On Canada Post

“But that alternative must surely now be inescapable. The question before us is not whether to ‘save home delivery’ or ‘save Canada Post.’ That is a false choice, which only the logic of monopoly forces upon us. Step outside its confines, and the question is ‘who can offer the best service to postal users at the lowest cost?’. To which the answer is: open it up to competition and let’s see.”

  • Andrew Coyne: Ending Canada Post’s monopoly would benefit taxpayers and consumers by Andrew Coyne | 11/12/13 9:54 PM ET, @acoyne)

In watching the response to the changes at Canada Post, one has to be disappointed with the level of conversation from Politicians, Pundits and the Media. On CBC’s, Power and Politics, I heard Rob Silver and my leader, Justin Trudeau, give less than satisfactory answers. However, I have to admit that the answers they gave were much more satisfactory than what I heard out of the Tories or the NDP.

For in many ways, no one has asked the simple question: why have a Post Office? Many people have assumed that because of the development of various forms of digital communication that the post office is dead. But I think they have missed a crucial point: our society has not moved beyond paper. Mortgages are still drafted on paper and so our contracts. Our world is still in transition from paper to digital and in the meantime we still need a post office.

With that being said, we have been here before. Since 1867, we have had constant technological change.
Canada Post and its forerunners have always had to deal with this change. For in the beginning, there were private mail companies, railways and ships. All of them would transport mail or parcels and all of them were always looking for market share. Over time, the landscape has changed but the competition has not. We have seen the advent and demise of the telegram and wire services. Phones, radio and faxes machine have also came to the fore. So it is not as if we have not been here before. The question is: “where do we go from here?”.

My NDP Friends have made two arguments. They have said either “we need Canada Post because we have always had Canada Post” or “some Government should have made the changes earlier”. Both arguments have problematic. History tells us that preceding Governments were stymied by various interest groups in making changes. To me, the most memorable was the Brian Mulroney’s introduction of the Superboxes. So the truth is that this day has been coming for a while.

However, to the NDP’s more substantive point, let us discuss the form of Canada Post. Ian Capstick, for example, argued that Canada Post has a necessary and vital purpose in our Confederation, but the problem is its form. Or put differently, if one looks at different foreign models, Mr. Capstick accepted the Scandinavian model where the Post Office does much more. In some places, some of the telecommunication network is run by the National Post Office. This idea would be in-line with the Canadian Union of Postal Workers who has argued that Canada Post should be allowed to compete with private sectors players like banks. The only problem has been that many of those private sector players have been very successful over the years. For example, while we might not be fond of our financial sector the truth is that it works for most Canadians. In fact, what is interesting is that at the outset, Post Office Department – Canada Post’s forbearer – had the right to provide banking operations in Ontario and Quebec. As our banking system grew, it displaced a need for a Post Office Bank. Consequently, while the bank sells money orders and does wire transfers, it does not do more complicated things like bank accounts, mortgages or insurance. In other words, because Canada has a number of strong private sector players, Canada Post has limited places to generate revenue. It is just that simple.

With that being said, the question is simple: can Canada Post be added to the dustbin of Canadian History? This would be the Conservative argument. For I have heard more about the “buggy whip makers” in the last couple of days than should be allowed. The Tories have said that the change made recently by Canada Post as inevitable and nothing could be done. The “Independent” Canada Post Board said so. Never mind that Canada Post has only one shareholder. Never mind the fact that that one shareholder is the Government of Canada. Or if I were to be plain, the Harper Government has been disingenuous as to their role, the outcome and any vision they have for Canada Post.

Therefore, let us speak some plan truths. Canada Post, as it is, is not workable and we are in a transition phase. The good news is that we have been here before as well. Just look at Brian Mulroney in the 1980’s. At the time, Canada Post had run problems. For example, from the late 60’s to the early 80’s, Canada’s Postal System ran a deficit. In the early 80’s, the Trudeau Government converted a government department – known as the Post Office Department – into the crown corporation called Canada Post. The change was supposed to give the new crown corporation more independence over its future, more regulatory control and a better ability to manage costs. However, the new model didn’t work.

So after years of deficit, Brian Mulroney proposed a new revenue model. Simply put, Canada Post would deliver more ad-mail. Consequently, by 1989, while 54% of the Corporation’s revenues were derived by letter mail, nearly 37.1% of their revenue was provided by ad-mail (both addressed and unaddressed). More ad-mail provided Canada Post with a new set of customers and a new firm footing. So the truth is that Canada Post has changed before. It has changed to deal with private mail companies, railways and ships. It changed with the advent of new technology and it has been given various revenue models. So the question is simple: “where do we go from here?”.

To people like Andrew Coyne who have argued that private carriers are the answer, history would tell us that they are wrong. Over a hundred years ago, Governments took complete control of the mail service because of the cost and reliability. Businesses, small and large, wanted to have a cheap and cost effective way of talking to individuals. At the time, the individual route cost recovery model used by the British or private carriers was just not working. And I would argue that they would not work today. For Canada does not have the density to make this work.

Some people, like Mr. Coyne, point to the Europeans. They argue that the Europeans – due to their common market – are moving toward privatization of all of their national letter carriers. So those market proponents ask one simple question: “why can’t we do the same thing here?”. The answer is simple density and market players. When all the Governments give up their market players, one could assume that there would be 28 new market oriented letter carriers. Coupled with companies like UPS and Fedex, one can see that a robust market could be created. In Canada’s case, the privatization of Canada Post would mean that our market would have four to five players (i.e. DHL, UPS, Fedex, Transforce and a privatized Canada Post). Given that Canada doesn’t have the same market labour agreements that the EU has, one would be hard pressed to see how a new postal company could enter Canada. Given Canada Post’s infrastructure, one would argue that few players could compete. Like the liberalization of various other Canadian Markets, the truth is that five to ten years down the road, we would enter into trouble. It could be like the cellphone market that has seen market concentration and higher prices. Or it could be like the airline market that has seen bankruptcies and loss of volume.

This analysis is further emphasized by the fact that Canada is just about the same size as Europe but lacks the population density. If one travels from Ottawa-Toronto or Toronto to Montreal, at most, one will find population centres which total just over 9 million people. However, take the same stroll in Europe – Paris to London – and one will find that the Paris Metropolitan Region has over 12 million people, while the London Metropolitan Region has more than 15 million people. The European Union has a population of 507,890,191, while Europe – as a whole – has a population of 739,165,030. Yet Canada only has a population of just over 35 million people. In other words, where a post man in Europe might serve thousands, in Canada, that same person could only serve a few. Where a postal delivery man could use one tank of fuel to provide gifts to tens of thousands, a Canadian delivery man can only serve a few hundred. Density in a market allows one to bring down costs and Canada just doesn’t have density. Businesses understand this. That is why the Canadian Federation of Independent Business has argued against this move.

Additionally, Governments – local, provincial and federal – still need such a service. In the past month, I have renewed my passport and received various notices from various levels of government. Mail is a cheap way of making sure the right person gets the right information. Or put differently, what would be the cost to government, if they had to courier every passport, parking ticket notice and income tax account statement. Or even worse, what would the increase in prices or associated costs be to individuals looking for services. For example, would that mean I would have to make various trips to a government office just to get a passport? Instead of one visit and a package in the mail, citizens might have to pick up the cost.

For those who argue that we can do all of this by email, I would remind them that there are a number of people who are not digitally literate. That includes many citizens who don’t backup their electronic documentation every month or those who don’t have computers to begin with. A digital government requires a population that has a single universal standard and the ability to upgrade when the government does. Simply put, we don’t have that society. Unless someone is arguing that the Government pay for everyone to have a digital reader, our society is not ready for the change. In many ways, we need Canada Post in its current configuration because Canada Post does what it is supposed to do: connect Canadians to government and each other regardless of cost, distance and geography.

However, Andrew Coyne is right in one respect: we need to have a change. We know we are transitioning into a digital age and Canada Post needs to be updated. As noted earlier, if Canada Post is supposed to connect Canadians to government and each other regardless of cost, distance and geography; then a market based solution is out. If you don’t understand why, look at the telecommunications market from its inception to now. One can see a consistent trend. If governments don’t intervene, telecommunication firms are more than willing to underserve or not serve communities. In Alberta and Saskatchewan, Governments created telecommunication firms because firms based in BC or the East did not have any market justification to expand. Or think of many parts of Ontario where 1920-era “Party Lines” existed until the 1980’s and 90’s. At that time, the CRTC forced upgrades. Market solutions only benefit those communities where a market player will enter.

This has not been true with Canada Post: it has always been the lowest cost universal communication experience. Even at the new price of $0.85, it is cheaper than email, Twitter or phones. Just think about it. Mail service in Canada does not require one to pay a system network or access fee. Unlike a phone or computer, one does not have to pay for or finance a device that accesses the network. In fact, one does not have to pay for a plan. All someone has to do is put a stamp on an envelope. It is a universal model which is simple. So can a new model do the same? I think so. In my mind, the new system has three characteristics.

The first characteristic of the model is simple: the federal government can no longer take money out of the system. For those who didn’t notice from Mulroney to Chretien to Martin to Harper, the federal government received billions of dollars worth of dividends from the Corporation. Like banks and many other companies, from its privatization to this year, Canada Post generated profits, but instead of putting those profits into new facilities and infrastructure, Liberal and Conservative Governments were willing to take money from the system. No business would run this way. Every business – Crown or Corporate – requires an inflow of cash to improve their services. Because of Federal Government Policy, this did not happen. So our new model needs to ensure that its cash flow is not hampered by the paying of dividends or other form of economic rent to the federal government.

Secondly, while Canada Post will have an analog model, it must be allowed to continue to build out its digital platform. Canada Post has been working for years to build ePost. Its purpose is simple: to build a digital platform that allows people to receive bills and other items that used to be received by mail but now might need a secure electronic delivery system. While it started out as a competitor to the private market, over time everyone – Emergis, the Banks and other players – realized that one solution made sense. Canada Post bought out the other players and everyone has been working together since.

The truth is that ePost must be allowed to press forth in creating a solid and secure digital delivery system: A system that does not exist today. For today, Canadians have to trust that they have hit the right website or that a particular email is not a phishing scam, criminal or other nefarious plot. This means that ePost should develop solutions for various businesses that Canadians deal with – here or abroad – to ensure that Canadians are both safe and secure.

Lastly, Canada Post should be directed to provide “last mile” services to all courier companies. To date, each courier company – domestic or foreign – has had to set up their own sorting facilities in Canada. DHL, Fedex, UPS and Transforce all have to have separate operations. What if Canada Post Offices were merely “exchanges” that allowed a citizen to bid for all services? Purolator could be spun off and sold off and Canadians would have five choices through which to send packages. Each company could be mandated to have a “slow” service, similar to Canada Post today. Such a co-operative approach would make for an easy and lower cost system. Additionally from my point of view, I would not have to figure out where I need to go to pick up a package.

This is a simple policy solution for a difficult policy problem. It means that Canadians will be free to choose their delivery company but also get the lowest possible price. It means that my liberty to send a package free from the interference of a criminal act, will be preserved. Canada Post has been an important tool for economic and political freedom. It allows for democratic action from conversation – free of undo government influence. A policy based on the model of digital innovation, last mile service provision and cost recovery makes sense. It provides the most benefit to the most people, while preserving the responsibility of government to act for the citizens and citizens to pay for their service. This is a Liberal Solution and a policy alternative that our party should take to heart.

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