Commentary

Privatize the Postal Service

By Edward L. Hudgins
June 6, 2001
Dear Mr. Potter:

Congratulations on your appointment as the next postmaster general. You take the job at the most critical time in the history of the U.S. Postal Service. And you have an opportunity to be a true American hero, to change the USPS from a money-losing and maligned monopoly established in the 19th century into an efficient, innovative private company providing 21st-century services.

As a 23-year postal-service veteran, you know better than anyone that even with a monopoly on first- and third- class mail, the organization you head faces competition from express carriers, faxes, e-mail and the Internet. First-class mail, the major USPS cash cow, is stagnant. More people in the future will be paying bills electronically, further reducing postal revenues. The postal service will lose more than a billion dollars every year for at least the next decade.

You know that in spite of billions of dollars of investments in high-tech equipment, postal service productivity has risen barely 12 percent over the past three decades. You know that the dysfunctional labor regime makes the efficient use of workers difficult, and cost cutting even tougher. You know that good managers are frustrated by restrictions on their authority to cope with bad workers. You also know that good workers are frustrated by bad managers and by slacker colleagues who place a greater burden on their shoulders. What’s more, you know that customers are frustrated by rising rates, long lines at the post office, and the threat of reduced service.

You know that the postal service’s attempts to generate new revenues by offering new e-commerce and electronic services face two problems: The USPS often loses money on such ventures; and those ventures are inherently unfair to private providers because the USPS pays no taxes, is exempt from most regulations that burden those providers, and has regulatory authority that it can use again its competitors.

So why not do the right thing? Announce that you want to manage the transition of the U.S. Postal Service from a government monopoly to a private enterprise.

Think about it. As a privately owned company the postal service will have the flexibility to manage costs and employ workers to provide efficient, cutting-edge, integrated delivery and communications services. Also, as a business that must compete for customers and satisfy shareholders, the postal service no doubt would experiment with new services. For example, since the 1970s it has used cluster or roadside mailboxes for new dwellings rather than boxes at the door. Perhaps some people would pay a little more so that grandma doesn’t have to walk two blocks through the rain or snow just to retrieve her mail.

Owners of local post-office franchises might make creative uses of mail trucks during typically idle evening hours, perhaps delivering groceries or other items for local merchants. Those trucks are capital, and if they can generate more revenue and jobs while providing services to customers, everybody benefits.

So what about the nearly 900,000 workers fearing lay-offs? Well, Deutsche Post in Germany has reduced its labor force by one third over a decade, mainly through attrition and early retirement, before making a stock offering to the public as it embarked toward privatization. But large reductions might not be necessary. Five years ago AT&T planned to lay off 40,000 workers (in the end it didn’t). But of more interest was job creation in other telecommunications enterprises and sectors over the prior decade: MCI grew from 12,000 to 48,000, Sprint from 27,000 to 52,000, the number of cable operators and programmers from 24,000 to 112,000. You get the point. In a dynamic sector new job creation dwarfs job losses in any particular enterprise.

As postmaster general you should tell the administration and Congress that it’s not a question of “whether” to privatize but “how.” The German model is a good one. Perhaps you could emphasize an employee stock-ownership option to give workers a stake in the private postal service.

The crisis at the postal service will only grow worse in the future. Wait and the task will be tougher. Start now and you could create a dynamic 21st-century company and serve as an example of an entrepreneur working for customers and shareholders—rather than as a bureaucrat protecting the turf of a dinosaur.

Edward L. Hudgins is director of regulatory policy studies.