment, he writes, “But that does not mean we should accept more poverty. It does not mean these rich, powerful people should be able to take away our right to live”.

The Paris Climate Change Agreement


Now Lyazi may be overstating his case. The 2015 Paris Climate Change Agreement which recently received the necessary ratification does make some provision for the poorer countries. It’s preamble, for example, “Further requests the Green Climate Fund to expedite support for the least developed countries and other developing country Parties”[1] Article 4 provides thatParties aim to reach global peaking of greenhouse gas emissions as soon as possible, recognizing that peaking will take longer for developing country Parties[2]…and “Developing country Parties should continue enhancing their mitigation efforts, and are encouraged to move over time towards economy wide emission reduction or limitation targets in the light of different national circumstances”.  And “Support shall be provided to developing country Parties for the implementation of this Article. The least developed countries and small island developing States may prepare and communicate strategies, plans and actions for low greenhouse gas emissions development reflecting their special circumstances” Moreover, Art. 9 provides that “Developed country Parties shall provide financial resources to assist developing country Parties with respect to both mitigation and adaptation in continuation of their existing obligations under the Convention”.  

Thus developing countries are allowed to implement policies at their own speed and are to receive financial assistance.  Canada, for example, has committed $2.65 billion to this purpose by 2020[3]. However, does anyone have any idea how much assistance will really be necessary and how much of that has so far been promised? Do we really believe that most developed countries will meet their own climate change targets as well as assist developing countries to the extent necessary? In any case, many developing countries have a very long way to go before they can match the level of prosperity in developed countries. Can this development really occur without further fossil fuels? Will renewable such as solar and wind really become so inexpensive as to meet the increasing needs in poor countries?  Will electric cars become so cheap that the average person in the third world can afford one? Even China is still building numerous coal-fired electric generating plants and has agreed only to stop increasing its emissions in 2030! What can we then expect from smaller, poorer countries? Our climate change policies must, obviously, continue to keep the consequences on poor countries in mind.

Progress through Industrialization


In fact, we must recognize that for these countries the environmental impact will first become worse as pointed out by Dylan Pahman in another article that caught my attention recently.[4]  In commenting on Pope Francis’ message on the World Day of Prayer for the Care of Creation, Pahman argues

What seems to be lost on these hierarchs[5] is what to do about the problem. The pope praises the UN’s Sustainable Development Goals and the Paris Agreement, but similar statements have not proven effective in combating climate change. What has proven effective? Industrialization and free markets. Really.

Although Pahman agrees that “Wastefully harming the environment is bad stewardship”, he posits that we do not have to choose between the plight of the poor and the plight of the planet.

 In the short run, of course, industrialization is the problem. A quick glance at a global pollution map reveals that newly-industrialized China and India are some of the worst offenders. However, so long as we truly care about the poor, we must not overlook the fact that these countries are where the greatest progress in overcoming poverty has happened since the 1970s. Hundreds of millions of people have escaped crushing poverty through the industrialization and increased liberalization of their economies.

Nevertheless,

 As a recent study in the journal Nature on environmental care from 1993-2009 notes, “while the human population has increased by 23% and the world economy has grown 153%, the human footprint has increased by just 9%.” Economic growth is compatible with care for creation.
                                    …….
“Encouragingly, we discover decreases in environmental pressures in the wealthiest countries and those with strong control of corruption.” In particular, “environmentally improving countries are characterized by higher rates of urbanization, human development (a composite measure of health and education) and control of corruption.” To clarify, they also note, “Most encouragingly, these countries are net exporters of agricultural and forestry products, and by this measure are not simply exporting their demand for food and fibre (and the associated local pressures) to other countries.”

Pahman recognizes that”

We will need to accept the fact that in the short run things will need to get a little worse for the environment, as they start to get better for the poor. Each nation must climb an initial “hump” during which it makes more aggressive use of resources, to attain a widespread level of general human well-being. Once that’s attained, significant mass support for environmental protection has emerged in every developed country.

Counting the Cost

 

How long it will take to get over this “hump” is not clear. In any case, developed-world climate change policies must recognize this trade-off between fighting poverty and fighting environmental degradation.  This short-run trade-off is not limited to developing countries. Also developed countries must be fully aware of the consequences of their policies. In Ontario, we have seen major increases in the price of electricity, at least in part, due to subsidies for solar and wind (“feed-in” prices of three times market rates) and the forced closing of all coal generating plants. Consumers are up in arms and some people are said to have to choose between paying their electricity bills or putting food on the table. In response, the Ontario government has now introduced subsidies for the poorest electricity users[6]. However, manufacturers are also complaining and threatening to move elsewhere—to locations with lower power rates. Ontario companies are becoming uncompetitive internationally.

Meanwhile, Alberta and B.C. have introduced carbon taxes amidst a major down-turn in the price of oil causing many oil producers to shut down with major employment effects. Quebec and Ontario are implementing “Cap-and  Trade”  while the federal government has just set a minimum national price for carbon of $10 a tonne to be implemented in 2018, rising to $50 a tonne by 2022.

On the other hand, Canada’s largest trading partner (and the world’s largest polluter, the U.S. has elected Donald Trump, a climate change denier, as president and will be going full-steam ahead in developing its oil and gas resources. While Canada’s LNG (liquid natural gas) projects are bogged down in the regulatory process, the U.S. has its first such export project up and running and others close to completion. U.S. shale oil production is increasing again after cut-backs due to lower oil prices. In fact, the U.S. is set to become a net exporter of oil and gas in 2017! Meanwhile, Canada still lacks adequate pipelines to take advantage of these export markets. At the same time, China, the world’s second largest polluter can emit as much as it wants until 2030

Now our Prime Minister may argue that Canada needs to be a leader in the climate change field and that leadership will put us in the forefront of renewable fuel technology and create plenty of new jobs. Personally, I have strong doubts that such will be the case. I also doubt whether the price in jobs lost is worth paying. Canada’s total emissions are only about 1 percent of the world’s total.  Let’s slow this process down until the U.S. decides to actually implement further climate change initiatives. The economic consequences of further Canadian measures will most likely be too much to bear. Let’s drop the planned increases in our carbon taxes for now.


For other blog-posts see:

Topical Index of Posts



[2]  Emphasis added
[4] Calling climate change a sin won't help the planet -- or the poor”,. Acton Commentary, http://www.acton.org/pub/commentary/2016/09/21/calling-climate-change-sin-wont-help-planet-or-poo
[5]  The pope and Orthodox Ecumenical Patriarch Bartholomew
[6]  By the way, subsidizing the purchases of the poor of polluting products is also questionable policy. If an item really needs to be taxed then the poor should also be forced to make the necessary tradeoffs. They should be recompensed in ways which do not depend on the amount of the polluting product they use. Increasing income tax credit for lower income is a better way.

Wednesday, 2 November 2016

Topical Index of Posts

Since Blogger shows only the most popular posts directly and archives the other posts by month, I have developed this topical index which you may find helpful to find previous posts.

Introduction

     Introduction: Political-Economics as God's Steward

Business Cycles

    But not an annually balanced budget!
     My Market Preference is Conditional because of Market Failures

Capitalism

 Is Socialism Satanic?

Commons- Tragedy of

Free Market

    See Market

Free Trade

    Buy Local Think Global?

Government

   Government does not work!
    Competition is Good; A Biblical/Economic Perspective 
          (See the roll of government)

Growth 

      Growth is not a Bad Word!

Health Care

      Health Care, Wait-lists and Private Benevolence

Incentives to Bad Stewardship

Information- Lack of

    Government does not work!

Justice System

     My Market Preference is Conditional because of Market Failures

Market

    A Preference for the Market: Because it Works
    Government does not work!
     Alberta—Amazing shift away from market-oriented economics?
     Choice of Economic Systems-A Conditional Preference for the Market—what does that mean?  
     My Market Preference is Conditional because of Market Failures

Minimum Wage

        Does the Minimum Wage help the Poor?

Monopoly

      Competition is Good; A Biblical/Economic Perspective
      Competition Good; Monopoly Bad; Government Permitted Ones also Bad!
     My Market Preference is Conditional because of Market Failures

Necessary Goods and Services (Public Goods & Quasi Public Goods)

      My Market Preference is Conditional because of Market Failures

Neighbourhood Effect 

      My Market Preference is Conditional because of Market Failures

Non-Economic Goals

      My Market Preference is Conditional because of Market Failures

Postal Service 

    Does Canada still need Canada Post?

Poverty-Helping our Neighbour 

      Does Buying Fair Trade Coffee Help the Poor?
     Inequality is not the Issue
      Does the Minimum Wage help the Poor?
     Why should Africa be made to suffer by western anti-fossil-fuel hypocrites?

Property 

     Private Property or Common Property: What does the Bible Say?
      My Market Preference is Conditional because of Market Failures

Proportional Representation

     Alberta—Amazing shift away from market-oriented economics?

Regulation

 Organized Procrastination or necessary Environmental Review?

Small Business

     Small business, big business, subsidies and bailouts
      Should government discriminate in favour of small businesses? 

 Socialism

    Is Socialism Satanic?

Stewardship 

    Stewardship as a Point of Departure
    Stewardship: Some Implications

Subsidies

     Small business, big business, subsidies and bailouts

Supply Management 

      Competition Good; Monopoly Bad; Government Permitted Ones also Bad!

Taxation 

      Is one type of Tax more Stewardly than Another?

     Taxation Postscript; Not just one tax.

Unemployment

     Government Debt and Deficits Do Matter

 

Unions

       Competition Good; Monopoly Bad; Government Permitted Ones also Bad!

Wealth

    Distribution:        My Market Preference is Conditional because of Market Failures