Private sector or public sector: what is the future for the Royal Mail?

Many students will be thinking at the moment about ways of ‘classifying’ business. One crucial distinction is between the public and private sectors of the economy. It looks like the Royal Mail is about to be privatised – and start a new life as a private sector organisation.

The government seems to have decided that it should no longer be the Royal Mail’s owner. The Business Secretary is being advised that the universal postal service can only be maintained by an injection of private sector money and expertise, according to the BBC.

Stakeholders are up in arms. The trade union representing a large number of postal workers, the CWU, have said the plan would devastate the postal service and lead to higher postal charges. Customers are divided – they seem to be split down the middle of a love it/hate it attitude to the business.

The logic behind privatisation seems to be that as the letters market is shrinking it will be increasingly important that Royal Mail becomes more productive and efficient. The belief is that a private business will find that far easier to achieve than the government.

The Business Secretary is quoted: “Royal Mail is facing a combination of potentially lethal challenges - falling mail volumes, low investment, not enough efficiency and a dire pension position.” Bosses at Royal Mail seem to agree. Everyone also seems to be keen that employees continue to have a real stake in the future of the business.

Opponents think it likely that privatisation would lead to higher prices for customers and job losses for staff. Previous privatisations have sometime been highly successful (telecommunications) and sometimes dire (the railways).

The Royal Mail faces real challenges and tough financial difficulties. It has undergone some recent modernisation and government advisors seem to think that only the private sector can provide the money necessary to continue the modernisation process, at a time when the government is strapped for cash and the Royal Mail cannot generate enough extra cash itself.

One interesting proposal for the privatisation is that the staff should receive some of the shares in the new company themselves, “It is important that any future employee ownership scheme should be taken forward with the aim of achieving the culture change that is needed within Royal Mail. Employee shares could be a powerful force in supporting the company’s modernisation and future success”, said the government’s main advisor.

What do you think? How might a switch from the public sector to the private sector change the way the firm is run and financed? What will happen to its aims and objectives? Which stakeholders will be affected the most?