FedEx and UPS versus USPS

usps-loss-100pxFirst, the government monopoly:

CNN Money reports that the “U.S. Postal Service reports $2.2 billion loss” in the first quarter of 2011 and expects to lose lots more.

Second, two private market companies:

ups-profit-100pxReuters reports that United Parcel Service’s “profit tops estimates” but, sadly, that FedEx’s profits “fell 3 percent to $231 million.”

One question and one comment.

The question: Why does the USPS still have a government monopoly on first class mail and various other subsidies and immunities?

The comment: Much business regulation is driven by fears that free markets lead to monopolies that will gouge consumers. Yet it is very difficult to find actual historical examples of big successful free-market companies that have behaved that way.

So my usual test of the seriousness of those who voice the fear of monopolies is to raise the USPS example — an actual monopoly that has wasted tens of billions of dollars over the decades. Does the afraid-of-monopoly person favor the immediate ending of the USPS?

Surprisingly often, the afraid-of-monopoly people are willing to give the USPS a pass. That response signals to me that they are not really anti-monopoly as much as anti-market. Their fear of possible market monopolies is greater than their fear of actual government monopolies. They worry very much that Intel or Microsoft or the National Football League will start gouging consumers, so they support vigilant antitrust monitoring and prosecution of those companies. But they feel little concern about the USPS and various monopoly public utilities and are content to let them be.

In my judgment, we shouldn’t be worrying about companies in a free market that have earned a large market share — their earned market share means they are doing something we consumers like and, consequently, we are voluntarily rewarding them for it. We should be worrying about companies and entities that get their position through government favoritism — their market position is based on special privileges and coercion, and, not coincidentally, as the USPS example shows, they are typically inefficient.

FedEx and the Marines

FedEx is a pioneer in speedy and reliable delivery. For many years, its slogan was: When it absolutely, positively, has to get there overnight.

usmc-logo-100x101I’ve been reading David Freedman’s Corps Business: The 30 Management Principles of the U.S. Marines, and I learned that FedEx founder and CEO Fred Smith is a former Marine.

Amusingly, Freedman reports a tribute to Smith and FedEx seen on a t-shirt at a Marine base: The U.S. Marines: When it absolutely, positively has to be destroyed overnight.

Politics and Innovation

usa china

I am re-reading Judy Estrin’s Closing the Innovation Gap, in preparation for an interview I will be doing with her for Kaizen.

Estrin is a successful Silicon Valley serial entrepreneur and is currently on the board of directors of FedEx and Disney.

She is worried about the U.S.’s culture of innovation, believing it to be in a (not irreversible) decline phase, and she discusses the many elements that drive innovation: education, tax policies, time horizons of investors, cultural beliefs such as religion, and so on. In discussing government’s role in crafting science-and-technology-friendly policies, she makes this striking comparison of the United States with China:

“Currently, eight of China’s nine top leaders are engineers, and the ninth is a geologist. Contrast this with our own legislature: less than 5 percent of the members of Congress list their occupation as being in medicine, science, or engineering, while 40 percent are in law.” (160-161)

So here’s a series of questions prompted by Estrin’s observation:

1. How relevant is politics to a culture of innovation?

2. If we look at the leadership of the science-and-technology-relevant branches of government, e.g., the Department of Education, the Department of Commerce, and so on, do we find the same non-science-and-technology backgrounds?

3. If we shift focus from the federal to the state government level, do we find the same pattern of lawyer-dominated politics?

4. Does the U.S. government’s system of appointing expert boards in the relevant areas (art, science, education, etc.) ameliorate the problem?

5. Do the differences identified in the quotation portend a relative rise for China and a decline for the United States over the next generation?