J.S. Mill vs reality (round one: Post Office monopoly)

[Riddick]

I've recently digested this behemoth of a book, Principles of Political Economy, written in 1848 by a man considered at the time one of the smartest alive, John Stuart Mill ( a great thanks to his Dad, which also explains a lot). And as we all know, when one revered as incredibly smart says or writes something, whether or not its totally wrong and could lead society down a path of misery and poverty, lots of people take heed. In the case of one long held opinion which is argued for in this book, we merely need to look at the verbiage surrounding the law enacting the USPS: The USPS says that these statutes were enacted by Congress "to provide for an economically sound postal system that could afford to deliver letters between any two locations, however remote. (wiki)"

Let us analyze:

From Book I: On Production:

[ QUOTE ]
Suppose that the business, let us say only of the London letter-post, instead of being centralized in a single concern, were divided among five or six competing companies. Each of these would be obliged to maintain almost as large an establishment as is now sufficient for the whole. Since each must arrange for receiving and delivering letters in all parts of the town, each must send letter-carriers into every street, and almost every alley, and this too as many times in the day as is now done by the Post Office, if the service is to be as well performed. Each must have an office for receiving letters in every neighborhood, with all subsidiary arrangements for collecting the letters from the different offices and redistributing them. To this must be added the much greater number of superofficers who would be required to check and control the subordinates, implying not only a greater cost in salaaries for such responsible officers, but the necessity, perhaps, of being satisfied in many instances with an inferior standard of qualification, and so failing in the object.

[/ QUOTE ]

Notice what JS Mill is saying here. Basically he makes out the London Post Office to be society's all-star team of Post Office operators, and that should there be five or six post offices, the additional 5-6x amount of laborers specializing in post officery could not possibly match the superior quality of the initial All-star team. This of course is an absolutely absurd, unsupported (even by logic) assertion. It is a purely (and poorly) assumed conclusion.

Even further ignorant, he argues that the current structure of the monopolized Post Office, in which one office covers all of society, is necessarily the same business structure that 5-6 competing offices each must assume. Reality (or simply theory if you are at all familiar with it) has shown us, however, that in free market settings, competing firms innovate all sorts of means of meeting consumers demands, resulting in all sorts of modes, methods, sizes, structures, and the resulting consumer niches, all of which are necessarily more efficient as a result of the threat of extinction amidst competition.

But forget about the theorizing of what might have been in 1850 for now. Lets look at the reality of 2006.
We in 2006 live amidst the very doomsday scenario which JS Mill warned us about: a competitive market of receiving and delivering envelopes and packages "worldwide to every street and alley of every neighborhood many times a day" by multiple firms, each with many salaries to pay. FedEx, DHL, UPS, GOD, Airborne, TNT, and a host of other firms all have the "subsidiary arrangements for collecting and redistributing utilizing teams of package-carriers controlled by their superofficers."

And from this present scenario there can only exist two opposing camps regarding the monopoly of package/letter delivery:

A) JS Mill was right: we should consolidate FedEx, DHL, UPS, et al into one centralized office, one firm to handle all package delivery, and block off any and all entry into this market by potential competitors. The service of package delivery will be cheaper to the consumer and of a superior quality.

B) JS Mill was wrong: the government should relinquish every hand it has in the USPS, save the taxpayers billions of dollars, and allow 8 by 11 letters to be delivered by whoever among the multitude of eager and willing firms the customer chooses.

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To shed further light, I'd like to point out, from the wiki article:

"In the 1840s, Lysander Spooner started the commercially successful American Letter Mail Company which competed with the United States Post Office by providing lower rates. He was successfully challenged with legal measures by the U.S. Government and exhausted his resources trying to defend what he believed to be his right to compete. Spooner held that the reason that the USPS opposes competition was because "government functionaries, secure in the enjoyment of warm nests, large salaries, official honors and power, and presidential smiles--all of which they are sure of so long as they are the partisans of the President--feel few quickening impulses to labor, and are altogether too independent and dignified personages to move at the speed that commercial interests require." [1] Also, Henry Wells (co-founder of Wells Fargo) operated a cross-country letter delivery service before competition was banned."

[Girchuck]

UPS, Fedex, DHL, and other players emerged and grew because the information technologies and transportation technologies, and management technologies allowed them to do so. Where would they be without computers and internet. In fact, there were they before the internet and globalization and cheap air travel?
No, Mill certainly couldn't have predicted form his study over 150 years ago that information processing and transportation will be so affordable and powerful, as to allow competition.
What happened was the lowering of entry barriers in the industry. When the barriers are too high no businessmen want to touch the industry.

[WordWhiz]

[ QUOTE ]
UPS, Fedex, DHL, and other players emerged and grew because the information technologies and transportation technologies, and management technologies allowed them to do so. Where would they be without computers and internet. In fact, there were they before the internet and globalization and cheap air travel?


[/ QUOTE ]

UPS was founded in 1907. And as is pointed out in the original post, private competitors to the U.S. mail existed even during Mill's time, albeit briefly.

[Riddick]

[ QUOTE ]
UPS, Fedex, DHL, and other players emerged and grew because the information technologies and transportation technologies, and management technologies allowed them to do so.

[/ QUOTE ]

These competitors emerged when they found loopholes in the laws preventing them from competing in the first place.

Most of the management and information technologies related to delivery were themselves innovated by private delivery services. UPS has a very storied history of innovation-under-pressure, seen in its very structure, and made amidst the many society-wide techonological advancements, from cars, to phones, to computers, it has seen in its 100 years.

FedEx is even said to invent an entire new industry of delivery:

[ QUOTE ]
Indeed, things had changed. When FedEx originated the industry in 1973 -- based on a hub-and-spoke concept that FedEx founder and CEO Fred Smith had earlier outlined in a Harvard MBA paper (which got low marks) -- it was the lone player in it. The fledgling company started with 14 Falcon jets. Employees used their own cars and a small fleet of rented vans to pick up and drop off packages. Nationwide door-to-door overnight delivery was considered so radical, skeptics abounded. Xerox Corporation even tested the system by shipping empty boxes for two weeks before entrusting Federal Express with real documents.


[/ QUOTE ]

Or are you arguing that it was a mere coincidence, an aligning of the stars whereby technological and transportational progress was just right in 1971 when FedEx and DHL emerged, and not actually a result of the Postal Reorganization Act of 1970 which essentially allowed competitors into the package delivery arena?

By the way, the USPS posts multi-billion dollar losses year after year.

[Riddick]

[ QUOTE ]
What happened was the lowering of entry barriers in the industry. When the barriers are too high no businessmen want to touch the industry.


[/ QUOTE ]

Explain please? As in what were the barriers, how were they too high, and at what point did they become low enough?

FYI UPS was started with $100.

[bobman0330]

[ QUOTE ]
Notice what JS Mill is saying here. Basically he makes out the London Post Office to be society's all-star team of Post Office operators, and that should there be five or six post offices, the additional 5-6x amount of laborers specializing in post officery could not possibly match the superior quality of the initial All-star team.

[/ QUOTE ]

He doesn't say this at all. He suggests that it's a possibility at the end, but that's all I saw along these lines. His main point is that 5 post offices would require 5 times as much effort to achieve the same ends.

Rather than the two positions you assert are the only possiblities, I would suggest a third: JSM WAS right back then, but IS wrong now. A few reasons: the airplane, the urbanization of the US population, and the decreased relative cost of providing rural postal service.

[Borodog]

[ QUOTE ]
[ QUOTE ]
Notice what JS Mill is saying here. Basically he makes out the London Post Office to be society's all-star team of Post Office operators, and that should there be five or six post offices, the additional 5-6x amount of laborers specializing in post officery could not possibly match the superior quality of the initial All-star team.

[/ QUOTE ]

He doesn't say this at all. He suggests that it's a possibility at the end, but that's all I saw along these lines. His main point is that 5 post offices would require 5 times as much effort to achieve the same ends.

[/ QUOTE ]

But of course, this argument should apply to all businesses, not just letter delivery. Why have 5 competing plants making cars, with all of the associated redundant overhead, when a single large plant could suffice with its single set of administrative costs?

This is the socialist "wasted resources of competition" argument, and it fails. For while it might be true that at any one time there is redundant overhead amongst competing firms, it is the competition that over time leads to ever more efficient production methods, more and more varied goods and services, lower prices and escalating quality.

[ QUOTE ]
Rather than the two positions you assert are the only possiblities, I would suggest a third: JSM WAS right back then, but IS wrong now. A few reasons: the airplane, the urbanization of the US population, and the decreased relative cost of providing rural postal service.

[/ QUOTE ]

Why would you even post this, when it has already been pointed out in the thread that there were competitive private postal services in the US prior to 1850 that offered lower rates, and were only shutdown due to monopolistic interventions by the state? [img]/images/graemlins/confused.gif[/img]

[SLP]

Borodog,

I think you're severely underestimating the difference between mail service in 1850's London and mail service in the present-day United States. Any reasonably-intelligent person could probably have figured out the optimal processes for delivering the mail in 1850's London. I don't believe the same could be said for delivering the mail across the entire United States in the present day. If Mill was guilty of anything, it was of not appreciating the fact that technology was (and is) not just progressing, but accelerating.

[ QUOTE ]
it might be true that at any one time there is redundant overhead amongst competing firms, it is the competition that over time leads to ever more efficient production methods, more and more varied goods and services, lower prices and escalating quality.

[/ QUOTE ]

I can envision a government that is sufficiently knowledgeable that it can not only identify those who are most adept at a particular task, but it can always procure their best efforts. Ah, utopia.

[Borodog]

[ QUOTE ]
Borodog,

I think you're severely underestimating the difference between mail service in 1850's London and mail service in the present-day United States. Any reasonably-intelligent person could probably have figured out the optimal processes for delivering the mail in 1850's London.

[/ QUOTE ]

Believe it or not, this is a massive conceit. It's the same massive conceit that socialism has always had. That "any reasonably intelligent person" (i.e. a government bureaucrat) can figure out the best way to do X, therefor, why leave it to the waste of competition? The answer is that there is no more objective way to test what is "the best way" to do X except competition and the profit and loss mechanism of the market.

[ QUOTE ]
I don't believe the same could be said for delivering the mail across the entire United States in the present day. If Mill was guilty of anything, it was of not appreciating the fact that technology was (and is) not just progressing, but accelerating.

[/ QUOTE ]

Low levels of technology do not make monopoly superior to competition. You're just apologizing for Mill.

[ QUOTE ]
[ QUOTE ]
it might be true that at any one time there is redundant overhead amongst competing firms, it is the competition that over time leads to ever more efficient production methods, more and more varied goods and services, lower prices and escalating quality.

[/ QUOTE ]

I can envision a government that is sufficiently knowledgeable that it can not only identify those who are most adept at a particular task, but it can always procure their best efforts. Ah, utopia.

[/ QUOTE ]

It doesn't matter. Even if the government were to have perfect knowledge about the best production techniques, have access to the finest and most knowledgeable minds, all of whom acted in perfect and angelic selflessness, the result would still be inferior to the market, because there could be no prices, and with no prices there could be no economic calculation, and with no economic calculation there are no profits or losses, and with no profits and losses there is no way to determine if you are wasting resources.

Welcome to 1920.

[SLP]

[ QUOTE ]
Low levels of technology do not make monopoly superior to competition.

[/ QUOTE ]

I think it's quite obvious that it does.

[ QUOTE ]
It doesn't matter. Even if the government were to have perfect knowledge about the best production techniques, have access to the finest and most knowledgeable minds, all of whom acted in perfect and angelic selflessness, the result would still be inferior to the market, because there could be no prices, and with no prices there could be no economic calculation, and with no economic calculation there are no profits or losses, and with no profits and losses there is no way to determine if you are wasting resources.

[/ QUOTE ]

So your baseless assertions are superior to my baseless assertions? My imaginary government would be able to set prices so as to keep the economy running at 100% efficiency. I'm not sure exactly how, but I have absolute faith that my government will find a way.