Clamour of disapproval will stamp on Mail strikes
'It is ironic that those who are now agitating for the Royal Mail's state monopoly to be broken come from the same Conservative wing that scuppered its privatisation two years ago'
Tuesday 25 June 1996
Monopolies are dangerous things but in the case of the Royal Mail it is difficult to argue that its exclusive right to handle letters costing less than pounds 1 to deliver has been abused in a way that has shortchanged the public. In the last 12 years the cost of posting a letter has fallen by more than 12 per cent in real terms.
At the same time, the Royal Mail has been shedding Posties at the rate of 5,000 a year, even though the number of addresses they deliver to has risen by more than 10 per cent and letter volumes are up by 15 per cent to 17.5 billion a year. It is tempting to assume that the Royal Mail's performance on prices and productivity would have been even more spectacular had it been exposed to the chill winds of competition.
But it would probably be wrong. The only way that the private sector competitors are likely to be tempted to compete head-on with the Royal Mail is if the monopoly is abolished for good and they are relieved of the obligation to provide a universal service at a uniform price. The cherry picking that would result might be great news for volume users of the postal system sending mountains of junk mail out from large urban centres. But for many others it would surely signal higher prices as the the Royal Mail's ability to cross subsidise rural deliveries vanished.
The alternative would be for the Royal Mail to hold it prices and surrender profits, but this holds few attractions either for a Government hungry to fund tax cuts. The Royal Mail contributes pounds 300m a year to the public finances. It is ironic that those who are now agitating for the Royal Mail's state monopoly to be broken come from the same Conservative wing that scuppered its privatisation two years ago.
By a further irony, it is Michael Heseltine, who so wanted to liberate the Royal Mail, that is the minister now so keen to see the monopoly ended. Anachronistic as it might be to see a national public service being held to ransom by striking workers, and tempted as ministers might be to seek revenge, abolition of the Royal Mail's monopoly would be the wrong way to go. Legislation enacted on the hoof invariably turns out to be ill- judged. The Government should tread warily.
The OFT's unwelcome break for Granada
The power of monopoly is a wondrous thing. It is bad enough that postal workers are still able to hold the country to ransom but at least it can be said that they know no better; the Royal Mail has always been a monopoly. That is not true of motorway service stations where, as a result of the takeover of Forte by Granada, a new monopoly has been created, albeit a supposedly temporary one.
Granada was given 15-months grace to dispose of the Welcome Break service stations acquired with Forte, but this was to run from the point at which satisfactory undertakings were negotiated with the Office of Fair Trading. Five months after the takeover, and these undertakings have still not been agreed. Granada plainly has no interest in haste, every interest in dragging its feet. In the meantime it enjoys the benefits of an 80 per cent market share.
Granada plainly has to be a little bit careful in the way it operates this monopoly. Overt abuse would be obvious and unacceptable, so there has been no integration of the chain into Granada, no attempt to Granaderise its outlets by putting in Burger Kings or changing the logo. Prices have, on the other hand, been increased, and since Granada's own outlets already charge a premium, effective competition between the two chains has been reduced.
A whopper meal at Burger King costs as little as pounds 3.05 in town, and as much as pounds 4.88 at a Granada site on the road. Compare that with the cost of a Wimpey Quarter Pounder meal: pounds 3.69 in town, pounds 4.25 at a Road Chef on the motorway. The differential is just 56p on a Wimpey and a whopping great pounds 1.83 on a Burger King. It could be argued that Granada is already exploiting its position; acquiring the Welcome Breaks has allowed a further erosion of competition on the motorway.
Driving up prices at the Welcome Breaks not only enhances the competitive position of existing Granada outlets, but it also, by increasing the profitability of Welcome Break, enhances the eventual disposal price. Once prices have been ratcheted up, they are rarely reduced. Granada is a great company led by a charming and wonderful man, but like most big businesses its ultimate ambition is to destroy the competition and exploit the remaining monopoly. This is probably not a hugely significant case of the condition, but it should be jumped on none the less.
Debtor nations haunt the G7 banquet
A spectre hangs over the gastronomic experience that awaits leaders of the Group of Seven industrial countries when they meet in Lyons later this week. It is that of the poor and hungry millions in Third World countries whose debt payments to the rich countries, the IMF and the World Bank far exceed the amount they can ever hope to earn from their own output and exports.
Luckily, the French love grand gestures and this could come to the help of poorer countries. President Chirac has made it known that he would like this G7 summit to go down in history as the occasion when the West lifts the debt burden from the shoulders of poorer brethren.
There is some hope for an agreement on these ''Lyons terms'', even if the gathered leaders face obstacles as they loosen their belts a notch or two after lunch. Two types of debt are at stake; that owed to the multilateral institutions like the IMF and World Bank, and that owed bilaterally to individual countries in the Paris Club. The World Bank has drawn up a plan that would reduce the debt owed to them and the IMF by about 19 countries which meet various economic performance criteria (no debt reduction for the unworthy). The plan would cost $2bn to $4bn, to be funded partly by the Bank and IMF, and partly by their shareholder governments.
However, the IMF has tied this debt relief package to the renewal of its own special fund for aiding developing countries. The IMF is also demanding that multilateral debt relief should depend on further bilateral debt concessions by the Paris Club countries. Some countries, including the UK, would go along with this. Others are opposed. Let it not be forgotten, however, that good food and drink can be a mighty powerful influence. It may well be that the gastronomic cornucopia awaiting world leaders in Lyons will help President Chirac notch up an achievement greater than anything else the G7 has accomplished in recent memory.
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