Freeman

ARTICLE

The Real Monopoly

If Politicians Really Cared about Monopolies, They'd Focus on the Postal Service

AUGUST 01, 2002 by JOHN BERTHOUD

What is a monopoly? The attorneys general of the nine states and the District of Columbia that are now engaged in their latest legal attack on Microsoft apparently have no idea. Because if they did, they would be focusing their ire not on Microsoft, but on the U.S. Postal Service, which has authorized another 3-cent increase on the price of first-class stamps (from 34 cents to 37 cents). By every possible meaning of the word “monopoly,” these attorneys general are going after the wrong entity.

Price? Microsoft prices have been steadily falling. Since 1995, the price to computer manufacturers of installing Windows has fallen in inflation-adjusted terms. And since 1990, the retail cost of Microsoft Office software has fallen by about 50 percent.

Meanwhile the Postal Service continues enacting price hikes. This latest 9 percent increase will cost Americans $5.6 billion, according to the Direct Marketing Association. At the beginning of the 1990s, first-class postage was 25 cents. So in little over a decade, the Postal Service has hiked prices by almost 50 percent! The Postal Service expects consumers to jump for joy over the promise that it won’t seek another increase this year.

What about service and features? Microsoft has been continually improving its products and adding features. In fact, some of the legal geniuses pursuing the case have argued that this is a bad thing: somehow, adding more features to Windows (the lawyers’ term is “bundling”) is unfair to Microsoft’s competitors. Never mind the benefit to consumers.

The Postal Service, on the other hand, seems to be doing its best to avoid increasing productivity. Its powerful unions realize that productivity can mean temporary job dislocation–and from their perspective, that’s a bad thing. Perhaps this explains why, according to the U.S. Bureau of Labor Statistics, the Postal Service has experienced productivity growth of 11.1 percent over the last 30 years, compared with 53.4 percent for all private-sector companies. Of course, this stagnant productivity growth and the endless sea of red ink haven’t stopped the Postal Service from doling out nearly $900 million in management bonuses over the last five years.

These differences in price and productivity stem from very different competitive positions. While Microsoft faces the white heat of competition every day, the Postal Service has special protections frozen into law that it jealously guards. The Postal Service is exempt from zoning, customs, and tax laws (unlike private delivery companies). Federal law prohibits private companies such as UPS or FedEx from providing first-class mail delivery. Steve Dasbach, the executive director of the Libertarian Party, asks, “Imagine how much a Ford Explorer might cost if it were illegal for any other automaker to produce an SUV.”

So what then ultimately explains why these attorneys general are pursuing Microsoft and leaving the Postal Service’s special protections untouched? Politics. Microsoft’s competitors have driven this suit from the start. This was true when the Clinton Justice Department was spearheading the effort and was joined by the attorneys general of 20 states, and it is true now when–after the Department of Justice and most states have settled with the company–the remaining AGs have rejected the settlement agreement and are seeking even more blood.

The rewards have been rich for the AGs doing the bidding of Microsoft’s competitors. To name just one example, the Kansas gubernatorial campaign of Attorney General Carla Stovall–who is still pursuing the Microsoft case–has already received at least $14,000 from companies and individuals leading the charge against Microsoft.

The Postal Service, on the other hand, has a guardian angel in the form of powerful labor unions. As the National Taxpayers Union’s Jerry W. Terry has observed, “political pressure from powerful labor unions ensures that Congress will not allow free-market competition to threaten the Postal Service’s grip on mail delivery.”

So ultimately, the lesson is that whatever the economics textbooks say about what is or isn’t a monopoly, to many of America’s elected officials, the only definition that matters comes from their political playbook.

John Berthoud is president of the National Taxpayers Union (www.ntu.org).

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August 2002

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