It’s time to privatize the U.S. Postal Service. We no longer need a federal agency to deliver our junk mail. The facts are plain. Even with a locked-in monopoly, the USPS can’t make ends meet. Its accounting is so murky and convoluted it makes our Enrons and WorldComs look like models of financial transparency. We mail-users–and ultimately taxpayers–end up paying through the nose for the increasingly obsolete privilege of “universal service,” i.e., six-day-a-week delivery to every household in the nation.
If USPS were a private company, now would be the time to get serious about cutting costs and downsizing. Instead, the organization plans to do what it always does when the going gets tough–raise stamp prices. Last month, USPS took the first step when its board of governors directed management to file for an increase, which will probably hit stamp buyers in early 2006.
If USPS were a competitive company–as opposed to bloated federal bureaucracy–stamp prices would be falling, not rising. Despite new technology–like modern reader/sorters that process over 30,000 pieces of mail per hour–stamp prices have risen with inflation since 1970. Imagine if the price of a phone call or sending an e-mail rose with inflation for 30 years.
USPS is simply unable to capitalize on its multibillion-dollar technology investments, or on its massive economies of scale. A December study by leading experts of the Postal Rate Commission notes: “The doubling of overall volume coupled with scale economies should have resulted in the average price of the stamp dropping in real terms.”
Well, okay. So you might have to pay 41 cents to mail a letter. What’s the big deal? It may be illegal to take your envelopes elsewhere, but you can just move your business–including receiving and paying your bills–online, right? Let the postal service sock it to big mailers, who together make up a $900-billion industry, and to the nice people who still mail out Christmas and Valentine’s Day cards. The problem is, USPS is already so deep underwater that even hiking stamp prices won’t solve its financial crisis. Raising the price of letter delivery just drives customers away at an even faster rate.
Of course, politicians, economists, and postal officials have argued for years about the best remedy for the bloated, inefficient, and union-dominated postal service. Some change may finally come about during the current session of Congress, with postal-reform bills pending in the House and Senate. The draft proposals, however, don’t call for busting the monopoly or privatizing the Service.
Yet in its own much-touted transformation plan, published in 2002, the USPS envisions itself as a future “Commercial Government Enterprise.” The postal service’s website suffix was switched from dot-gov to dot-com, and the postmaster general’s title changed to “Postmaster General and CEO.” But public posturing aside, what exactly does “Commercial Government Enterprise” mean?
“Postal Service managers would operate under more businesslike conditions. The Postal Service would offer both traditional and nontraditional products and implement market-based pricing, discounts and incentives, and business-based financing,” the transformation plan says.
Unfortunately, the ballyhooed transformation plan says nothing about ending the USPS monopoly. Although postal officials want the postal service to walk and talk like a private firm, they won’t consider making it one. After all, that would mean they’d have to divulge their mysterious accounting system that lumps 40 percent of costs into a murky, “general overhead” slush fund.
There is one side of private enterprise that’s enticing the USPS though. It has no qualms about jumping into markets that have been transformed by private companies, like overnight package delivery. With all its special privileges and some expensive fancy-dance advertising, it can grab new business from the private sector. Remember, USPS is exempt from most taxes; it’s free from SEC financial-reporting requirements; it can borrow from the U.S. Treasury at favorable rates, and, most importantly, it milks the cash cow of a government-enforced monopoly on letter delivery.
Having a captive monopoly market means the USPS can cross-subsidize–that is, use profits from letter delivery to fund expansion into other lines of business. Normally this would be considered predatory monopolistic behavior, and illegal. But the postal service is exempt from antitrust law.
Consider the transformation plan’s bizarre phrasing: “At stake is the future of what has been, since this nation’s founding, the right of every American to send and receive mail.” It almost seems like the postal service thinks of itself as a constitutional right. Well, it’s not. Mail may have once been the glue that held our far-flung nation together, but newer technologies make such USPS posturing ludicrous today. Most Americans these days would be far more upset by interruptions in e-mail than in snail mail. Yet you never hear the argument that the government should be the only provider of Internet access.
Indeed, the Internet has contributed to the postal service’s long-term downward financial spiral, but USPS does not seem resolved to downsize its 800,000-strong workforce. “The Postal workforce is bigger than any two branches of the military combined. You could replace the Marines and the Army with postal workers, and you’d still have some mailmen left over,” says Tom Readmond, federal-affairs manager of Americans for Tax Reform.
To be completely fair, Postmaster General John Potter has made a significant belt-tightening effort. Under his leadership, USPS has eliminated more than 85,000 employees, which represents a reduction of more than 10 percent of the workforce since 1999. Most of this reduction was brought about not by layoffs, but through attrition; i.e., leaving posts vacant when workers retired.
But USPS is still massively oversized, and waste abounds. Forget about the Pentagon’s $600 toilet-seat covers. The average postal worker earns over 25 percent more than his private-sector, factory-worker counterpart. No wonder labor still accounts for two thirds of USPS costs, compared to about 50 percent at private delivery companies.
William Henderson, the U.S. postmaster general from 1998 to 2001, wrote upon leaving that “what the Postal Service needs now is nothing short of privatization.” He even recommended an employee stock-ownership plan that “would motivate workers by allocating stock to them over time.”
Across the Atlantic, such reforms are already underway. The European Union aims to privatize all its national postal services by 2009. Yet here, the U.S. postal service cries foul when it is faced with real market-based reforms.
Furthermore, declining mail volume, brought on by the e-mail revolution, has resulted in more than $4.5 billion in lost USPS revenue since 2000. And a long-term volume decline is just a small piece of the problem. Few Americans realize that the USPS already has accumulated over $70 billion in unfunded liabilities–mostly money promised to employees in retirement and health benefits. The USPS doesn’t have that money. Nobody knows how on earth it’s going to meet these liabilities.
But here’s a not-so-wild guess. Sooner or later, USPS will ask Congress for a massive bailout. If there were any point to saving the postal service in its current form, such a gift might even be worth a few taxpayer dollars. But there isn’t one. It would be throwing more good money after bad. The USPS is a drag on the government, on the economy, on the marketplace it unfairly distorts, and on consumers and taxpayers. It should be privatized without delay.
–Sam Ryan is a senior fellow at the Lexington Institute, a think tank based in Arlington, Virginia.