Tuesday, August 4, 2009

Economics: Government-Run Companies

TORONTO, ONTARIO - Recently, New York Times columnist Paul Krugman pointed out that for all the people whining about a government takeover of health care in the United States, his experiences with two government-run organizations, the United States Post Office (USPS) and his state's Department of Motor Vehicles, were actually quite positive compared with interactions with private-sector companies. Nate Silver, as he often does, backs up this opinion with data from Yelp that shows that, in Brooklyn at least, the USPS gets better experience ratings than FedEx/Kinko's, though both trail United Parcel Service (er, UPS) significantly. Putting aside the fact that President Obama (if not some of the Democrats in Congress) actually doesn't want government running health care, just financing it, the argument is an interesting one. I am biased by living in Canada, where most bureaucracies (private and public) seem to work more efficiently, but there seems ample reason to believe that government-run organizations do not inherently provide poor service.

The USPS offers an interesting case study. I've had my share of fighting with the USPS, most notably for poor delivery (sometimes three weeks late) of the then-daily Christian Science Monitor while I was in college. I remember when, twenty years ago, it could take weeks for a letter to cross the United Sates. However, that isn't the reality anymore. I've been shocked at how quickly first-class mail is delivered, including during the peak period of December, in recent years. I've mailed things from Boston that arrived in Seattle two days later. Furthermore, mail delivery is now quite consistent--it's very rare for a letter to take more than a week in any situation--and my counter experiences with the USPS in the past few years have all been positive. I don't care how they've done it--apparently much of the improved delivery comes from outsourcing long-distance deliveries to competitors like FedEx and UPS--the bottom line is that I actually favor the USPS over its private competitors for any shipment that isn't large and doesn't require tracking, as the USPS is usually cheaper and just as fast. While my experiences are anecdotal, Nate Silver's look at Yelp seems to statistically back up my observations.

I often point to Revenue Canada as an example of a government agency that does things well from a customer service perspective, especially compared with the Internal Revenue Service (IRS) in the United States. Granted, I've never been audited by either organization or had a major dispute with either, but in terms of day-to-day interactions, Revenue Canada wins hands down. Revenue Canada's forms may be long, but they are quite clear with instructions that are comprehensible for an educated person. I have found the IRS instructions fine for simple situations--such as for people that can fill out the 1040EZ form--but on more complicated situations, they can be extremely hard to understand. When I've tried to call the IRS to ask a question, I've waded through a menu system, waited on hold for nearly an hour, and then gotten what proved to be an incorrect answer, since they revised my tax (in my favor) exactly where I had the question. When I've called Revenue Canada, I got through to a person within five minutes and gotten extremely thorough and correct answers. When the experience is over, Revenue Canada sends a letter thanking you for paying your taxes. I've never received such a letter from the IRS. Of course, the IRS is fighting an anti-tax bias in the US that simply isn't as large in Canada, but that seems to me to a reason to pay more attention to the customer experience, not less.

Another interesting comparison exists between VIA Rail Canada and Amtrak, both government-subsidized train operations competing with other travel modes. Generally speaking, VIA is known (even outside Canada) for having excellent customer service. Amtrak is at best known for uneven customer service. VIA may provide limited train service in some regions, but what trains it does run generally have good reputations in the areas where it operates. Amtrak may have a good reputation in certain corridors (California's Capitol Corridor between San Jose and Sacramento, and the Cascades Corridor between Eugene, Oregon and Vancouver, British Columbia come to mind), but I personally can't recommend most of their long-distance trains even to other railroad enthusiasts because the on-time performance has been so poor and it is too common to run into employees with terrible attitudes. What's the difference? It's not subsidy levels. It's mostly that VIA management chose to re-organize its staffing around the customer experience (some don't like how they imposed that on their unions), whereas Amtrak has maintained traditional railroad staff organization and furthermore has generally not made any attempt to enforce appropriate staff behavior. It's a classic difference in culture--one organization chose to address it and improve it, the other hasn't done it.

Of course, then there's the Canada Post. The customer service aspect of that organization is fine--the regular clerk at my local post office smiles when he sees me coming and remembers my shipping preferences--but their core service, mail delivery, is pathetic compared with its US counterpart. Where the USPS regularly delivers first-class mail across the country in just a couple days, it is not uncommon for Canada Post to take weeks. The CBC, when it had country-wide mail-in contest, had to be on a two-week cycle because one week wasn't enough for people to mail in their entries. Some years ago, I actually had a letter take two months to go from Boston to Toronto--and I'm pretty sure the delay wasn't south of the border. Many companies in the US refuse to send anything to Canada using the postal system, using private carriers instead. The list of anecdotal and real evidence could go on and on, and I don't know what the fundamental problem might be, as Swiss Post and even the USPS show that government-run postal services can work quite efficiently.

The lesson here seems to be that it's not whether something is government-run that determines whether it works well, but the culture of the organization. If an organization is motivated to provide good service through accountability for its actions, it usually does. Canadian governmental organizations stay accountable because the public expects good service from them, and throws out the government in charge if they don't. The USPS stays accountable through competition with private carriers like FedEx and UPS. Canada Post, on the other hand, is not held accountable, and it doesn't stack up so well.

It's fundamentally harder to hold a government organization accountable, as the market will not automatically cause them to fail and go away if they don't stack up. However, government agencies in Canada and even the USPS show that it is possible. If people in the United States demand good health care service, they will probably get it even if it is government-run--and indeed, that may explain the real problem with health care, escalating costs.

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