Beyond Profit-Centers, Strategic Loss-Makers Could Make Nations Better

Beyond Profit-Centers, Strategic Loss-Makers Could Make Nations Better

Question from a Tekedia Member: I listened to Tekedia Live and am still trying to understand how the U.S. Post losing money is at least not bad for the economy. Are you saying that the Post cannot operate profitably and still serve?

My Response, broadly…

It brings huge debate: why do we struggle to bring private sector financial efficiency in all domains of government? Yes, make White House to deploy the Apple playbook of operational excellence in the business of serving the citizens. Get Aso Rock, Nigeria’s seat of power, to become a better operator like Dangote Group. 

Obama answered one of those questions many years ago, noting that as the President of the United States, his job was not just to serve only those that could afford iPhone and its apps, but to serve all citizens, irrespective of their income levels. In other words, a President has no market segment or wage bracket to target: its market is the full population of the citizens. To do that, it has to accept some elements of underperformance when looked at from the perspectives of markets. Yes, there is no issue of expired subscription as you cannot kick the people out of the country!

This morning, in Tekedia Live, we had a deep conversation on business, logistics and fintech. I did explain why the United States Postal Service (USPS) is a smart national loss-maker.

Yesterday, the United States Postal Service (USPS) announced an annual loss of $8.8 billion for fiscal year 2019, more than double its annual loss for FY18. This loss, the largest on record, marks the 13th consecutive year the USPS has finished in the red.

If you examine the period when the USPS lost this amount of money, businesses actually expanded in the core domains it served. Largely, USPS losing money was not necessarily a bad thing as its functions were critical for most of those companies to thrive. Possibly, for every $10 billion lost by the U.S. Post, it could be adding excess new $200 billion of value in the economy. For the United States, in general, that is a net positive. The USPS saw marginally revenue increase despite the match to global digitization, implying that it was powering core elements of that new redesign.

Postal Service reported operating revenue of $71.1 billion for fiscal year 2019 (October 1, 2018 – September 30, 2019), an increase of $514 million compared to the prior year.

If you extrapolate that construct, it does imply that any day they make the USPS to become a pure profit-center like DHL, UPS and Fedex, many small businesses which depend on USPS will struggle. If that happens, saving $10 billion could cost the economy hundreds of billions of dollars.

So, it is not everything that should be put in monetary terms. The USPS should of course aspire to be profitable. But if it cannot and still operate operationally efficiently, serving SMEs and Americans, including home offices, its impact will be multiples of whatever it is losing monetarily. Just the taxes paid by the companies on those additional values will cover the losses.

Did you notice a double play strategy here? Lose money on USPS, make up via expanding income and taxes.

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5 thoughts on “Beyond Profit-Centers, Strategic Loss-Makers Could Make Nations Better

  1. Good analysis. You really came out from an angle I least expected and made me realise it’s not all about profit making but satisfying a need ,especially by government agencies to make the economy grow.

    Reply
  2. Sanmmy Stephen Ogunleye · Edit

    Thank you for this wonderful piece, NIPOST should pay attention to it, it is obvious they cannot serve Nigeria and it’s citizen in full capacity hence the need for private investment to step in to serve the populace, all NIPOST need do is to cash in through taxes and revenue which might in turn be more than what would have been generated if NIPOST insist.

    But also with consideration in regards to tax rate so as not to frustrate SME’s that are struggling in an emerging market.

    Reply
    1. Private investments like you mentioned cannot adequately serve a country the size of Nigeria. They are basically out for profit and therefore like banks concentrate only in major cities and it’s mostly pick up services. They don’t do rural deliveries. The plan on Okada in Lagos was what gave rise to the glorified Okada services calling themselves Logistic companies so that they can get waiver from Lagos State government. Only a government agency has the capacity to operate at a loss so that the MSMEs can flourish and if government agrees to that, it becomes another form of subsidy.

      Reply
      1. “Private investments like you mentioned cannot adequately serve a country the size of Nigeria. They are basically out for profit and therefore like banks concentrate only in major cities and it’s mostly pick up services.” Brilliant words!

        Reply

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