13 September 2013

Why We Should Not Privatise Royal Mail

I spend a lot of time travelling by train. I have experienced first-hand the way the railways have changed through my lifetime from being a public service to being a private business.  This has brought many subtle changes but it has also brought some significant reductions in service which are relevant to the decision about whether to privatise Royal Mail. Here I consider three ways in which we, the service users, will lose out by, analogy with the railway: through the transfer of costs to the individual; increasing stress for the individual; and the gaming the market.

As an individual traveller we are unsupported and receive barely any personal service from the skeleton staff employed by the private rail companies. They used to sell us tickets, check our tickets, and give us information about rail services. Now we do these things ourselves. As they make their pricing structure more complicated we struggle to keep up and reduce our costs. As a Professor of Economics I have enough money not to worry too much about this but I am obviously mean as well as principled and I try to hold my local company First Great Western to their advertised pledge that they will help me find the cheapest ticket. I also ought to have the mental agility to split my ticket and use cards and discounts to reduce my travelling costs but it astonishes me how much time and mental energy this takes, making me physically sick when juggling so many variables.

So how might this transfer of costs work in the postal service? The process has already started with parcel deliveries that are not delivered but left at a distant sorting office, cost savings having led to the centralisation of services in fewer locations. This may be efficient for Parcelforce but it is deeply inefficient for the individual who is waiting for a package especially if, like me, they don't own a car, and the parcel is heavy. In future we can expect to see a more complex pricing structure with the universal service, let's say around £1 per letter, so long as you are prepared to have your letter carried by donkey and arriving after a long delay. The services that make money, the services used by bizniz, will be efficient, rapid and competitively priced; the services used by you and me will become residualised.

The ticket barriers are a classic example of the attack on jobs that privatisation always brings and the way that stress and effort are transferred to the 'customer' and away form the corporation providing the service. Because I travel on railways across Europe I am sensitive to how offensive these barriers are compared with the personal service of a ticket collector. Such an individual also implies that there is some degree of management and control of the rail system as a whole and, in most European countries, rail staff are proud of the national service they work for. What a contrast to the precarious, deskilled workers found throughout our rail system and who our postal workers will soon resemble.

One of the conditions for a free market to work efficiently is that there needs to be what economists call 'perfect knowledge'. The farce of this in the case of rail travel is plain to see: most rail staff themselves are unaware of how to travel for minimum cost and what the validity and availability of the various tickets is. In the case of Royal Mail the removal of the cost from the face of stamps was a classic example of undermining the passengers' knowledge. I bought a huge batch of second-class stamps before the latest exorbitant price increase and was recently horrified to find that a second-class stamp now costs 50p. Hidden charges and subtle price changes will no doubt become a feature of the future postal service, causing us wasted hours and vertigo unless we give in and allow ourselves to be exploited.

Oyster is part of the Transport for London system and so because of its ownership structure does not return value to shareholders. Yet even there money is taken from you without your knowledge. Sometimes the machines fail to register you touching out and you are charged the penalty fare. It is your responsibility, I am told, to check a print-out of your use every evening to ensure that you have not been over-charged. If you notice that something is amiss it becomes your responsibility to stand in a queue and request that it is resolved. Time and stress passing to the passenger again.

I travelled to Brighton this morning for Green Party conference. I travelled in what is defined as 'peak time', a self-defined period that keeps extending with no apparent relationships to the way we travel or when we work. It was immediately apparent that the Brighton-to-London peak works in that direction only. My evidence is that the train I was travelling on was nearly empty and of the dozen ticket barriers only three were open in my direction. People travel from Brighton to London to work but very few travel in the reverse direction so there was no justification for my having to pay £20 extra and being prohibited from using my Network Card.

This is an example of gaming the market that is inevitable when there is a natural monopoly and profit-seeking executives pit their wits against under-resourced regulators. How might such an impulse express itself in the case of the postal service? The most important target of gaming is sure to be the universal service which, like the concept of 'peak travel time', will be used by politicians to limit outright profiteering. As soon as Royal Mail is free of the constraint to serve the public interest the finest minds will be turned to stretching and undermining the meaning of a 'universal service' whether by reducing frequency or geographical extent. Perhaps old ladies in the Hebrides will be required to walk a mile to a neighbour's house to collect letters, or will be offered a weekly rather than daily 'universal service'. Or perhaps clever young men will find a way to redefine what daily means. You get the idea, and you also see that I am not cut out for that sort of game.

I have grown tired of discussing whether there is any economic theory to support the privatisation proposals of successive governments. In the case of natural monopolies like the Internet and sewers there is no reason why we might expect efficiency rather than profiteering from the companies that run them. The same applies to the railways and the post: services fundamental to a functioning society are committed to the tender mercies of profit-seeking executives. We will be conned and over-charged and the value we lose will pass to the same shareholders who gave us the financial crisis. We would be made to vote for this, and madder still that people we voted for are imposing it on us.


  1. Molly, Have you read 'Privitization: Sucesses & Failures'?

  2. I think that the issues you raise are problems with the nature of neo-liberalism and the culture it creates, and go much deeper than differences between the public and private sectors. The introduction of ticket barriers has been specified by the Department for Transport in franchise competitions rather than being an initiative of the private TOCs, at least in the cases I am aware of. On the subject of ticketing, some fares and regulated and other not. The TOCs often try to get around the restrictions of regulation by extending time restrictions on tickets and then introducing more expensive ones with the original restrictions. The DfT in reality encourages this by seeking high premia and low subsidy. Yes, privatisation is part of the process moving in this direction, but it is simply a tool for promoting neo-liberalisation. Proponents of this ideology believe that these pricing models are desirable because they increase consumption by those who are not prepared to pay so much, but this increased consumption then requires increasing provision, which creates more ecologically and often socially-destructive growth. They think we should then maximise surplus from those who are willing to pay. Speaking to the FGW Managing Director this week, it was clear that his main purpose in promoting the railway was to artificially increase demand, with no thought as to the consequences The state-owned railways of most larger European countries are increasingly using similar pricing models to those used in Britain for long-distance services, as they try to compete with budget airlines. So what is required is a step change in the way the pricing of all long-distance transport works as I'm sure you appreciate, where the marginal cost of road travel increases dramatically, as does the cost of air travel, and a walk-up rail ticketing system is introduced which costs less than the marginal cost of travel by road or travel by air. The peak issue is more problematic, and probably requires measures to decrease levels of commuting.

    Note also that Northern Rail workers threatened strike action recently over the increasing use of agency staff for roles such as ticket checking.