The stamp at the bottom of the pyramid

23rd August, 2021

It should be remembered, that in few departments have important reforms been effected by those trained up in practical familiarity with their details. The men to detect blemishes and defects are among those who have not, by long familiarity, been made insensible to them.’
Those words are from 1837. An early pitch from an aspiring management consultant? No: that profession was still nearly a century off. But it was, in effect, the service Rowland Hill had taken it upon himself to perform for Great Britain’s postal service.
Hill was a former schoolmaster, whose only experience of the Post Office was as a disgruntled user. Nobody had asked him to come up with a detailed proposal for completely revamping it. He did the research in his spare time, wrote up his analysis, and sent it off privately to the British finance minister, the Chancellor of the Exchequer, naively confident that ‘a right understanding of my plan must secure its adoption’.
He was soon to get a lesson in human nature: people whose careers depend on a system, no matter how inefficient it might be, won’t necessarily welcome a total outsider turning up with a meticulously argued diagnosis of its faults and proposal for improvements. ‘Utterly fallacious . . . most preposterous’ fulminated the Secretary of the Post Office, Colonel Maberly; ‘wild . . . extraordinary’ added the Earl of Lichfield, the Postmaster-General.
Brushed off by the Chancellor, Hill changed tack. He printed and distributed his proposals, under the title ‘Post Office Reform: Its Importance and Practicability’. He added a preface, explaining why his very lack of experience in the postal service qualified him to detect its ‘blemishes and defects’. He wasn’t the only person frustrated with the system, and everyone who read his manifesto – and who wasn’t employed by the Post Office – agreed that it made perfect sense. The Spectator campaigned for Hill’s reforms. There were petitions. The Society for the Diffusion of Useful Knowledge made representations. Within three years, the government had bowed to public pressure, and appointed a Post Office supremo: Rowland Hill himself.

The Next Fifty Things That Made The Modern Economy

What were the problems Hill identified? Back then, you didn’t pay to send a letter. You paid to receive one. The pricing formula was complicated and usually prohibitively expensive. If the postman knocked on your door in Birmingham, say, with a three-page letter from London, he’d let you read it only if you coughed up two shillings and threepence. That wasn’t far below the average daily wage, even though ‘the whole missive might not weigh a quarter of an ounce’.
People found workarounds. Members of Parliament could send letters that would be delivered free of charge – if you happened to know one, they might ‘frank’ your letters as a favour. The free-franking privilege was widely abused – by the 1830s, MPs were apparently penning an improbable 7 million letters a year. Another common trick was to send coded messages through small variations in the address. You and I might agree that if you sent me an envelope addressed ‘Tim Harford’, that would signify you were well; if you addressed it ‘Mr. T. Harford’, I would understand you needed help. When the postman knocked, I would inspect the envelope, and refuse to pay.
Hill’s solution was a bold two-step reform. Senders, not recipients, would be asked to pay for postage; and it would be cheap – one penny, regardless of distance, for letters up to half an ounce. Hill thought it would be worth running the post at a loss, as ‘the cheap transmission of letters and other papers . . . would so powerfully stimulate the productive power of the country’. But he made a powerful case that profits would actually go up, because if letters were cheaper to send, people would send more of them.
Economists would recognise the question Hill was trying to answer: how steep was the demand curve? If you reduced the price, by how much would demand increase? Hill didn’t know about demand curves: the first such diagram was published in 1838, the year after his proposal. But he knew how to marshal anecdotes: the brother and sister in Reading and Hampstead, some 40 miles apart, who lost touch for three decades, then corresponded frequently when a kindly MP gave them some free-franks. It had only been the expense that put them off.
A few years ago the Indian-born economist C. K. Prahalad argued that there was a fortune to be made by catering to what he called ‘the bottom of the Pyramid’, the poor and lower-middle class of the developing world. They didn’t have a lot of money as individuals, but they had a lot of money when you put them all together. Rowland Hill was more than a century and a half ahead of him. He pointed to a case when small payments from large numbers of poor people had mounted up for the government: duties on ‘malt and ardent spirits (which, beyond all doubt, are principally consumed by the poorer classes)’ brought in much more than those on ‘wine (the beverage of the wealthy)’. Hill concluded, slightly disparagingly:

The wish to correspond with their friends may not be so strong, or so general, as the desire for fermented liquors, but facts have come to my knowledge tending to show that but for the high rate of postage, many a letter would be written, and many a heart gladdened too, where the revenue and the feelings of friends now suffer alike.

In 1840, the first year of penny post, the number of letters sent more than doubled. Within ten years, it had doubled again. Hill initially expected that postage-paid envelopes would be more popular than stamps – but the ‘Penny Mulready’ envelope faded into obscurity, while the ‘Penny Black’ stamp inspired the world. It took just three years for postage stamps to be introduced in Switzerland and Brazil; a little longer in America; by 1860, ninety countries had them. Hill had shown that the fortune at the bottom of the pyramid was there to be mined.
Cheap postage brought the world some recognisably modern problems: junk mail, scams, and a growing demand for immediate response – half a century on from Hill’s penny post, deliveries in London were as frequent as hourly, and replies were expected by ‘return of post’.
But did the penny post also diffuse useful knowledge, and stimulate productive power? The economists Daron Acemoğlu, Jacob Moscona and James Robinson recently came up with an ingenious test of this idea in the United States. They gathered data on the spread of post offices in the nineteenth century, and the number of applications for patents from different parts of the country. New post offices did indeed predict more inventiveness, just as Hill would have expected.
Nowadays, what we call ‘snail mail’ looks to be in terminal decline. There are so many other ways to gladden our friends’ hearts. Forms and bank statements are going online; even junk mail is in decline, as spamming us online is more cost-effective: every year, across the developed world, the number of letters sent drops by another few per cent. Meanwhile, the average office worker gets well over a hundred emails a day. We no longer need societies to promote the diffusion of useful knowledge – we need better ways to distil it.
But Acemoğlu and his colleagues think the nineteenth-century postal service has a lesson to teach us today: that ‘government policy and institutional design have the power to support technological progress’. What current blemishes and defects in these areas might be holding progress back? We need the successors of Rowland Hill to tell us.

This essay is an extract from “The Next 50 Things That Made The Modern Economy” the paperback of which is out this week in the UK. “Endlessly insightful and full of surprises — exactly what you would expect from Tim Harford.”- Bill Bryson

“Harford is a fine, perceptive writer, and an effortless explainer of tricky concepts. His book teems with good things, and will expand the mind of anyone lucky enough to read it.”- The Daily Mail

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