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Worse service, higher prices. Most businesses would go bankrupt with that sales pitch. Yet Canada Post, our government-owned letter-mail monopoly, made it by announcing it will cut household delivery and hike stamp prices.

Rather than focus on cutting service and raising prices, Canada needs real postal reform that results in mail services being better managed at a lower cost by private operators.

Canada Post has a government-mandated monopoly on letter-mail service but must provide the same service to all Canadians. Because of its monopoly, it is able to stem its losses on the backs of consumers and businesses.

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Rather than deal with labour costs and pension problems, Canada Post is wishing them away by relying on attrition and promises of changes through collective bargaining.

Canada Post has also avoided the third rail of Canadian rural politics by not charging remote customers the true costs of serving them. Canada Post meets its universal service mandate by subsidizing costly rural service with urban profits. The proposed urban service cuts take this to a new level.

Canada lags major countries in ending the national postal service letter-mail monopoly. Any real reform must address the government monopoly, the requirement for universal service and the labour/pension concerns of existing employees.

There are two approaches to encouraging multiple firms to provide postal services.

The first, similar to that of Sweden and Finland, is to eliminate the government monopoly on letter pickup and delivery completely and allow private entrants to handle the job.

A second option is to eliminate the government monopoly gradually. This could be done through contracting arrangements, whereby the government auctions the right to operate specific parts of postal services, such as mail delivery and pickup. Canada Post could set terms for bidders, such as maintaining a share of outlets in a given region, or preserving household delivery where it now exists.

Canada Post could pay the least-cost contractors out of revenues from stamp sales. The winners could then experiment to find the best ways to meet the contract terms.

Contracting arrangements for delivery and pickup would be a continuation of the existing practice of contracting out the operation of postal outlets, customer-care centres and long-distance transportation. Contracted postal outlets have a one-third lower cost than facilities owned by Canada Post. If contracting pickup and delivery had the same effect, the cost savings would be dramatic without necessarily cutting standards.

Canada Post could gradually increase the services it contracts out without relying on layoffs, which are mostly forbidden under the current collective agreement. Contracting some services while retaining a core Canada Post would also allow the gradual shrinking of pension liabilities for current and recently retired employees.

Rather than imposing the cost of rural service on urban postal customers, Ottawa should provide subsidies for unprofitable rural services. Transparent subsidies, set by Parliament, would be an efficient way to preserve equal prices. Such a subsidy would be similar to the current policy of maintaining free letter delivery to and from members of Parliament, which costs taxpayers $22-million a year.

Worse service, higher prices is not the way to save a business. Finding better ways to provide service, such as private contracting, is the solution.

Benjamin Dachis is a senior policy analyst at the C.D. Howe Institute and author of the report How Ottawa Can Deliver A Reformed Canada Post.

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