Royal mail Privetisation - Essay Example

Many governments owned so-called natural monopolies such as water, power, and postal services on the assumption that market efficiency would be attained if there were only a single seller. It is easy to see why a monopoly may be needed in some markets, as in the case of utilities where large investments are needed, or in postal services where a number of mail delivery routes are not profitable enough to attract private investments. But as many nations eventually experienced through the years, this market structure became characterised by inefficiency and wasted resources.

This was the situation at Royal Mail in 2002. Its vehicle repair centre situated in the Isle of Wight was a case in point. The poor location entailed unreasonable expenditures, a factor for inefficiency and a destroyer of value. Since it would be a better use of resources for broken down vehicles from different parts of the British Isles to be repaired in the nearest motor shops, this vehicle repair centre would be under-utilised. Its facilities would be better off sold, closed down, or put to other use, for example as a conference centre for its workers.

Monopolies lead to inefficiency and waste because the absence of competition leads to complacency, as the company enjoying a monopoly position would not have the incentive to improve itself and be efficient. Like a pensioner unmotivated to work because of a guaranteed income, monopolies know that their market has no choice but to buy its products, no matter how poor the quality. And when the monopoly, like Royal Mail, is labour intensive, not only do the workers become a formidable political force that can influence the outcome of elections (“forcing” politicians to listen to their pleas), but also their lifetime employment status binds the state to pay until retirement, a disincentive for increasing