Tag: monopoly

Unfair Postal Competition

With the rise of electronic communications, the volume of snail mail has fallen precipitously, and the U.S. Postal Service (USPS) has been losing billions of dollars. The 600,000-worker USPS is an unjustified legal monopoly that is heavily subsidized. It is a bureaucratic dinosaur that Congress should put on the way to extinction.

In April, I highlighted an excellent study by Robert J. Shapiro that described USPS subsidies in detail. The subsidies include: exemption from taxes, low-cost government borrowing, monopoly protections, and other special benefits.    

Shapiro completed another study in October, which is a great addition to the postal debate. He details how government-conferred advantages have translated into cross-subsidies from USPS monopoly products to products sold in competitive markets. The USPS uses its monopoly over letters and bulk mail to unfairly compete with FedEx, UPS, and others on express mail and packages.

Shapiro finds that USPS raises prices on its monopoly products, and uses those extra revenues to artificially push down prices on its competitive products. For USPS, this makes sense because consumers are less price sensitive for the monopoly products than for the competitive products. Shapiro concludes, “USPS has strong incentives to cross-subsidize its competitive products with revenues from its monopoly operations,” and it does so by $3 billion or more a year.

TPP Ends Up with Pleasantly Mild Rules on Biologic Drug Monopolies

The Trans-Pacific Partnership will reportedly include an obligation for every country to provide at least 5 years of market exclusivity for new biologic drugs.  Technically, this counts as a loss for U.S. negotiators, who started with a demand for 12, lowered that to 8, reconfigured 8 into “5+3”, and at the VERY last minute—despite direct calls from President Obama to foreign leaders—were forced to acquiesce to 5 years.  The U.S. pharmaceutical industry says it’s very disappointed, but the outcome is good for the TPP and for consumers around the world.

It’s important to recognize that the exclusivity we’re talking about here has nothing to do with patent protection.  It is not a form of intellectual property.  Exclusivity is a regulatory policy that instructs the Food and Drug Administration not to approve generic, unpatented drugs they know are safe so that name-brand pharmaceutical companies can make more money. 

Those companies say that without a secured return on investment, they wouldn’t be able to invent new treatments.  But that’s what patents are for.  Regulatory exclusivity is a way to bypass the balances and limitations of patent law, which only protects new inventions not all expensive investments.  

They complain that it’s unfair for generic competitors to piggyback on all the expensive research and testing they did to secure FDA approval.  But that’s a problem with the expense of FDA approval.  Either lobby to make FDA approval cheaper or find a way to share costs.  Pharmaceutical companies are not entitled to the benefits they gain from regulatory inefficiency.

Biologics protection was a peculiar issue for U.S. negotiators to be spending so much effort on in the first place.  They spent a lot of negotiating capital trying to secure foreign regulations favorable to one part of one U.S. industry.  That doesn’t further the goal of free trade; in fact, it impedes that goal by diverting energy away from universally valuable efforts to open up Canada and Japan’s markets in agriculture.

The U.S. government may have wasted effort on biologic exclusivity, but at least they failed to hobble foreign countries with excessive drug regulation.  As a bonus, Congress is now free (if they wish—and they should) to roll back the 12 years of protection under U.S. law to something more reasonable.

A School Monopoly? What a Great Idea?

I’m reluctant to give more attention to the steaming pile of dreck that Slate is using as linkbait this morning, but someone should point out how incredibly asinine it is. The author argues that anyone who sends their child to a private school is a “bad person” because, well, see for yourself:

I am not an education policy wonk: I’m just judgmental. But it seems to me that if every single parent sent every single child to public school, public schools would improve. This would not happen immediately. It could take generations. Your children and grandchildren might get mediocre educations in the meantime, but it will be worth it, for the eventual common good. 

The first sentence is clearly true but it’s downhill from there. There’s a lot of economic illiteracy to unpack there as well as some rather frightening assumptions about the duty of individuals to sacrifice themselves for some ill-defined “common good” (on Twitter, the New York Times’s Ross Douthat notes that this argument has an eerie resemblence to the Italian fascist motto, “Everything for the state, nothing outside the state, nothing against the state”).

I’ll let others heap on the mocking and scorn that this argument so richly deserves. What I want to focus on is the evidence.

Had this self-declared non-education wonk bothered to take even a cursory look at the research literature, she’d find that competition actually improves the public schools. Of 23 studies of the impact of school choice programs on public school performance, 22 studies find a small but statistically significant positive effect and one finds no visible effect. None find any harm.

The reason that competition works is because it makes schools responsive to the needs of parents. What’s so astounding is that the author wants schools to be responsive to parents, but thinks that the best way to do it is to have a government monopoly, as though Ma Bell would’ve eventually produced an iPhone.

Many of my (morally bankrupt) colleagues send their children to private schools. I asked them to tell me why. Here is the response that most stuck with me: “In our upper-middle-class world, it is hard not to pay for something if you can and you think it will be good for your kid.” I get it: You want an exceptional arts program and computer animation and maybe even Mandarin. You want a cohesive educational philosophy. You want creativity, not teaching to the test. You want great outdoor space and small classrooms and personal attention. You know who else wants those things? Everyone.

Whatever you think your children need—deserve—from their school experience, assume that the parents at the nearby public housing complex want the same. No, don’t just assume it. Do something about it. Send your kids to school with their kids. Use the energy you have otherwise directed at fighting to get your daughter a slot at the competitive private school to fight for more computers at the public school. Use your connections to power and money and innovation to make your local school—the one you are now sending your child to—better. Don’t just acknowledge your liberal guilt—listen to it.

Scratch away the economic ignorance and smug self-righteousness and you find a compelling argument for school choice. Yes, low-income families also want access to good quality schools that meet their kids’ individual needs. But forcing everyone into the same school isn’t going to help. The author correctly identifies the problem but fails to arrive at the right solution. If we want true equality of opportunity, we should expand the educational options available to low- and middle-income families, not restrict the choices of everyone.

The Post Office Is Broke: End Washington’s Postal Monopoly

The United States Postal Service has run up $4 billion in losses so far this year, on top of last year’s $15.9 billion deficit. Washington should get out of the mail business. 

Congress created the Post Office in 1792, turning it into an important patronage tool. Legislators also passed the Private Express Statutes, giving the government a monopoly over first class mail.  

Washington imposed fines on early competitors, including the famed Lysander Spooner. Uncle Sam continues to rigorously police his monopoly.  

The Postal Service boasts that it would rank number 42 on the list of the Fortune 500—but that is only because the other 499 companies on the list, as well as everyone else, are barred from competing to deliver mail. Unfortunately for USPS, government lawyers cannot force people to send letters. The number of pieces of mail delivered dropped from 213 billion in 2006 to 160 billion last year. 

In 1971 Congress voted to turn the post office into a quasi-private company. However, Washington preserved the monopoly, retained control over system operations, and preserved a variety of indirect subsidies. For instance, USPS is exempt from taxes, regulations, and even parking tickets.

Postal Reform in the Lame Duck?

According to the Hill, policymakers are “scrambling” to do something about the U.S. Postal Service in the current lame-duck session of Congress. The USPS’s recently announced $15.9 billion loss for 2012 apparently inspired policymakers to act.

It’s hardly a surprise that Congress has waited as long as it can to do something about the USPS. Interest in postal issues for most members probably doesn’t go beyond naming post offices and franking. And regardless of whether Congress passes “reform” legislation in the lame-duck or next year, it will end up just kicking the can down the road. (Policy analysts who are frustrated with the inability of Congress to tackle entitlement reform would be wise to stay away from postal policy issue for mental health purposes.)

To get an idea of how absurd the current negotiations are, take this line from the article:

[S]ome liberal lawmakers and postal unions have pushed back against any attempts to limit six-day delivery, saying it would make bad business sense for the Postal Service to give up any competitive advantage as it moves forward.

Competitive advantage? By law, private carriers can’t compete with the USPS on the delivery of first class mail. To the degree that first class mail “competes” with the private sector, it’s with the internet. Going from six-day to five-day delivery won’t change the fact that the demand for the USPS’s flagship monopoly product is in permanent decline as more and more people decide to click “send” instead. What makes “bad business sense” for the USPS is to leave politicians in charge of it.

[See this essay for more on privatizing the U.S. Postal Service.]

Scott Walker’s Reforms Are a Good Start

All eyes are on Wisconsin today to see whether Governor Scott Walker’s budget and public-sector union reforms will be validated by the voting public. I applaud Walker’s reforms. But his reforms should be just the first step. Virginia took the next step two decades ago and completely repealed collective bargaining in the public sector.

I happened to hear conservative radio talker Chris Plante this morning discussing his support of Walker, but saying something like “But I’m not against collective bargaining rights in either the private sector or the public sector.”

Too many conservatives, and maybe even some libertarians, seem to buy the labor union line that collective bargaining is somehow a fundamental “right,” like the freedom of speech. It isn’t. Collective bargaining in both the private and government sectors is monopoly unionism. It represents a violation of the freedom of association.

Here’s what Charles Baird says on www.DownsizingGovernment.org:

The ideas embodied in the federal union laws of the 1930s make no sense in today’s dynamic economy. Luckily, constant change and innovation in the private sector has relegated compulsory unionism to a fairly small area of U.S. industry. But the damage done by federal union legislation is still substantial. Many businesses and industries have likely failed or gone offshore because of the higher costs and inefficiencies created by federal union laws, while other businesses may not have expanded or opened in the first place. So the damage of today’s union laws is substantial, but often unseen, in terms of the domestic jobs and investment that the laws have discouraged.

Davis-Bacon, the Norris-LaGuardia Act, and the National Labor Relations Act serve the particular interests of unionized labor rather than the general interests of all labor. These laws abrogate one of the most important privileges and immunities of American citizens—the rights of individual workers to enter into hiring contracts with willing employers on terms that are mutually acceptable. …

The principle of exclusive representation [collective bargaining], as provided for in the NLRA, should be repealed. Workers should be free on an individual basis to hire a union to represent them or not represent them. They should not be forced to do so by majority vote. Unions are private associations, not governments. For government to tell workers that they must allow a union to represent them is for government to violate workers’ freedom of association. Restrictions on the freedom of workers to choose who represents them should be eliminated.

Market Structure & Barriers to Entry in Education Tax Credit Programs

I want to thank John Kirtley for his gracious reply to my criticism of his policy guidelines. He has spilled a tremendous amount of blood, sweat, and tears on the ground fighting to establish, protect, and expand the largest private school choice program in the country, and I, quite simply, have not. I think this kind of policy debate is good for the health of the school choice movement, however, so on it goes …

Andrew Coulson posted a response to many of John’s points, but I think some areas deserve an expanded treatment. One of the primary issues in our discussion is centralization vs. diversification of scholarship organizations. I did not claim there was a “mandated” monopoly, which I take to mean government-mandated. Step Up for Students is, however, the only active scholarship organization in the state. It became the sole scholarship organization through hard work and good performance. John mentions Microsoft in his defense of market dominance, but Microsoft never fully monopolized any product or service. There is, however, a literal monopoly of the education tax credit system that was produced and is maintained by problematic provisions in the credit program that create a very high barrier to entry. The structure of the education tax credit in Florida all but ensures a monopoly in the education tax credit program.

For the first six years of the program, scholarship organizations were required to spend 100 percent of the credit funds they raised on scholarships. In other words, they had no money for overhead, which made establishing and running a scholarship organization difficult and expensive … a non-profit would need to seriously cannibalize its established charitable funding, likely already committed, and/or fundraise along two separate tracks for administrative and scholarship funding.

To put this in context, Charity Navigator, which rates non-profits, considers it acceptable for a charity to spend close to one-third of its revenue on non-program expenses. Even the 4-star rated Inner-City Scholarship Fund spends over 13 percent of its revenue on overhead expenses.

Scholarship programs, especially ones with relatively high compliance costs such as requiring detailed checks on a family’s income, require significant but entirely normal overhead spending. Furthermore, local scholarship organizations in a decentralized system act as more than a high-volume processor of financial applications. They act as community organizations that consider the needs and struggles of individual families and children, which requires spending more time and resources on each family. A 10 percent overhead allowance is eminently reasonable, indeed, within the bounds of best practices for such charities. Denying any overhead to non-profits ensured that few charitable organizations would be capable of fundraising and processing scholarships under the law.

Exacerbating this problem, scholarship organizations are not allowed to target the use of scholarship funds they raised to particular kinds of educational environments. What this means is that a non-profit would have to a) cannibalize money raised from other sources and for other purposes, and b) possibly fund educational environments that directly conflict with their conscience, mission, or best judgment. For instance, a Catholic charity would be required to fund an atheist, Wiccan, Protestant fundamentalist, Lutheran, Islamic, or any other school which met the basic requirements of the legislation. Even a non-sectarian scholarship organization is required to issue scholarships to any school, regardless of quality, as long as it meets the basic legal requirements.

In addition, the Florida tax credit applies only to corporate taxes, the vast majority of which are paid by large corporations based outside of the state of Florida. This means that fundraising is relatively difficult and time-consuming, not to mention extremely volatile, as large corporations shift revenue and expenses to minimize their tax burden year to year. It can take two years for a large corporation to begin disbursing funds after first being solicited. And fundraising requires expensive out-of-state traveling.

The corporate-only credit acts as an additional barrier to entry that grows over time and with centralization. Step Up for Students entered this constrained market efficient and well-capitalized, and spent the next decade bringing on the biggest corporate taxpayers in Florida as donors. A new entry into the credit scholarship realm would need to raise very substantial funds for fundraising for years before they saw a return in credit donations. Even should the very high quality of Step Up decline in the future, its relationships with the biggest donors, scale, and general dominance would pose a very formidable wall to climb for any non-profit. Indeed, it is far more likely that the state government would intervene long before any non-profits entered the market to impose the discipline of competition.

With extremely high start-up costs, low return for many non-profit missions, a fully established monopoly, and no profit motive or access to investment funding, the Florida education tax credit scholarship organization opportunities are all but nonexistent under current law.