Tag: privatization

Thoughts on Five-Day Mail

The USPS has taken the first step toward reducing mail delivery to five days a week by sending a request to the Postal Regulatory Commission. However, it will be ultimately up to Congress whether or not Saturday delivery is eliminated.

The USPS, which is in a death spiral, views the elimination of Saturday mail delivery service as a step toward regaining its financial footing. Not surprisingly, the decision is proving controversial among some members of Congress.

Here’s a better idea: give Americans the freedom to choose the mail services they want by repealing the USPS monopoly. That way consumers and businesses could choose to provide and use mail services zero days a week or seven days a week.

Online movie rental services like Netflix offer a small example. A lot of folks time their Netflix rentals so that they have movies for Saturday night. Eliminating Saturday delivery will necessarily degrade the quality of online movie rental services that people are paying for. With competition, Netflix could offer Saturday (or even Sunday) delivery through a private alternative. Perhaps there would be a surcharge, but at least consumers would be allowed to make that choice.

Supporters of the government mail monopoly regularly cite their amazement that they can drop a letter in a mailbox and it will arrive unharmed in another mailbox clear across the country. As a $70 billion operation with the largest workforce in the country, I would hope the USPS can pull off such a feat.

I find it more impressive that I can go into a grocery store almost anywhere in the country and be met with an incalculable number of choices. Take Coke products for instance. I recently made a list of the various Coke products available to me at a local grocery store. The following is just a sample: regular Coke, Diet Coke, Caffeine-Free Coke, Diet Caffeine-free Coke, Coke Zero, Coke with Splenda, Coke with Lime, Coke with Lemon, and Diet Coke Plus. Don’t like Coke?  There’s a similar array of Pepsi products. Don’t like either? The grocery stores also offer pricier micro-brands with all sorts of unique flavors.

These choices reflect the awesome power of the market, which provides nearly all the goods and services people want without any direction from officials in Washington. It would interesting to see what sorts of innovations and products private mail deliverers would come up with if the government’s mail monopoly didn’t exist. Instead, Americans are stuck with a government operation whose floundering business model will require it to raise prices while simultaneously reducing its services. So much for freedom of choice.

Postmaster Indicates Need for Privatization

A recent Senate Appropriations subcommittee hearing on the U.S. Postal Service’s dire financial prospects found little enthusiasm for the USPS’s idea to eliminate Saturday mail service. Financial Services subcommittee chairman Sen. Richard Durbin (D-IL) said “serious questions need to be asked and answered,” and ranking member Sen. Susan Collins (R-ME) expressed concern that it would send the USPS into “a death spiral.”

The USPS is already in a death spiral due to changes in technology, high labor costs, and costly congressional mandates that have left it facing a projected $238 billion in losses over the next ten years. The USPS says dropping Saturday service would save the USPS $3 billion a year. However, the Postal Regulatory Commission believes the savings would be significantly smaller. Regardless, if the USPS stops Saturday service then private firms should be allowed to provide Saturday mail service.

Better yet, the USPS monopoly should be completely repealed and private firms allowed to deliver mail every day of the week. Interestingly, Postmaster General John Potter’s testimony inadvertently makes a case for privatizing the USPS.

Potter notes that when private businesses are losing money, they sell off assets, close locations, and reduce employment. He cites Sears, L.L. Bean, and Starbucks as recent examples of companies making cost cutting moves in the face of declining revenues. The Government Accountability Office’s testimony noted that the USPS has more retail outlets (36,500) than McDonalds, Starbucks, and Walgreens combined. Yet, its post offices average 600 visits per week, which is only 10 percent of Walgreen’s average weekly traffic.

In his testimony, Potter states:

If the Postal Service were provided with the flexibilities used by businesses in the marketplace to streamline their operations and reduce costs, we would become a more efficient and effective organization. Such a change would also allow us to more quickly adapt to meet the evolving needs, demands, and activities of our customers, now and in the future.

This is precisely why the USPS needs to be privatized and subjected to the demands of the market and not the whims of Congress. Members of congress always raise a fuss when the USPS targets postal outlets for closure in their districts.

Potter wants Congress to suspend a requirement that the USPS pre-fund its retiree health benefits. He argues that the trust fund for these payments has a $35 billion balance, which he says is enough to pay the health premiums for its 500,000 retirees through their lifetimes.

The more fundamental problem is the existence of this generous benefit to begin with. Potter notes that private companies aren’t subject to a pre-funding mandate. But the vast majority of private companies don’t even offer retiree health benefits. The GAO also points out that the USPS retiree benefits are generous even by government standards:

USPS pays a higher percentage of employee health benefit premiums than other federal agencies (80 percent versus 72 percent, respectively). In addition, USPS pays 100 percent of employee life insurance premiums, while other federal agencies pay about 33 percent.

Potter naturally wants more flexibility in dealing with the USPS’s excessive labor costs. The average postal employee receives $83,000 a year in total compensation. Employee pay and benefits constitute 80 percent of the USPS’s cost structure, which despite increased automation has remained the same since the 1960s. But so long as the USPS remains a government enterprise, it’s hard to imagine Congress standing up to the postal unions and giving management the labor flexibility it desires.

Finally, Potter wants the USPS to have more freedom when it comes to pricing and getting into new lines of business:

We also need the ability to expand our products and services, and ensure prices for our Market-Dominant products are based on the demand and cost of each individual product.

“Market-Dominant” is an Orwellian way of saying “Government Granted Monopoly.” Again, if the Postmaster wants mail prices to have an economic rationale, then the USPS needs to be privatized so that the market can efficiently set prices. Further, the USPS has a poor track record when it comes to expanding into services not protected by its monopoly. Plus it would be competing against the private sector on advantageous terms due to its status as a government enterprise.

What Potter wants – and needs – is something that only the private sector can provide. If the Senate hearing is any indication, Congress has no present plans to relinquish its control over the dying government monopoly. Instead, the USPS will likely continue to bleed red until policymakers run out of band-aids and are finally confronted with the choice of either privatization or direct taxpayer funding.

Federal Transportation Follies

The 2009 stimulus bill gave the U.S. Department of Transportation $50 billion to distribute to the states for highways, roads, and bridges. A House bill passed in December would add another $28 billion. According to Washington folklore, spending on infrastructure is always good because it’ll create jobs and spur economic growth. However, three recent examples are a reminder that the government often does a poor job of allocating resources.

First, an Alaska legislative audit concluded that the state should not have spent federal transportation money building a road to the site of the proposed “Bridge to Nowhere,” which was canceled after a national outcry. Alaska kept the federal money originally earmarked for the bridge, and then-Governor Sarah Palin agreed to spend $26 million of it on the road despite the fact there was no bridge.

Second, the Department of Transportation is supposed to exclude “unethical, dishonest, or otherwise irresponsible” parties from receiving federal funds. But according to a report from DOT’s inspector general, the average case took DOT officials “300 days to reach a suspension decision and over 400 days to reach a debarment decision.” For example, Kentucky awarded $24 million in transportation stimulus money to companies with officials under review by the Federal Highway Administration for bribery, theft, and obstruction of justice. The FHA took 10 months to review the companies before ultimately suspending them, but Kentucky had already given the companies the money.

Third, a Tennessee television station analyzed the state’s use of federal transportation stimulus money and found that it “spent an average of $161,500 per job created and that some paving jobs, which were temporary, cost taxpayers more than $1 million each.” The station interviewed a construction company that had been busy during the summer when it had federal money. Now its trucks are idle and the workers it hired have all been laid off.

Randal O’Toole says that “The best test of infrastructure value is whether users are willing to pay for it.” There’s almost no connection between infrastructure projects funded by federal taxpayers and the typically local users. Leaving infrastructure projects to state and local governments to fund would make more of a connection. Privatization, which would utilize tolling and other user fees, would be even better.

Federal Wages Fly High

Yahoo News is highlighting the story “10 Jobs With High Pay and Minimal Schooling.” Topping the list: air traffic controllers, who work for the federal government.

These workers make sure airplanes land and take off safely, and they typically top lists of this nature. The median 50% earned between $86,860-142,210, with good benefits. Air traffic controllers are eligible to retire at age 50 with 20 years of service, or after 25 years at any age.

Huge salaries and retirement after 20 years – sweet deal!

Air traffic controllers seem to provide a good illustration of my general claim that federal workers are overpaid.

I don’t know what the proper pay level for controllers is, but I do know that we should privatize the system, as Canada has, and let the market figure it out.

Why Chile Is More Economically Free Than the United States

42-16335429In the 2009 Economic Freedom of the World Report, Chile is now #5, one place ahead of the United States.

In 1975, of 72 countries, Chile was No 71. How did this happen? The explanation lies in what I call the “Chilean Revolution,” because it was as important and transformative to my country as the celebrated American Revolution that gave birth to the United States.

The exceptional political circumstances of this period have obscured the fact that from 1975 to 1989 a true revolution took place in Chile, involving a radical, comprehensive, and sustained move toward economic and political freedom (from a starting point where there was neither one nor the other). This revolution not only doubled Chile’s historic rate of economic growth (to an average of 7% a year, 84-98),  drastically reduced poverty (from 45% to 15%), and introduced several radical libertarian reforms that set the country on a path toward rapid development; but it also brought democracy, restored limited government, and established the rule of law.

In 1998, The Los Angeles Times described the importance of the Chilean Revolution to the world:

In a sense, it all began in Chile. In the early 1970s, Chile was one of the first economies in the developing world to test such concepts as deregulation of industries, privatization of state companies, freeing of prices from government control, and opening of the home market to imports. In 1981, Chile privatized its social-security system. Many of those ideas ultimately spread throughout Latin America and to the rest of the world. They are behind the reformation of Eastern Europe and the states of the former Soviet Union today… which demonstrates, once again, the awesome power of ideas.

The role and achievements of Chile’s team of classical liberal economists is well known. They were the ones who in 1975, once the quasi-civil war was over, decided to carry out a principled, “friendly takeover” of the military government that had arisen from the breakdown of democracy in 1973 (here is my essay, published in “Society”, on that drama). Much less well-known, however, is that they were also the foremost proponents of a gradual and constitutional return to a limited democracy.

In fact, on August 8, 1980, a new Constitution, containing both a bill of rights and a timeline for the restoration of full political freedom, was proposed and approved in a referendum. In the period 1981-1989, what Fareed Zakaria has called the “institutions of liberty” were created—an  independent Central Bank, a Constitutional Court, private television and universities, voting registration laws, etc—since they were crucial for having not only elections but a democracy at the service of freedom. Then on March 11, 1990, an extraordinary event happened: the governing military Junta surrendered its power to a democratically elected government in strict accordance to the 1980 Constitution (here is my note on the restoration of democracy in Chile).

Since 1990, Chile has had four moderate center-left governments and, despite minor setbacks on tax, labor and regulation policies, the essence of the free-market reforms are still intact. The 1980 Constitution is the law of the land, and has been amended by consensual agreements among all parties represented in Congress. Not only is Chile now at the top of rankings on free trade (number 3 in the world after Hong Kong and Singapore) and transparency (less corruption that in most western European countries), but it is expected to be a developed country by 2018, the first in Latin America.

Nobel Laureate Friedrich Hayek proved, again, to have been a visionary when he stated in 1981: “Chile is now a great success. The world shall come to regard the recovery of Chile as one of the great economic miracles of our time.”

British Economic Suicide

A Bloomberg story on one cause of the ongoing British economic disaster under Prime Minister Gordon Brown:

Andrew Wesbecher moved to London from New York in 2006 to sell software to banks and hedge funds. This month he joined the exodus of American expatriates fleeing high taxes and the city’s shrinking financial industry … Americans are heading home as Britain plans a 50 percent tax rate for those who earn more than 150,000 pounds ($248,000) a year and employers cut benefits for workers living abroad, reducing the allure of London. That comes a year after the U.K. said foreigners who have lived in the country for more than seven years must pay 30,000 pounds annually or give up the special status that shields overseas income from British taxes.

Since the 1980s, London has boomed as an international city open to the world’s entrepreneurs and their wealth, and perhaps home to more billionaires than any other city. The British economy as a whole has done quite well, pulled ahead by London and driven by a new free-market spirit in the wake of Margaret Thatcher’s privatization, deregulation, and tax cuts. Thatcher rightly argued that her cuts to income tax rates “provided a huge boost to incentives, particularly for those talented, internationally mobile people so essential to economic success.”  High tax rates at the top end were a “symbol of socialism” that she wanted to scrap.

Brown is killing the free-market goose that laid the golden eggs of Britain’s success. I really don’t understand the vision of such politicians – don’t they know what they are doing? I want people to be successful. I want entrepreneurs to create wealth. I love growing, vibrant cities.  Why do some people want to destroy all that?

Privatize the Post Office

Another day, another story on financial troubles at the federal government’s mail monopolist.  We don’t expect the government to make our blue jeans, transport fruits and veggies from the farm to the market, build computers and IPods, or manage the manufacturing of automobiles, so why must it continue to deliver first-class mail?  The quality of the USPS’s “services” has been a punchline in my family since I learned to walk.  But with technology rendering it’s clunky business model increasingly moot, Government Mail’s bottom line is looking uglier and uglier. It would cost me 44 cents to mail a letter to California, and it would cost me the same amount to mail that letter to the next town over.  What sense does that make?

As today’s editorial in the Washington Post leads off:

THE POST office may be the next too-big thing. If it continues on its present course, the U.S. Postal Service stands to post $6 billion to $12 billion in losses by the end of the fiscal year. By the end of the second quarter of fiscal 2009, it had racked up an operating loss of more than $2 billion, almost equal to its total losses last year. So far, the Postal Service has depended on loans from the Federal Financing Bank, a federal borrowing agency, to help make up the difference, but it is fast approaching its $15 billion credit limit. Something has to give.

Kudos to the Washington Post for proceeding to acknowledge that the rest of the western world has been trending toward privatization of it’s government mail monopolies for years.  My colleague Chris Edwards recently touched on the issue of privatizing the USPS as part of a larger piece on privatizing a plethora of federal operations:

The mammoth 685,000-person U.S. Postal Service is facing declining mail volume and rising costs. The way ahead is to privatize the USPS and repeal the company’s legal monopoly over first-class mail. Reforms in other countries show that there is no good reason for the current mail monopoly. Since 1998, New Zealand’s postal market has been open to private competition, with the result that postage rates have fallen and labor productivity at New Zealand Post has risen. Germany’s Deutsche Post was partly privatized in 2000, and the company has improved productivity and expanded into new businesses. Postal services have also been privatized or opened to competition in Belgium, Britain, Denmark, Finland, the Netherlands, and Sweden. Japan is moving ahead with postal service privatization, and the European Union is planning to open postal services to competition in all its 27 member nations.