A Public-Private Partnership not the right way ahead for Royal Mail

Chris Colvin today posted a very well argued article on the Guardian's Comment is Free site suggesting that part-privatizing the UK's beleaguered postal service, Royal Mail through some kind of Public-Private Partnership (PPP) would be a poor idea. The argument runs that part-privatization could be attractive to a government, either Labour or Conservative, because theoretically it would allow for some immediate reduction in national debt while improving productivity. Colvin mentions that PPP has a very poor record in the UK, with companies keen to take on contracts for government without bearing the risk related to them, resulting in moral hazard. This certainly seems to have been the issue with previous PPP projects; the London Underground (LU) was forced by central government to outsource maintenance and infrastructure upgrades to two private companies, Tube Lines and Metronet in 2003. Metronet entered administration in 2007, a failure blamed on poor corporate governance, and its activities have since been absorbed back into LU. The UK National Audit Office reported earlier this year that the failure may have cost the taxpayer as much as £410m. Such a failure in the postal system could end up being even more costly to the public, perhaps more so than managed decline in the public sector.

UK Postal strike - can the workers win?

More on the UK postal dispute, which I mentioned on October 8. Today the UK's Communication Workers Union (CWU) announced that planned national strikes by postal staff will go ahead on Thursday and Friday, with further strike dates to be announced on Thursday. The strike will be split over two days with mail centre staff and drivers striking on Thursday, while delivery and collection staff will strike on Friday. Postal workers in the UK have already been holding localised strikes for several months. The CWU's members are striking over the 2007 Pay and Modernisation Agreement, signed following a round of strikes, in which the union agreed that modernisation would be necessary, but that Royal Mail would consult with them over modernisation which would replace workers. The union claims that Royal Mail has failed to do this, leading to a bitter dispute by modern British standards.

The present dispute is probably the worst industrial dispute in the postal industry since that of 20 January - 8 March 1971. In 1971 200,000 postal workers spent seven weeks flat out on strike. The strike completely paralysed the system, with post offices, then part of Royal Mail, also mostly closed. Postal workers went without wages throughout the strike, many being supported by 'hardship payments' from the union. Like many industrial disputes of the 1970s the dispute centred around pay rather than allegedly poor management decisions and the threat of redundancy. While inflation in 1970 ran at 6.4%, rising to 9% in 1971, in January 1971 the Royal Mail offered workers an 8% rise. The union had asked in late 1970 for a somewhat inflatory £3 a week, or 15-20% rise, which not surprisingly, management refused as it would cost the firm an extra £50m a year. As the strike wore on the union reduced its demand to a still somewhat high 13%, while management increased their offer to 9%, but mostly stood their ground despite the lack of postal deliveries, and £25m's worth of lost revenue. By early March the union was running out of funds and encouraged workers to return to work, without even the 8% rise originally offered, making General Secretary Tom Jackson unpopular among the membership. Instead the union was forced by the Department of Employment to accept an independent enquiry into efficiency in the post office which would then set a pay award.

While today's postal workers are not striking for the entire week, it remains to be seen how long their resolve will hold as they still stand to lose one day a week's pay from the strike. With Royal Mail again looking unlikely to climb down, the CWU might do well to consider the humiliating climb-down forced upon their predecessors. Strikes in the modern era rarely do workers much good in the long run, with the employer affected often loosing business and being weakened financially. If people are forced to find alternatives to Royal Mail for the time being, they may just find they prefer them even when the service returns to normal.

Royal Mail - managed decline?

Today postal workers in the UK voted to strike nationally, following a series of local disputes regarding a range of issues affecting the organisation, which mostly stem from the gradual decline of post on paper. Royal Mail, which remains a state owned enterprise whose role is to provide a letter and parcel delivery service to every UK address, says that letter and parcel traffic is falling by 10% per annum, meaning a reduction in income of around £170m per annum. Despite this the company did manage to make an operating profit of £321m in the year to March 31 due to efficiency savings. Naturally however such efficiency savings are unpopular with the unions.

The decline of the Royal Mail does have true historical significance - it is one of the world's oldest surviving businesses, and particularly unusual in this sense that it still fulfils the same function. Its roots can be traced back to the 16th century at least, when it was literally the 'Royal Mail', carrying mail for royalty and government business. In this sense its roots parallel the internet somewhat, which was originally established by the US government for internal purposes. Members of the public were able to use the system from 1635 onwards, when Charles I opened up the service. It was granted a monopoly as the 'office of postage' by the dictator Oliver Cromwell in 1654, a monopoly only removed by government in 2006. A network of horse drawn carriages conveyed mail on contract for the post office, although originally the recipient paid for postage. This system was changed in 1840 with the innovation of the postage stamp, which meant that the sender paid the postage, which was reduced to 1d., or old penny (about 30p today). This, and the introduction of rail transport for letters led to a real boom in post office business, and about half of Prime Minister Gladstone's civil servants were postmen. The mail remained a government department, the 'General Post Office' until 1969, a period in which it had control over all communications in the UK (such as telgraph, telephony, radio and tv). Since that time it has been administered as a separate business, but still remained in the state sector, and still employs over 120,000 people today. With postal volumes declining so rapidly it seems unlikely to be a viable candidate for privatisation anytime soon - but at the same time it seems likely that unions may have to concede that with postmen having less to deliver, it may eventually become economically inefficient for society to continue to pay them to walk round everybody's front door every day. But how long will this take?