Time to Privatize Canada Post
Last December, my father-in-law sent Christmas cards to my sons, who live with me in Virginia. They received them at the end of January, after more than a month of waiting anxiously. My family members weren’t the only ones who experienced this delay: millions of Canadians nationwide watched their holiday mail languish in a postal limbo as Canada Post’s 32-day strike soured the season’s cheer. I’ve covered the mail service’s mounting troubles since 2011, so I wasn’t entirely shocked when the federal government offered Canada Post a staggering financial bailout—of more than $1 billion—back in January. The move signalled both the depth of our postal system’s woes and the urgent need for it to adapt to a fast-evolving parcel market. Now, with their collective agreement set to expire on May 22, postal workers are poised to strike again, upping the urgency of a permanent fix even more.
As communication shifted to texts and emails, and shipping services like Amazon have grown in popularity, Canada Post’s mail volumes have gradually declined—from 9.7 billion pieces of mail shipped in 2012 to 6.5 billion pieces in 2023. There’s an immense temptation to say that these factors explain all of the Post’s problems, but don’t give in. They’re only symptoms of the underlying issue: the incentives inherent to a publicly owned corporation with no competition for most of its products. If taxpayers can bail out Canada Post, why would it control costs? If you have a monopoly, why not pass out costs to consumers in the form of higher prices? After all, they can’t go elsewhere.
This dynamic perfectly explains the history of Canada Post before and since it was transformed from a government department to a Crown corporation in the early 1980s. In the late ’70s, the Post Office Department—as it was then known—was running significant deficits and outdated infrastructure. Turning it into a Crown corporation was seen as a way to bring more business-like principles to its operations and help reduce costs. This didn’t happen, however: almost immediately, stamp prices increased steeply, from 17 cents to 30 cents, and since then, Canada Post has consistently increased prices faster than inflation (to $1.44 today). It could do that because it has a legal monopoly on all letters of less than 50 grams, or whose price is less than three times the basic stamp price.
The Post’s press officers insist that the corporation funds its operations with revenue from the sale of its products and services, not taxpayer dollars. This has been mostly true, but taxpayers have still made frequent cash injections. Since it became a Crown corporation, between 12 and 37 per cent of the Post’s annual expenditures have been funded by direct or indirect subsidies from taxpayers as a whole. In other words, Canada Post has long shifted a great deal of its costs to taxpayers and consumers. The only thing that new communication technologies and changing markets did was create an opportunity for these practices to become visible. Pouring more cash into the Post—or trying to give it more powers, like banking services, set to roll out some time this year—will not solve its incentive problem. The best, and possibly the only, solution is to sell off (or privatize) the corporation and open up (or liberalize) Canada’s mail market to all firms, whether that’s Amazon, UPS or Deutsche Post, and allow existing courier services to expand.
Many peer-reviewed publications on postal markets support privatization and liberalization. This is because postal services fall in none of the boxes that are usually used to justify some level of state intervention: natural monopolies; public goods (e.g., defence and police) or the control of externalities (e.g., flood controls, pollution solutions). The postal sector is one in which entry is easy—there are no high startup costs, for example—and there are few, if any externalities.
As we appear to be heading toward the second Canada Post strike in less than a year, the question now is whether we’ll be able to learn from our past mail mistakes or simply stay lost.
The real challenge lies in execution, as privatization and liberalization are fraught with potential pitfalls. If these processes are drawn out over many years, there is a significant risk of regulatory capture, where interest groups influence bureaucrats and politicians to shape the process in ways that serve their interests, rather than the public’s. At the other extreme, a rushed privatization process carries the risk of asset stripping, where insiders exploit privileged information—or take advantage of bureaucrats’ limited market expertise—to acquire public assets at prices below their true market value. This would effectively strip Canada Post of its worth, leaving taxpayers worse off.
One balance-striking strategy is to rely on a system alternatively called “voucher privatization” and “mass privatization,” which was implemented by mail services in the former Soviet bloc countries over a period of two years. In this scenario, eligible members of the public—in this case, the entire Canadian population—would be given free shares or shares at a nominal price (e.g., $1) during the first year of the reform. Current employees of Canada Post would also be able to purchase (or be gifted) a block of shares in the corporation—say, for example, 40 per cent. This would automatically turn the newly minted shareholders into de facto regulators. Employees would bear the cost of inefficiencies within the corporation, which would motivate them to find ways to improve performance and cut waste. They also possess valuable knowledge about the inner workings of the mail service—knowledge that politicians and bureaucrats do not necessarily possess. Becoming shareholders gives them an incentive to leverage this expertise to increase the Post’s profitability.
In the year following privatization, liberalization—or allowing some new firms into the mail market—could be allowed until a certain deadline. After that point, the remaining shares in Canada Post would be sold at market price. By introducing competition more swiftly, new entities could enter the market without Canada Post and closely related interest groups (such as the workers’ union) seeking privileged treatment from politicians and regulators. This would not only dismantle Canada Post’s monopoly on letter delivery; it would also eliminate all the indirect privileges that give Canada Post an unfair advantage. To make the process even more comprehensive, new mail firms would be able to offer a wider array of services, like selling other goods and providing certain financial services, alongside postal services to allow competition to take root.
Numerous countries have already taken this path, either by liberalizing the markets, privatizing their postal operators or both. After the collapse of the U.S.S.R. and Britain’s experience with privatization and liberalization in the ’90s, pro-market policies aimed at increasing mail competition and reducing taxpayer burdens gained significant popularity. Soon, Austria, the Netherlands and Germany privatized their state-owned mail services too. In these countries, inflation-adjusted stamp prices fell between 11 and 17 per cent within 10 years. By contrast, other European countries, like France, which had not yet enacted similar reforms, saw rapidly rising prices. It was only after 2013, when the European Commission Directive called for a fully open market, that stamp prices stopped increasing as quickly.
Even after full liberalization, one concern persists: what to do about people living in more remote regions of Canada? The price of stamps and parcels would go up in more rural regions of the country, so some fear that residents would be made to pay more simply because of geography. The answer is easy. Since Canadian taxpayers would be freed from subsidizing Canada Post’s inefficiencies, targeted measures could address any remaining gaps. For instance, sending letter mail could be made exempt from GST, similar to many grocery items—that’s akin to saying mail is a necessity that should not be taxed. Similarly, the Northern Residents Tax Credit, which is designed to compensate for the hardships of living in northern or remote areas through tax deductions—could be made more generous to better offset the additional mail costs faced by Canadians in these areas.
With such a plan in place, Canadians could anticipate lower prices alongside a broader range of higher-quality services from a more diverse set of providers—all without the burden of higher taxes when the bells of bad incentives toll. That is a clear win. As we appear to be heading toward the second Canada Post strike in less than a year, the question now is whether we’ll be able to learn from our past mail mistakes or simply stay lost.
Vincent Geloso is an assistant professor of economics at George Mason University and a Senior Economist at the MEI. The views reflected in this opinion piece are his own.