Why the Tories love Canada Post

Never mind expert advice, Ottawa won’t go after this monopoly

Why the Tories love Canada Post

Photographs by Andrew Tolson

When the Organisation for Economic Co-operation and Development issues a judgment on a country’s economy, governments, businesses and unions often snap to attention. The prestige of the 30-nation, Paris-based club of leading democratic economies is such that its typically pro-competition prescriptions tend to be held up by those who like them as gospel, and denounced by those who don’t as too dangerous to ignore. So when the OECD issued its latest “Going for Growth” report—a yearly compendium of advice for policy-makers in member countries—its provocative call for the Canadian government to sell off the post office seemed bound to ignite another heated round in the on-again, off-again debate over the future of Canada Post.

The OECD couldn’t have been more blunt in calling for decisive change in Canada’s mail business. Under the heading “Reduce barriers to competition in network industries,” the report urged: “Liberalize postal services by eliminating legislated monopoly protections and privatizing Canada Post.” Although that proposal might sound radical, it’s not out of step with international developments. Postal services in Germany and Holland were privatized years ago, and the services in Scandinavian countries and New Zealand opened up to competition. With those examples to guide them, in line with their avowed pro-market bent, the governing Conservatives might have been expected to embrace the OECD recommendation as a chance to advance a smaller-government agenda.

Instead, silence in Ottawa. The OECD’s March 10 report prompted an annoyed response from the Canadian Union of Postal Workers. But from the government and the opposition parties, nothing. And that surprisingly inert reaction suggests the extreme trepidation with which Canadian politicians view the post office. It’s not as if privatization isn’t a live subject: the government plans to sell off the reactor division of Crown-owned Atomic Energy of Canada Ltd., and, in the wake of his budget last month, Finance Minister Jim Flaherty said he expects to announce other privatizations within the next year. Yet the government signalled that Canada Post isn’t going on the auction block. “We’ll continue to ensure that Canada Post remains on a firm financial footing to maintain its universal service,” said an aide to Rob Merrifield, the minister of state responsible for the postal service.

In fact, the Conservative government has proven to be remarkably staunch in its support of Canada Post. Back in the spring of 2008, the Tories appointed an independent advisory panel to study the Crown corporation. But the possibility of selling it wasn’t even allowed on the table. The terms of reference for the panel specified that Canada Post “will not be privatized.” Not only that, the government also stipulated that the service had to remain “universal,” which means high-cost rural service couldn’t be curtailed. As well, rather than pushing Canada Post to behave more like a private company, the government stressed that it must continue to “act as an instrument of public policy.”

The panel was headed by Robert Campbell, president of New Brunswick’s Mount Allison University, and a respected international authority on postal services. “I found it interesting,” Campbell said in an interview, “that a government that’s reasonably oriented to the private sector looked at Canada Post and said, ‘We’re not going to privatize it.’ ” He said that political instinct was borne out by his panel’s research, which uncovered scant popular enthusiasm for eliminating Canada Post’s monopoly on delivering letters. “A lot of it has to do with the fact that ordinary citizens in Canada kind of like their mail being delivered,” Campbell said. Still, he highlighted serious challenges facing Canada Post and urged massive investment in outdated plants and technology.

The government’s main response to his panel’s report so far was last fall’s introduction of a so-called Postal Service Charter. The charter entrenches many elements of Canada Post’s mandate that stand in the way of privatization or even of more limited moves to open it up to competition from private companies. It says Canada Post must maintain “universal service,” and that it must continue to “charge universal postal rates for letters of similar size and weight.” Critics say injecting business-style incentives into the mail market will be hard as long as the post office can’t make the price of a stamp reflect the fact that delivering an envelope from, say, Calgary to Edmonton costs less than shipping one from Port Anson, Nfld., to Port Alberni, B.C.

Given Canadian geography and the policies of successive governments, Campbell argues that Canada Post performs well by world standards. “The service is pretty good for a country with 4½ time zones and a spread-out population,” he said. “The postal prices are very good relative to the world market—you should see what a stamp costs in Germany or Holland.” (In Germany, for instance, posting a regular domestic letter costs 84 cents, compared to 57 cents in Canada.)

The OECD, however, sees an inefficient Canadian postal service as part of a broader pattern of lacklustre performance by Canada’s so-called “network industries,” including telecommunications and electricity. “Canada Post is just an example,” said OECD economist Yvan Guillemette, “of a network industry where some progress has been done in other countries, like New Zealand, Germany and the Netherlands, where they have introduced competition and Canada hasn’t.”

Why the Tories love Canada PostIt was Guillemette who wrote the recommendation to privatize Canada Post into the “Going for Growth” report. He’s a Canadian who happened to be working for the C.D. Howe Institute, the prominent business-oriented think tank in Toronto, back in 2007, when it released a report called “Rerouting the Mail: Why Canada Post is Due for Reform.” And it was that report’s call for selling off the postal service that Guillemette imported unaltered into the OECD’s competitiveness blueprint for Canada. “Here at the OECD,” he told Maclean’s, “we haven’t done a study of the postal sector or Canada Post.”

Still, by having the OECD echo from Paris the case that impressed him back in Toronto, Guillemette at least revived the perspective of critics who see tackling mail delivery as a pressing economic challenge, rather than a political risk. Prominent among them is University of Toronto professor of law and economics Michael Trebilcock, one of the co-authors of the original C.D. Howe Institute study. Trebilcock now views outright privatization as so politically unpalatable that he urges a shift in focus to more gradually opening up Canada Post to competition. The main issue is the so-called “exclusive privilege.” It’s the means by which Canada Post is given a monopoly on delivering letters—in essence, it’s a law that says anyone else who wants to deliver a letter must charge at least three times the cost of a stamp.

The stumbling block for ending that monopoly has always been the expectation that private companies would cream off the post office’s profitable urban business, leaving far-flung rural addresses to be served at a loss by the Crown corporation. The Conservatives in particular, with their heavy concentration of rural seats in the House, are sensitive to any proposal that might lead to service cuts or price hikes beyond cities and suburbs. But Trebilcock contends that doing away with the current murky cross-subsidy—effectively overcharging for urban delivery to keep hinterland service cheap—would be a major improvement. Ottawa would have to openly subsidize rural postal delivery. “Transparency would be a virtue,” Trebilcock said.

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