Article by John Blundell in The Business

THE Royal monopoly of postal deliveries is about as antique as any monopoly. It predates the assumption that money has to be exclusively issued by the state mint – the Crown’s. It predates the assumption that disputes could only be resolved by the state courts – the Crown’s.

Now the Department of Trade & Industry (DTI ) is to relax this inhibition and licence postal services in Manchester, Glasgow and Edinburgh. We ought to welcome this small liberalisation but why is it so tentative? Why is it so timid? A duopoly is marginally better than a crude monopoly but why not just liberalise? Why not let us just have an open market in letters?

The recent discovery at the Roman garrison of Vindolanda, near Carlisle, of fragile letters illuminates the nature of the state. Imperial Rome had a courier service. How could it not? Imperial authority had to relay its instructions across its territories. Its far-flung staff had to convey messages back – including gold and other booty from war or trade.

This transmission of both money and information hints at the reasons the British state, like every other one, has long been jealous of the monopoly of the Royal Mail. It was both an instrument of competence and once a major source of revenue. We do not readily see the pretty stamps we stick on envelopes as taxes, but that is what they are – they are simply tax receipts.

The history books do not seem to agree on the origins of the Royal Mail. We know that Elizabeth I’s head of espionage, Robert Walsingham, sought the authority to open anyone’s mail to eavesdrop on Catholic conspirators (such as the Blundells of south west Lancashire), the Tudor equivalent of Islamic terrorists. The court had to have a delivery mechanism to send instructions to servants of the Crown on the latest twist of the state’s ever more convoluted logic.

Now modern technology has rendered a state postal monopoly redundant. The state can now speak to all its agencies by phone, fax and e-mail and the long, lucrative letter privilege has now rusted into a liability. It is a measure of the Post Office’s widespread ineptitude that it can convert such an advantage into a loss-making prospect. Competition is needed urgently.

The Post Office plc does not make a profit. As a tax it has ceased to be a source of revenue. The Royal Mail survives on the occasional cash infusion directly to itself, or to its pension fund. A once-mighty, proud and really rather competent entity has dissolved into a flawed, fractious and expensive folly. The Post Office is simply an unreformed nationalised industry.

It seems Margaret Thatcher, with an affection for the long-gone Post Office of Grantham, regarded the Royal Mail in some sense as an adjunct of the monarchy which must be preserved. She had a blind spot about this creaking entity while she was busy brushing away the privileges of all the other nationalised industries.

I have to agree that in the brief moments when the postal monopoly has been lifted at times of strikes, the private stamps have tended to carry adverts. I tried to build a collection of such stamps, but Stanley Gibbons disapproved. Maybe the Competition Commission should investigate its market dominance?

The new licensee in the three experimental cities is TNT. It is a model of competence at courier services and can be taught no new tricks by Post Office executives. We can see a faithful parallel in America where Federal Express, led by the brilliant Fred Smith, is regarded as hyper-competent compared to the bureaucratised US Mail.

Much of the contemporary defence of the postal monopoly is in camouflage as a social service. It is argued that our remote communities would go unserved. The vast Post Office is thus a redistributive force balancing the advantages of urban life with the needs of far flung islands and glens.

I never understand the integrity of this notion. Nobody proposes a Royal Grocery Service still less a Royal Newspaper Delivery Agency or, before we all went to supermarkets, a Royal Milk Service. We may all be on amiable terms with our own postmen but this is not a cuddly national presence – it is the state suppressing competition.

There is a huge paradox at the heart of this topic. My guess is the main beneficiary of full liberalisation would be the Post Office itself. The managers could sweep away the restrictive practises and ensure all sorting was electronic and no longer manual. They have a constellation of fine sites and as many red vans as they want. Just as BT, the descendant of the General Post Office’s phone service, was transformed by being stripped of its monopoly in 1983, so a liberated Post Office could be a triumph.

Competition is a benevolent force. Once everyone is free to deliver letters without the current threat of fines or imprisonment we may find lots of people performing new roles we cannot begin to imagine without the discovery process of the market place.

As matters stand, the UK direct marketing industry is flourishing and outpaces newspaper and broadcasting advertising budgets. The direct mailing firms will enjoy a surge of activity the moment they are able to deliver personalised messages to all of us at a fraction of the Royal Mail’s prices.

For commercial businesses, such as banks and insurance companies, far cheaper letter rates will be a huge boon. Mail still represents their greatest costs after salaries. Indeed I offer the prediction that once mail competition was permitted, and prices tumbled, the share prices of major users would register this new landscape. So, instead of transfusing millions into the Royal Mail’s pension fund, just get the trustees to switch their equity holdings into companies no longer constricted by their monopoly. Talk about lateral thinking.

In this new world, humble envelopes would reduce prices if they were adapted as a new advertising medium, as well as the stamps. I am in error if I pretend to know how a competitive mail market might evolve. Nobody knows. This is the essence of competition – it is a process of experimentation and discovery.

I applaud the TNT initiative. Yet it is far too limited. Imagine the friction once the TNT orange vans and post boxes are open for trade. They will have to decline Manchester mail to Oldham or Bury. Glasgow boxes will have to refuse letters to Paisley or Dumbarton. It is entirely ridiculous. It is not defensible. It is not sustainable. It will collapse.

I ought to acknowledge that we are seeing this ancient glacial monopoly melted by a Labour minister when successive Tory ministers funked any reform. Yet why such a cautious liberalisation? Just let anyone carry letters for anyone else. As the Scottish poet Robert Burns so wisely remarked: “The only truly urgent letters are cheques and love letters.” We do not care who delivers them – only that they get delivered.

John Blundell is Director General of the Institute of Economic Affairs