Jeffrey G. MacIntosh, Special to Financial Post | January 20, 2014 7:30 PM ET
Freeing up the market for postal delivery will allow innovative-minded competitors to try out various business models
Canada Post is on slippery footing in its proposal to end home delivery for the surviving Canadian households whose denizens can still pop their heads out the door and pluck the mail from their handy-dandy mailboxes.
Ending home delivery imposes a time penalty on each and every person who will now have to traipse to a community “super-box” to pick up their mail. With home delivery, we are free to engage in wage-generating activities. Or we might choose, in the quaint language of economics, to “consume” our leisure time in the million and one ways in which people enjoy their non-working hours. Either way, a good estimate of the value of the time that will be lost should home delivery end is the wage of the average Canadian worker. When the dollar cost of the aggregate time poised on the brink of annihilation is toted up, the figures are truly staggering.
Figures produced by Canada Post suggest that 5,094,694 Canadian households (representing something like 12.7 million Canadians) benefit from home delivery. Let’s assume that, if home delivery ends, one person from each of these households will travel to the community super-box 5 times a week to pick up the mail. Let’s also make the modest assumption that this will take, on average, 20 minutes. Thus, the total time spent by each household picking up the mail is 100 minutes per week. Since the average Canadian earns about $25 per hour, the total dollar value of this time is $41.67 per week. And, for all 5,094,694 Canadians wearing out their shoes stumping back and forth to the super-box, the total cost is an incredible $212-million per week, or an even more incredible $11-billion per year. Even if we assume that each household picks up the mail only twice a week, the opportunity cost of ending home delivery is still $4.4-billion. This rather swamps the $1-billion cumulative deficit that Canada Post projects that it will rack up by 2020 should it continue home delivery.
What sane polity would inflict an opportunity cost of several billion dollars per year on its citizens in order to avoid a cumulative deficit of $1-billion by 2020? The question answers itself. Ending home delivery is a false economy. The preferable course is to fund the deficit through tax collection. Canadians will be much better off. And they will be better off even without taking into account the failure of the economic calculus to fully reflect the physical and psychic toll inflicted on the elderly and infirm in having to go and pick up their mail.
There’s actually an even better solution – one that will automatically address the problem of opportunity cost not only for now, but for all time. End Canada Post’s monopoly on home delivery. What for-profit enterprise would be doltish enough to propose lowering its customers’ annual cash cost by $152 per year (the amount that Canada Post anticipates it will save, per customer, by going to super-boxes) if this will result in an additional opportunity cost per customer averaging in excess of $2,000? What customer would be doltish enough to take them up on it?
Free market competitors must offer their customers a service that is less expensive than the sum of the cash and opportunity cost of using the service. Otherwise, they will have no customers. Freeing up the market for postal delivery will allow innovative-minded competitors to try out various business models. These will likely include home delivery for those with a high opportunity cost, and super-box delivery for those with a low opportunity cost. But whatever services might be offered, each and every one of us will have a variety of competitive options from which to choose. We won’t be shanghaied into slogging off to community super-boxes if we would prefer to get home delivery. Nor will we be shanghaied into paying for home delivery if we would prefer to slog off to the super-box. And in each and every case, the value of the service that we pay for will be more than the aggregate cash and opportunity cost that we expend to buy it.
Jeffrey G. MacIntosh is Toronto Stock Exchange professor of capital markets at the Faculty of Law, University of Toronto.
