An analysis of the development of postal policy goals

The study of goals for the postal sector in Sweden shows that five different types of objectives can be identified. They will be presented in this section, together with a few international comparisons.

1. The first type of goal to be found is a goal related to economic growth. This appears for the first time in the Social Democrats’ bill for growth in 1990. By changing the competitive conditions and the organisational form of the Post Office, the postal sector will contribute to ending the problem of low growth. The goal remains in the non-socialist government’s first bills. Deregulation and introducing competition into monopolist markets in general are regarded as means for stimulating growth. The problem to solve is on a macroeconomic level and not specifically related to the postal sector, it only happens to be one of the sectors pointed out as targets for reform. This goal disappears in Sweden after 1991 but is briefly mentioned again in the Government Commission from 2005.

36 This section builds on Statskontoret (2004).

This goal is recently included in the liberalisation process in the EU. After the amendment of the EU Directive for postal services in 2002, the agenda of the Lisbon process has entered the postal sector. One of the arguments for liberalisation of postal services among the EU countries is to contribute to fulfilling the Lisbon strategy and thereby stimulation economic growth in the EU. For the EU, economic growth enters as a goal ten years later than in Sweden.

2. A second type of goal that is persistent throughout the whole period is the goal related to allocation. This is the classical scope of postal policy: the universal service obligation. It has a geographical dimension – everybody across the country should have access to daily collection and delivery – and an income dimension – prices should be reasonable and for single piece mail uniform. Even if the precise definition of the USO has changed in Sweden, the fundamental concept remains although in the Government Commission from 2005, a possibility to relax it in the future is opened. Notably, this is the only goal for postal policy in Sweden since liberalisation.

This goal is also included in the EU Directive on postal services as well as in most countries’

national legislation; the EU allows for different national definitions of the USO. The difference between Sweden and most other countries is that elsewhere, the provision of the USO has been the obstacle for not liberalising the market. In Sweden, the Post Office argued already in 1990 that there were no conflicts of goals and owing to its economies of scale it would be able to provide such services even better in a deregulated environment. So far, this has also turned out to be true. Sweden Post in fact claimed that it was deregulation that made it possible for the company to meet competition from new firms and new technologies that threatened its future profits. Before the Government Commission in 2005, Sweden Post continues to claim that it is possible to provide USO without compensation, at least in the near future.

3. A third type of goal, which has obtained attention only recently is a goal related to economic efficiency. Remarkably, this goal is not explicitly in focus as a goal for liberalisation in Sweden. The preceding analysis in the Ministry’s report from 1991 was rather poor and based on incomplete understanding. After the monopoly was removed, the issue was uninteresting and the Government Commission who prepared the new legislation treated it in a single sentence. Unlike liberalisation going on in many countries in the 2000s, in Sweden it was never thoroughly analysed in terms of market efficiency. Recent statements that the goal for liberalisation was to increase efficiency must be seen as later constructions considering the lack of evidence in the original sources.³⁷

Economic efficiency enters the postal sector as a general goal for IT, electronic

communication and mail industry in 2001. As of 2006, it is not included in the postal policy.

However, the Government Commission in 2005 proposed a new postal policy in which efficiency is an important goal for the sector.

Economic efficiency is equally not in the focus in EU liberalisation. “Efficiency” is not mentioned in the Postal Directive. There, the aim is to establish an internal market and to improve quality. Quality is of course related to efficiency, but can also be achieved at the expense of efficiency. In the Postal Directive from 2002, reference is made to the Lisbon

37 This proposition is to be found in the terms of reference to the Government Commission in 2005 as well in some reports from PTS.

declaration and macroeconomic growth rather than microeconomic efficiency. Moreover, postal services are one of the “Services of General Interest”, for which no less than thirteen different objectives are identified.³⁸ Only one of them is efficiency; different aspects of availability are more in focus and there are obvious conflicts of goals. Thus, in liberalisation of postal services in the EU, thereis no explicit efficiency target.

3a. Economic efficiency is measured by the sum of consumers’ and producers’ benefits.

Connected to economic efficiency is a goal related to the benefits of the consumers. Other things being equal, increased benefits for the consumers contribute to efficiency. But an increase in consumer surplus can also be at the expense of producer surplus and welfare remaining unchanged. When a monopoly is removed, two things normally occur: a shift from producer’s to consumer surplus and an increase in total welfare. If, however, the monopolist was regulated and not profit maximising before liberalisation, there might not be any shift in producer to consumer surplus. Consumers can benefit in other aspects: the range of products offered and the quality of service can be better adjusted to what consumers demand.

In Sweden at the time of liberalisation, the benefit of consumers was not the prime goal.

However, concerns for consumers resulted in the price cap in order to protect households and later other postal consumers from price increases for products where competition lacked.

Later, the Competition Authority showed in its decisions in the second half of the 1990s concerning the competition by means of price of Sweden Post against City Mail a more explicit concern for consumers. Currently, the Competition Authority has adopted as its vision and general goal to maximise consumer surplus.

The regulator PTS has the goal to monitor the market and protect the interests of the consumers. Thus, it’s goal is limited to consumers and not efficiency in general. It has proposed that the goal be extended to promoting competition.

In the Government Commission’s proposal for a new postal policy, consumers’ demand is lifted to the first sentence, but overall efficiency is also included in the suggested policy, so consumer surplus cannot be regarded as a superior goal.³⁹

3b. The other subordinate goal to economic efficiency is a goal related to the benefits of the producers. This was crucial both at the time for liberalisation and later. First, the future profits and business opportunities of the Post Office were found to be threatened and liberalisation was for the Post Office management and later the politicians the solution to let the Post Office compete on equal terms. Later, in 1992 when City Mail was about to re-enter the market, the Minister of Communications changed policy in order to rescue the only possible competitor on the market.

Both the Social Democrats and the non-socialist parties expressed concerns about the public sector in general and the best organisational form for businesses belonging to the state. For

38 EU (2003). The Economic and Social Committee declares that “[t]he primary objective of services of general interest is access for all citizens, consumers and businesses to public services; when such services are provided by a publicly or privately-owned enterprise operating in the commercial sector, the profit- or competitiveness seeking criterion must under no circumstances be allowed to result in the disappearance of services for some citizens” (EESC 2003,p 44).

39 Regulators in different countries are given different focus. In the UK, Postcomm has as the explicit target the benefit of the consumers.

the non-socialists it was also a question of the overall size of the public sector and a wish to reduce bureaucracy and unwarranted regulation.⁴⁰

Throughout the whole period, the state has also formulated goals for the Post Office, later Sweden Post, in its capacity as the owner. There have been several targets for the yield as well as other responsibilities. Repeated adjustments indicate that the financial goals have been difficult to reach. Already in 1995, the parliament’s auditors complained that there ought to be clearer goals and guidelines for Sweden Post’s businesses. The Government Commission in 2005 as well as the Commission on Liberalisation (2005) criticised the state for having unclear objectives for Sweden Post and conducting a weak ownership.⁴¹

In some instances, the regulator PTS has taken the new entrants’ interests as a goal. The most recent expression of that is that PTS opposed the removal of the price-cap for single piece mail that is proposed by the Government Commission in 2005. The Commission suggested to have it replaced by access regulation and the prohibition in the Competition Act for dominant firms to set prices below costs, similarly to the EU Directive that states that prices for universal services shall be cost based. However, PTS sees the risk that Sweden Post will nevertheless cross-subsidise competitive segments with price increases in areas where Sweden Post today has monopoly. To protect Sweden Post’s competitors, it argues that the price-cap on single piece mail be continued.⁴²

4. A fourth type is a goal related to the environment. It enters together with the efficiency goal in the budget bill 2001 as a general objective. It is proposed by the Government Commission in 2005 to be included in the postal policy objective. This objective is now a standard one in Sweden. It has not as yet led to any significant change in the market.

5. In the EU Directive, the goal related to the internal market is the prime objective. There is no corresponding goal in Sweden.

There are potential conflicts of goals. The classical conflict is between the goal related to allocation (2) and the other goals. If liberalisation is believed to improve goal (1) and/or (3), the reason why it is not carried out is that it conflicts with the goal related to allocation and the universal service provision. However, in Sweden, there is almost consensus that no such conflict exists.

Sweden Post always claimed that it is able to provide universal services with competition under certain conditions. Rather, if competition results in higher efficiency, it will facilitate the provision of universal service. It is contested whether there is a financial burden or not for the USO. PTS states that there is no such burden at all. The Government Commission in 2005 as well as some international studies indicates that they exist but are small. It is commercially justified to provide all or most of the universal services.

There is no conflict between goals related to economic growth (1) and economic efficiency (3). There is only a difference in focus. The former is macroeconomic and the problem to

40 In some countries like the Netherlands and Germany, the goal appears to have been similar to the ones that the Post Office expressed around 1990. The Posts have expanded their businesses to other areas and to other countries, although in these countries legal protection of the domestic letter monopoly has remained.

41 SOU 2005:5 and SOU 2005:4.

42 PTS (2004) and SOU 2005:5 p 380-381.

solve is low growth and welfare in the economy as a whole. The latter is microeconomic and the problem to solve is an inefficient postal sector per se.

The conclusion of this policy-analysis is that Sweden liberalised because two goals were in focus: economic growth and the benefit of the producers, and particularly the second one.

Changing market conditions in the form of a long-term shift from hand-written messages to businesses printed bulk mail and new technologies both inside and outside the postal sector created a threat to the old Post Office. In order to meet new competition together with a vision to compensate losses in the letter business with diversification into other areas, a new regulatory environment was found necessary. When the ambition to rescue the new competitor City Mail coincided with the interests of the Post Office, liberalisation became feasible. The recession, the ambiguous construction of the letter monopoly that allowed City Mail to enter, the unique strategy of the Post Office management and positive attitudes to deregulation from both non-socialist parties and the Social Democrats are all factors that distinguish Sweden from other countries and explain why Sweden liberalised almost twenty years before the EU.

In the beginning of the chapter, it was pointed out that market, allocative and regulatory failure can be reasons for deregulation. The allocative failure has been important throughout the period: the concern for universal service has been the sole foundation for the official postal policy, until the proposed amendments in 2005. Unlike other countries, the allocative failure has not been a sufficient explanation to preserve monopoly in Sweden. Rather, liberalisation was interpreted as a necessity to protect universal service.

Market failures were not the original reason to have a state monopoly. Postal services originated as an internal state activity when it needed to communicate with its distant provinces. Only in 1991 the question appeared whether postal services form a natural monopoly. At that time, the conclusion was that the sector can be liberalised despite the natural monopoly character.

Regulatory failures were considered a different kind in Sweden. The Post Office was not considered inefficient at the time for liberalisation; rather it was the opposite. In international comparisons, the Swedish Post Office was a relatively efficient operator.⁴³ Neither was the case that the company made too much profit and therefore ought to be exposed to competition. It is true that the Post Office was profitable (and that the letter business of Sweden Post has been since liberalisation) but not to the extent that it was regarded as a problem. The regulatory failure was that future profits and opportunities to provide USO were threatened to be eroded by competition that the Post Office was not able to respond to. The ambiguous construction of the letter monopoly (which was not considered to protect the bulk of letters) and the company form were not the optimal regulatory regimes. Before

liberalisation, the position of the Post Office was threatened. After liberalisation was completed, its dominance has instead been seen as a problem. Only then, the concerns for competitors as well as consumers have appeared as important, and in the 2000s also overall efficiency and total welfare.

43 Ds 1991:44.