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A Holiday Gift: Post Office Going Private?

by Edward L. Hudgins

This article appeared on cato.org on December 23, 2000.

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The holidays inevitably mean crowded post offices. But as you wait in that line, inching along at a snail's pace with cards and packages to mail to friends and family, take heart: Economic forces are quietly but inexorably pushing the U.S. Postal Service (USPS) toward privatization.

No, your friendly letter carrier is not going to disappear. But those long lines at the post office might as the last great federal monopoly is forced to earn the patronage of its customers.

The Postal Service, the largest civilian government agency, has a monopoly on the delivery of first- and third-class mail and the use of mailboxes. In the past, a lack of competition gave it little incentive to provide consistently good service while holding down its prices. Today urgent communications can be sent via a local messenger on a bike or a Federal Express jet. Private carriers now handle some 90 percent of overnight deliveries. Faxes, e-mails and the Internet have reduced the need to put a stamp on an envelope to transfer documents from here to there. And companies like Mail Boxes, Etc. offer private alternatives to government P.O. boxes. Unlike post offices, they have longer hours, accept deliveries from private carriers, and offer many processing and shipping services.

A General Accounting Office study has confirmed the fears of many postal officials. Over the next decade annual USPS revenues, currently at nearly $65 billion, will decline by as much as $15 billion as more people pay bills electronically. That will mean fewer "the check is in the mail" excuses as well as less income for the USPS.

The Postal Service wants to offer new business and e-commerce services to obtain needed revenue. It wants to offer e-mail and online security services and to coordinate business orders, shipping, billing and inventory. It is even discussing alliances with rivals such as Federal Express and Mail Boxes, Etc. These are the sorts of plans one would expect from any good entrepreneur.

But the USPS' expansion into new markets threatens private-sector providers because the Postal Service enjoys unfair government-established advantages. The USPS pays no federal, state or local taxes. It can borrow from the Treasury, and if its new business ventures fail, it can make up losses with higher stamp prices. In addition to being exempt from most government regulations under which private businesses must operate, the USPS is exempt from many of the constraints to which other government agencies are subject, even though it is government entity. Perhaps worst of all, the Postal Service enjoys regulatory authority that it uses against competitors. For example, recently it has imposed costly new regulations on private mailbox companies, driving many customers away from those enterprises.

Such actions suggest inevitable clashes between private companies offering innovative e-commerce services and the Postal Service with all of its special privileges and powers. But while its advantages might harm its competitors, they do not help the USPS overcome its inherent structural problems. For example, it has an inflexible labor regime that prevents managers from ordering those postal workers drinking coffee in the back room to go out and help customers. Labor accounts for about 80 percent of USPS costs, the same portion as 30 years ago, despite the introduction of new, laborsaving equipment.

Postal agencies in other countries recognize that e-mail, the Internet and private delivery companies make monopoly mail carriers obsolete. New Zealand and Sweden have lifted their mail monopolies. The largest mail carrier in Europe, Germany's Deutsche Post, has been reorganized as a joint-stock company under private management. It offers competitive services subject to the same taxes and regulations as private competitors. It recently made an initial public offering of stock. In 2003, its monopoly will be repealed.

The communications and information revolution will not eliminate the need for the physical deliveries of products, as all Amazon.com and ebay users know. It will require a more diversified and flexible delivery system.

The United States should not move into the 21st century hindered by postal service born in the 18th, operating on a monopoly model established in the 19th, and found wanting in the 20th. Only if the U.S. Postal Service goes private will we receive efficient mail at the millennium.