The Power Of Competition

Gary Becker, Nobel Laureate in economics, in response to comments on a post arguing for the privatization of highways writes:

The USPO illustrates the worst of public monopolies. It has lagged virtually all the important mail delivery innovations in recent decades. It is grossly overmanned, and its employees are often surly and unpleasant. The need to subsidize mail sent to remote places is no justification for a public monopoly. Such mail can be subsidized-if that is desirable- without having a public monopoly. Simply subsidize Fed Ex or any one else for their deliveries to such places. Take away the protection of the law and subsidies, and the USPO would collapse within a short time.

Many public institutions in higher education offer very fine products, but that is because they face stiff competition from each other and from private universities. Eliminate that competition-as in Germany, France, or Italy- and one sees how ineffectual public universities become.

Phone service has become much cheaper, not more expensive, since the telephone market was opened up. It is far cheaper to make long distance calls, including international ones, than it was before. Imagine what the phone system would be like if ATT still had a monopoly: where would wireless, cable, and Internet telephony be? ATT would have used its political power to resist and handicap every one of these and other innovations.

The full post can be found here. His initial post is here. Richard Posner is here and here.

14 Responses to “The Power Of Competition”

  1. calcon says:

    He is absolutely spot on here. The USPO should have been privatized long ago. Good article. His points on the long distance phone call market are also right on the money. Just think, what if they privatized the mail system and then one day we were able to opt out of any unsolicited junk mail offerings? How many trees would we save? I’d bet my trash at home is probably 30% junk mail.

  2. Michael says:

    Phone service has become much cheaper, not more expensive, since the telephone market was opened up. It is far cheaper to make long distance calls, including international ones, than it was before. Imagine what the phone system would be like if ATT still had a monopoly: where would wireless, cable, and Internet telephony be? ATT would have used its political power to resist and handicap every one of these and other innovations.

    You do know that it was the government that forced AT&T to break up in the early ’80’s. So HP you are in favor of government intervention when a large corporate entity unfairly dominates a market. Did you stop getting your checks from Wal-Mart’s PR department.

    Another example of how the government improved everybody’s life by correct an imperfect marketplace.

  3. It was the government that created AT&T monopoly power hence it was the government’s job to break up AT&T.

  4. Michael says:

    This is the kind of article you read at first glance and go man thats right, why not!!! After all, who doesn’t love to bash the post office. Then you think about the facts and it is totally wrong. This article is totally false. Did this guy really win a nobel prize?

    First, the post office is self-funded, it does not receive any subsidies from the US government. It is prohibited from receiving subsidies since the 1970 Postal Reorgination Act of 1970 which phased out all direct government subsidies to the USPS by 1982. It is completely self reliant paying all of its costs from fees and postal revenue.

    I think the author is missing the purpose of the postal service. It is a discount service. It costs just 41 cents to mail a letter to anywhere in the US. It is not guaranteed and costs extra to track your letter, but honestly I can not recall when the post office has ever lost something I have sent. I always get any bills I am owed (unfortunately) and frankly anytime I send a letter it gets there within 5 days. Don’t you wish your e-mail was as reliable in terms of your messages getting out without the server crashing etc.

    Of course FED Ex will get it there overnight and you will have a tracking number and it is an excellent reliable service, but that costs around $15. This is 36X more expensive than first class rates.

    Are the people who work at the post office surly, are there long lines at the post office, yes. However this is like comparing the service at Wal-Mart to Nieman Marcus. Or comparing McDonald’s to Peter Luger’s. Are the lines longer and the people not helpful at Wal-Mart or McDonalds’s, usually yes. But this is the trade-off you get for lower prices.

    Fed Ex has the capabilities to go into the first class mail business they have the planes, the logiistical system etc, but it does not earn enough profits. The post office more or less breaks even. This is not in the Fed Ex model. Its shareholders rightly would not accept break-even performance.

    As far as the junk mail, this is not the USPS fault, congress could at any time ban sending unsolicited mail throug the USPS. It prohibits many other types of transactions through the mail. Of course the credit card companies and publishing houses and catalog retailers would never allow congress to do this.

  5. The post office as a protected monopoly has faced no competition – hence his criticism of lack of innovation and creativity. It has also performed significantly better in recent years because of the opening up of some competition, most notably Fed Ex, something that was prohibited for much of the post offices life.

    It is also worth noting that the lack of government subsidies to the post office is still relatively new, I think in the early 80’s, and since then, along with the introduction of competition, has drastically improved the post office – though still notably less than the more competitive Fed Ex.

    For more information on how the post office was when it was more controlled by government and faced less competition read this:

    In other words, less government and more competition are the reasons the post office is no longer the abysmal failure it once was…and Fed Ex shows just how much better it can be – again with more competition and less government.

  6. Michael says:

    So as i said, everything this nobel laureate said is false.

    There is no subsidy.

    Fed Ex is hardly a competitor, If you want to spend $15 to mail your phone bill out via Fed Ex, be my guest.

    There is no need to privitize the post office because it is operating very efficiently at low rates.

    Why would we subsidize a private company like Fed Ex where we the Post Office is doing the job just fine as it is at low cost. Some of the se small government “conseratives” are such ideologues that they must replace everything run by the govt with a private contractor regardless of the ineffecienceis it creates.

  7. His point is with the post office historically and a better way to have accomplished the same thing.

    Had the USA subsidized a private industry instead of a government monopoly you would have seen much more changes in innovation and creativity along with an easier way for competition to have ensued thus resulting in a better end product.

    Again, knowing the history of how the post office has operated (highly recommend the link above) it is hard to argue against this.

  8. Michael says:

    i read the link. He is talking about the present not 25 years ago. He is ignorant and talking out of his a–hole.

    Speaking of history. As a strict constructionist, you should know that the congress was given the authority “to establish post offices and post roads.” in the constitution itself. The postal service was established immediately after the second constitutional convention by Ben Franklin. By the definition it pretty much says that the federal government needed to establish the post office. Funny how you conservatives are strict constructionists when it serves your purpose and then disregard the constitution when it does not. Or I guess conservatives are smarter than Ben Franklin.

  9. I am an originalist not a strict constitutionalist.

    With that said, I still think that the post office, both historically and currently (doing significantly better after government subsidies were reduced and competition has increased), proves exactly what Becker has been arguing – it is better to subsidize a private industry than to create a government monopoly.

  10. Michael says:

    Why give away taxpayer dollars to large corporations when a govt. entity can do the job at no cost to the taxpayers?

  11. Historically the post office has operated with a large amount of government subsidies, so historically it was not at “no cost to the taxpayers”. Since the post office now does not operate with government subsidies than a government subsidy to the private industry is also not warranted.

    But there is still an argument to be made in support of the government giving the post office duties over to a private industry without subsides. The argument for doing that is the innovation and creativity that would ensue – something that is near zero in any government program.

  12. Michael says:

    There are a great deal of technical innovations that goes on at the postal service. The letter that you send does not get placed in your mail slot, and magically re-appear in the mailbox of the recipient 3 days later.

    I worked for a company that publishes magazines and got to know the circulation side of the business a little. The amount of technology involved with bar-coding and sorting the bulk mail that you get would shock you. Take a look at a mass mailing that you get in the mail. There are bar codings usually right above your name and sometimes next to where the stamp would appear. These bar codings all contain data relating to your address, the type of mail etc. All of this info is read by a machine in the post office and helps millions of pieces of mail get to its destination faster. Thats technological innovation that most people are not aware of or even give much thought to.

    Government contractors do not always do the job right. The irrefutable argument is the fact that on 9/11 it was government contreactors who allowed 19 terrorists onto airplanes with box cutters in their carry-on luggage.

  13. True, that is technological innovation, but that was invented and first implemented in the private sector – the post office only later adopted it.

  14. Michael,

    You’re correct in suggesting that some government contractors do not always do the job right. In New York City, many renovation projects involving my city’s subway system are handled by both the State Transit Authority and their private contractors, depending on the project. The contractors are often just as lazy and slow to work as TA employees. I often see six guys on a track, with one guy working and the other five supervising, coffees in hand. The only way New Yorkers can tell the contractors from the state employees is the “CONTRACTOR” spelled out in black on the back of their orange safety vests. You sure as hell can’t tell by their work ethic.

    Your criticism regarding government contractors is a very good argument for some government agencies to stop hiring contractors period and simply allow the free market to provide more efficient delivery of services to the general public.

    Now I don’t know much about the USPS, but don’t they have a monopoly on first-class mail delivery due to a federal law that prohibits private companies from charging less than $3 for the delivery of any piece of first class mail? I think I read it in David Boaz’ Libertarianism: A Primer. If I’m wrong about this fact, I’m sure Michael will let me know.

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