Feedback Lost — Postal Subsidies
A Concise Case Study of Intermediation
Every human interaction creates some level of feedback by default. But many interactions in today’s digital world are intermediated. When feedback is interrupted and redirected, systems under perform or break entirely.
In a society where freedom and free markets have come to dominate most aspects of life, it is surprisingly easy to find examples on intermediated systems. They are an odd example of the power of scale to survive distortion, at least in the short-term.
For our purposes today, we have the United States Post Office to provide us with a not very well-known example… of interruption, distortion, and redirection. The lack of feedback in this system is equally obscured.
As you read this article, think about your own products and services. Have you designed intermediated systems? Do you understand the implications of these detoured processes ? Well here is a great example to learn from:
United Postal Union and Tri-Lateral Shipping Alliance
Since at least 1874, the United States and other countries have negotiated world shipping costs through the United Postal Union and other varied treaties such as the Tri-Lateral Shipping Alliance of 2010. As a result, it is currently cheaper to ship products under 2 kilograms from Hong Kong to NYC than from Seattle to NYC.
Cheaper is, of course, a tricky term and a actually quite a distortion. The reality is that the costs of shipping are intermediated by world governments. Instead of shipping costs be directly placed upon the parties send and receiving the merchandise, costs are placed upon the shipping company. These costs become further displaced because the USPS is a government entity. Private shipping is not actually subject to any of this. The estimated $79 million dollars per year in subsidized shipping alone is placed firmly on the US tax payer.
In essence, costs take a detour. In this case, they actually take two. Now whether you believe this creates greater global commerce, is an unfair competitive advantage, or declare this global redistribution of wealth; it obscures feedback. It creates distortion.
Intermediary Costs
Shipping costs are often known as intermediary costs. This is really just to differentiate them from the cost incurred in producing a good or service. It is not a justification to intermediate them!
Costs are also a form of feedback, just like price, volume, and online reviews. When costs are deferred, rebucketed, intermediated, or otherwise displaced; the feedback loop is broken or distorted. The costs themselves will eventually find their way back into the system. If Fedex or UPS were subject to this process, they would have declared bankruptcy by now (or effectively been disintermediated).
Without feedback on the cost of shipping, numerous problems occur. The incentive for competition and innovation are obscured or displaced. There is little reward now in reducing transportation costs, limiting weight, optimizing delivery, or innovating completely new models. The expected cost reductions that would typically incent this innovation are equally lost. Everything becomes more complicated and less efficient.
Externality (just a big word for broken feedback)
In economic terms, this cost becomes an externality. Because the feedback chain is broken, the shipping cost effectively falls outside the system. Economists fear externality, specifically because they are so difficult to see or measure. Business owners should fear them, too.
Broken feedback doesn’t require big words or big government
Many finance departments, typically encouraged by sales and marketing, engage in cost intermediation. For them, it is as simple as moving costs above or below ‘the line’. They reclassify operational expense as R&D or utilize any number of other accounting tricks. While this is not quite as destructive as our case study, this ‘labeling’ adjustment can lead to plenty of poor decision making and additional expense.
Most politician and business people have great justification and intentions for intermediating costs. Their arguments feel solid and often just. Unfortunately, breaking feedback loops is rarely justifiable. It is the business equivalent of looking the other way and that always feels wrong. Where is your business intermediating costs? Where are you looking the other way? What advantage could possibly come from this?
Feedback Lost is a ongoing series provided by Corsair’s Publishing. We seek to provide engaging content that is both thought provoking and entertaining. Other articles on related topics can be found within our other Medium publications.
