Canada Post wants to increase the price of a stamp by 25 cents to $1.24 to keep up with inflation and rising costs. Since 1981, stamp prices have risen 98 per cent (after adjusting for inflation).Jonathan Hayward/The Canadian Press
Vincent Geloso is an assistant professor of economics at George Mason University and senior fellow at the Fraser Institute.
This month, Canada Post said it wants to increase the price of a stamp by 25 cents to $1.24 to keep up with inflation and rising costs. Canada Post has relied on this reasoning or other “financial difficulties” for previous price increases since it stopped being a government department and became a Crown corporation in 1981.
The source of these difficulties has changed over time. It used to be the modernization of infrastructure, then the problems of pensions, then the rise of the Internet. The response is, however, always the same. Prices must increase. Indeed, since 1981 stamp prices have risen 98 per cent (after adjusting for inflation).
How does Canada Post keep getting away with this?
Firstly, it has a monopoly over most of the letter market in Canada. And while it competes with private companies (UPS, for example) in the parcel market, Canada Post can borrow money at much lower costs than its rivals because it is a Crown corporation ultimately backed by taxpayers. That’s a huge advantage.
Normally, a company facing losses and declining demand would be forced to innovate and reduce costs. Otherwise, it would likely be bought out by competitors or go bankrupt. However, because of its monopoly over most of the letter market, Canada Post lacks this incentive. It can simply pass the burden onto consumers by raising prices. And as a Crown corporation, it cannot be purchased by another company without express approval from Ottawa.
So, what’s the solution?
In Europe, owing to a directive from the European Commission, the delivery of all letters, regardless of weight, has been open to competition since 2013. The directive does not mandate the privatization of state-owned postal companies; it simply ends postal monopolies. Combined with local liberalization efforts before 2013, this directive has forced state-owned postal service providers to better control costs because they cannot turn to taxpayers (for subsidies) or consumers (by raising prices) to bail them out.
Some countries, such as the Netherlands, Austria and Germany, went further and privatized their postal operators. With privatization, the discipline of competition is combined with the discipline imposed by shareholders seeking to maximize profits and increase sales. In the 10 years following privatization, prices for stamps and other postal services fell by 11 per cent in Austria, 15 per cent in the Netherlands and 17 per cent in Germany (adjusted for inflation). All these countries now have lower postal prices than the European average.
Predictably, postal service providers in these countries found new methods of organizing their activities, tying multiple services together to generate economies of scale, and moving fast in adopting new information and logistical technologies. Because of the incentives of competition, providers focused their efforts on controlling costs – a focus Canada Post will never have as long as it’s a Crown corporation with a monopoly.
If approved by federal regulators, Canada Post’s latest price increase would go into effect in January. Policy makers in Ottawa should finally put postal liberalization and privatization on the table. Otherwise, it’s only a matter of time before a new problem emerges, which Canada Post will use to justify another price increase.