Monopoly empowers unions


One of the merits of competition is that it limits the power of producers. Most people focus on how firms have to compete with each other if consumers have a choice, but competition also limits the power of organized labour. The degree to which it can impose uneconomic terms on employers is severely limited if customers can move elsewhere and cause their employer to go under. Where competition is introduced into a state monopoly, it also limits the power of the unions to put political pressure on government by interrupting the service.

When the UK featured many state-owned monopolies, strikes were a common feature as unions exploited the power which monopoly gave them. But it was not only privatization and the competition which usually accompanied it which undermined their power; technology played an important role. The Post Office provides a classic example.

The fax machine (if anyone remembers it!) spread rapidly because the monopoly post service could not be relied upon. Motor and pedal cycle couriers spread through our cities to exploit a loophole that allowed expensive alternatives to the Royal Mail. What unions do not seem to grasp is that it is their exploitation and abuse of monopoly power that speeds the adoption of alternative technologies. If the service were reliable and good value, many of these technologies would develop more slowly or not at all.

It is easy to predict the consequences of yet another impending postal strike. People will rapidly get into the habit of using technological alternatives to the Royal Mail, and will not return when the service resumes. They will use such alternative methods of conveyance as are allowed, and many will not return from those, either. The Royal Mail itself will find its business diminished and will need to cut its cost further… At the bottom of that vortex is a plug-hole.

Meanwhile, Lord Mandelson could earn a load of brownie points by empowering the Boy Scouts to deliver Christmas mail, and allowing charitable organizations to oversee its collection, transport and distribution…

Check out Dr Madsen Pirie's new book, "101 Great Philosophers."