Tuesday, September 4, 2012

Calling all Economists: A Case Study for Privatization of Government Functions?

I was visiting Poland last Christmas and saw a stack of thick sheet-metal cut into squares on the table. I asked my hosts what they were. Turns out they are used to make mail heavier. 

This sounded sufficiently Kafkaesque - or perhaps Alice in Wonderland-ish - to me (and reminded me of something like Harrison Bergeron for letters as well) to make me think: Why in the world...?

So they explained: Private mail companies are not allowed to carry letters below a certain weight. Normal letters are thus reserved for the national postal service. But apparently the private companies are so much faster that people are willing to insert metal weights into their mail to bring them to "package" weights eligible for private service and pay the substantial difference for the faster service. I observed that this is a very common practice. 
Now, a disclaimer - I believe there are fundamental mistakes with "free market" critiques of government services, particularly networks of all kinds (and health care). They fail to take into account that the value to society of whole networks, even with many unprofitable lines, is far greater than the sum of its parts. 

But seeing these metal weights I couldn't help but think that this is an economist's wet dream classroom example of the free market. I am sure there is more to the story but I was not able to follow up on the situation in greater detail. If any one else is, it could make an interesting case study of economic theory. On the face of it it supports privatization of public services, although again, I think there might be something more going on.    

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