A fudge over Royal Mail is in no-one's interest

February 26, 2009 2:35 PM

Politics and common sense rarely go hand in hand, and the current debate over Royal Mail is quickly becoming a case par excellence.

The Times reports today that Lord Mandelson - in desperate efforts to avoid a backbench rebellion - will promise to enshrine in primary legislation the public's majority stake in Royal Mail. He will also make further concessions over pricing and regulation. The bill (which is to be published today) will still introduce significant reform to Royal Mail though - allowing elements of the business to be privatised - making it unlikely that the concessions will satisfy oppenants.

Why give the concesions at all then, we might ask. It looks increasingly likely that the bill will become a classic piece of government fudge, pleasing no-one, failing to fix the problem at hand and being almost entirely pointless. Lord Mandelson, Brown and other Cabinet collegues - along with many Conservatives and the almost the entire managment of Royal Mail - have been convinced that privatisation is the only viable course. Last year it made record losses and ranked last in a list of
13 Western European operators in terms of profit margins.
The recent Government Hooper report into the future of postal services recommended whole-scale reform, and in response Mandelson promised 'gale force change'. But, once again, politics means we are only going to see a weak breeze.

Of course any steps towards privatisation are welcome. And critcally, they are not welcome becuase they satisfy some ideological pursuit, but rather becuase it will probably mean a much better deal for consumers (about which I have heard very little in the current debate). Politicians who seem so resentful of bailing out the banks seem quite fine with the yearly Government bail outs necessary to keep Royal Mail afloat. I suppose Royal Mail offers the 'right' kind of jobs. Opponents of reform also play to the public's natural sympathies with horror stories of shuttered up regional Post Offices and thousands of jobs lost.

Jobs no doubt will be lost through privatisation. Some post offices probably will close. But without major reform this will happen anyway, and for no gain. Union leaders make much of the fact that the the liberalised and privatised postal services ofthe world have seen change. In this they are right. What they do not tell you is that in the majority of cases (particuarly in Europe, where they have more often embraced full privatisation) the postal service has improved considerably. For consumers that is. Workforces do shrink, buildings do close, but costs drop and delivery rate improves. Nowhere has found a magic formula, but in both Germany and the Netherlands service improved following total privatisation and the end of Government involvement. In both countries a monopolistic provider remained (Deutchepost in the former, TNT in the latter) following privatisation, but things actually got better for users, with more innovation. In Germany they have established a 'travelling postoffice' for the more quiet rural areas, travelling around a prescribed area and offering customers all the same services they enjoyed at their local branch, including some banking services.

If nothing else we should consider the improvements that have been made to those services that have been subject to 'gale force change'. British Telecom (BT) increased its ouput per person and its profitability by over 100% following privatisation. Similiar improvement came to British Gas, BAA, British Coal. And importantly this was'nt liberlisation. Postal services in the UK are already liberalised; they have to be under EU rules. But the retention of the Royal Mail in public ownership means we are liable to bail it out again and again in the future, and unlikely to see the improvements that are possible. In short, pay more for less. Some will point to the railways as an example of how privitisation does'nt work. But infact railway reform resembled much more the 'half-in half-out' muddle that we see emerging over Royal Mail. If we want to avoid the problems of the railways then, we need to avoid this increasingly unappealing fudge.

Politics and common sense rarely go hand in hand, and the current debate over Royal Mail is quickly becoming a case par excellence.

The Times reports today that Lord Mandelson - in desperate efforts to avoid a backbench rebellion - will promise to enshrine in primary legislation the public's majority stake in Royal Mail. He will also make further concessions over pricing and regulation. The bill (which is to be published today) will still introduce significant reform to Royal Mail though - allowing elements of the business to be privatised - making it unlikely that the concessions will satisfy oppenants.

Why give the concesions at all then, we might ask. It looks increasingly likely that the bill will become a classic piece of government fudge, pleasing no-one, failing to fix the problem at hand and being almost entirely pointless. Lord Mandelson, Brown and other Cabinet collegues - along with many Conservatives and the almost the entire managment of Royal Mail - have been convinced that privatisation is the only viable course. Last year it made record losses and ranked last in a list of
13 Western European operators in terms of profit margins.
The recent Government Hooper report into the future of postal services recommended whole-scale reform, and in response Mandelson promised 'gale force change'. But, once again, politics means we are only going to see a weak breeze.

Of course any steps towards privatisation are welcome. And critcally, they are not welcome becuase they satisfy some ideological pursuit, but rather becuase it will probably mean a much better deal for consumers (about which I have heard very little in the current debate). Politicians who seem so resentful of bailing out the banks seem quite fine with the yearly Government bail outs necessary to keep Royal Mail afloat. I suppose Royal Mail offers the 'right' kind of jobs. Opponents of reform also play to the public's natural sympathies with horror stories of shuttered up regional Post Offices and thousands of jobs lost.

Jobs no doubt will be lost through privatisation. Some post offices probably will close. But without major reform this will happen anyway, and for no gain. Union leaders make much of the fact that the the liberalised and privatised postal services ofthe world have seen change. In this they are right. What they do not tell you is that in the majority of cases (particuarly in Europe, where they have more often embraced full privatisation) the postal service has improved considerably. For consumers that is. Workforces do shrink, buildings do close, but costs drop and delivery rate improves. Nowhere has found a magic formula, but in both Germany and the Netherlands service improved following total privatisation and the end of Government involvement. In both countries a monopolistic provider remained (Deutchepost in the former, TNT in the latter) following privatisation, but things actually got better for users, with more innovation. In Germany they have established a 'travelling postoffice' for the more quiet rural areas, travelling around a prescribed area and offering customers all the same services they enjoyed at their local branch, including some banking services.

If nothing else we should consider the improvements that have been made to those services that have been subject to 'gale force change'. British Telecom (BT) increased its ouput per person and its profitability by over 100% following privatisation. Similiar improvement came to British Gas, BAA, British Coal. And importantly this was'nt liberlisation. Postal services in the UK are already liberalised; they have to be under EU rules. But the retention of the Royal Mail in public ownership means we are liable to bail it out again and again in the future, and unlikely to see the improvements that are possible. In short, pay more for less. Some will point to the railways as an example of how privitisation does'nt work. But infact railway reform resembled much more the 'half-in half-out' muddle that we see emerging over Royal Mail. If we want to avoid the problems of the railways then, we need to avoid this increasingly unappealing fudge.

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