Eliminating Canada Post’s monopoly would benefit consumers

Montreal, April 27, 2011 – After several months of unsuccessful negotiations and conciliation talks, the employees of Canada Post voted by a margin of 94.5% in favour of going on strike at the end of May if they do not reach a negotiated settlement with their employer. Now is the perfect time to evaluate this public monopoly and to consider reforms that would improve its efficiency. In an Economic Note published today by the Montreal Economic Institute (MEI), economists Vincent Geloso and Youri Chassin show that opening up the postal sector to competition and privatizing Canada Post would allow for a more modern and affordable postal system, like the ones that exist in other countries.

Maintaining a monopoly on the distribution of letters, as Canada does, is a model that has increasingly been abandoned around the world. In the European Union’s member countries, the sector is currently being liberalized, and postal monopolies will be a thing of the past as of January 1, 2013. Moreover, several countries, including Germany, Austria and the Netherlands, decided to go even further and privatize their public postal operator, a move which has resulted in significant rate decreases (up to 17% in Germany) ten years after the launch of reforms.

Here as elsewhere, the postal industry has been losing speed since the mid-1990s. While the number of pieces of mail delivered per person is falling, operating costs at Canada Post are rising rapidly. Labour costs, in particular, represent nearly two thirds of total expenses. "The management of Canada Post has made substantial efforts to improve the corporation’s performance within its current framework. Unfortunately, in a monopoly situation, it is tempting to balance the budget by simply inflating the price of the product that no one else is allowed to sell. In 2009, for instance, Canada Post announced a 20% hike in the price of stamps over the next five years. Solutions for controlling costs are incompatible with a monopoly," explains Vincent Geloso.

For Youri Chassin, a first step toward privatizing Canada Post could take the form of an employee-share ownership program, so that workers could benefit directly from increases in productivity, both as shareholders and as employees. "A partial privatization to begin with, followed by an opening up of the postal service market to competition, would allow the sector to provide a better service at a lower cost," he says.

The Economic Note entitled Canada Post: Opening Up to Competition, prepared by Vincent Geloso and Youri Chassin, two economists with the Montreal Economic Institute, can be consulted free of charge on the Institute’s website.

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The Montreal Economic Institute is an independent, non-partisan, not-for-profit research and educational organization. Through its publications, media appearances and conferences, the MEI stimulates debate on public policies in Quebec and across Canada by proposing wealth-creating reforms based on market mechanisms. It does not accept any government funding.

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