Wednesday, July 27, 2011

Post Offices and Book Stores

Recently the postal service announced it may close 3,653 post offices, mostly in rural communities, out of a total of 32,000 offices nationwide (Small Town Post Offices Threatened and 'Village' Plan Offers Opportunities, Postal Service Says). My question is this: What about the remaining 28,000+?

The post office is reportedly an "independent arm of the federal government", according to postal officials. It's also losing between $8 billion and $9 billion in 2011 and has maxed out its $15 billion line of credit with the federal government.

We all know why the post office isn't viable. E-mail and the internet, along with Fed Ex, UPS and so forth have acted to make it a money loser. But will it close down? Don't hold your breath.

Now let's turn to Borders book stores, which will be forced to separate 10,700 employees and close the remaining 399 stores it owns. Talks to Save Some Borders Stores Fail details a last ditch attempt to sell some 30 of the 399 stores to Books-A-Million, an effort which also failed.

Will these book stores close? That's a very good bet, unlike the postal situation.

Whereas competition from Amazon and such has forced the closure of Borders, e-mail and the internet couldn't force a similar result with respect to the post office system.

The government bureaucracy and politicians will keep the postal service open for years to come. It will be death by a thousand or perhaps a million or even a billion cuts. And the taxpayers will pay and pay and pay.

Joseph Schumpeter labeled the free market capitalistic process "creative destruction", meaning simply that new competition is often quite harsh for the incumbent losers. And in a free market based capitalistic framework, there are always going to be losers as better ways of doing old things are repeatedly found.

The idea behind the process of creative destruction is profoundly simple but genuinely effective at improving the way things are done throughout a free market society. To create we must first destroy. Old ways are replaced by new and improved ways. The customer and the market decide who stays and who goes. Failure is very much an essential part of the process of the overall system of improvement.

It's the MOM method of investment for shareholders, lenders, communities, suppliers and employees alike. As they say in sports, win and stay to play another day. Lose and go home.

Not so with government. The politicians decide who stays and who plays based on politics and OPM.

So the Borders employees will soon be without bookstore jobs, shareholders will have lost their investment, suppliers will have lost a customer and many communities will soon be without stores. It's harsh, but it's fair. It's the free market at work.

As for the postal service, it's simply not fair to the owners, those owners being the taxpayers. Why can't we make that connection?

Thanks. Bob.

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