Commentary

Toward a Solvent U.S. Postal System

By Tad DeHaven
This article appeared on Forbes.com on October 10, 2011.

Recent history shows that government efforts to micromanage industry range from unnecessary to disastrous — be it green energy, car makers, the housing market. Small wonder, then, that the government has so drastically mismanaged its own “business”: the United States Postal Service.

When the government decided to replace the Post Office Department with the U.S. Postal Service in 1971, it exchanged a taxpayer-dependent bureaucracy with a government-owned business that was supposed to rely on the sale of postage, mail products, and services for revenue. In order to subsist without taxpayer support and still meet its obligation to provide the American public with “universal service,” Congress grants the USPS a statutory monopoly on the delivery of first-class and standard (“junk”) mail. However, policymakers should end the monopoly and put the USPS on the path toward privatization.

Private enterprise has already figured out a way around the monopoly: electronic communication. Email, online bill paying, and texting have irrevocably decreased the demand for the USPS’s financial lifeblood — first-class mail. Indeed, the USPS projects that mail volume is in permanent decline.

Forty years after the Post Office was turned into a government business, it’s time for Washington to take the next step: privatization.”

It doesn’t take a futurist to foresee what that means for government-run mail. One could argue that the future is now, given that the USPS is projected to lose as much as of $10 billion this year and max out its $15 billion line of credit with the U.S. Treasury.

The USPS has cut costs, but the savings haven’t been enough to overcome the plunge in revenues. It’s supposed to operate like a business, but it ultimately answers to politicians rather than shareholders. As a result, the USPS is hopelessly hamstrung by parochial-minded politicians who, for example, fight attempts to close postal facilities in their districts.

Politicians are also susceptible to influence from special interests. For the USPS, that means the postal unions. That’s a problem because the USPS’s predominantly unionized workforce accounts for roughly 80% of the agency’s costs. Collective-bargaining agreements provide pay and benefits that are generous even by federal employee standards. Union contracts also make it difficult for management to lay-off workers and utilize part-time employees. For example, while only 13% of the USPS’s workforce is part-time, the figures for UPS and FedEx are a respective 53% and 40%.

The unions’ influence is apparent in postal reform legislation now in Congress—particularly the “United States Postal Service Pension Obligation Recalculation and Restoration Act of 2011,” which has 216 co-sponsors. The bill would transfer approximately $50-$75 billion in alleged pension “overpayments” made by the USPS to the federal government’s retirement system. Transferring funds from the government to the USPS would be a massive taxpayer bailout.

With one or two exceptions that do not stick it to taxpayers, the other prominent postal reform bills also count on transfers from taxpayers to the USPS. Some contain adjustments that would reduce costs, such as shortening mail delivery to five days a week, but those proposed changes are only band aids given the dim prospects for mail volume.

Forty years after the Post Office was turned into a government business, it’s time for Washington to take the next step: privatization. Otherwise, taxpayers could ultimately find themselves back on the budgetary hook for USPS operations.

While some consider “privatization” to be a dirty word, countries around the globe have been successfully subjecting their former state-run postal monopolies to market forces for years. For example, 69% of Germany’s formerly government owned post office Deutsche Post is now privately owned. The Netherlands’ TNT Post is completely privately owned. And the European Union intends to eliminate the national monopolies of all E.U. member states.

Following his retirement in 2001, former Postmaster General William J. Henderson acknowledged the global trend and concluded that “what the Postal Service needs now is nothing short of privatization.” And although he didn’t use the “p” word, current Postmaster General Patrick Donahoe recently asked Congress to let the USPS operate more like a private business.

The Constitution only says that Congress shall have the power “to establish Post Offices and post Roads.” That doesn’t mean the government has to be involved, let alone be granted a monopoly over mail. Prior to the Postal Act of 1863, intercity letters were either held at the destination post office for pick-up or delivered by an independent contractor. Indeed, it was private carriers who first introduced adhesive postage stamps in America.

What would a privatized postal market look like? That’s the beauty of a free market — freed from the government’s one-size-fits all model, a new system would unfold through the interaction of postal customers and providers. Freeing America’s postal market offers the potential for significant consumer benefits because entrepreneurs have the strongest incentives to innovate, improve quality and reduce costs. It’s modern-day American innovators like Google’s Larry Page and Sergey Brin and Facebook’s Mark Zuckerberg who are making electronic communication a cheaper and faster alternative to snail mail. The next great postal innovation is more likely to come from an entrepreneur rather than a government employee.

Before that can happen however, Congress needs to at least commission studies on what it would take to prepare the USPS for privatization, as nobody in the private sector would touch it in its current state with a ten-foot-pole. But the choice is becoming clear: Congress can unleash the American entrepreneurial spirit on the mails or it can force taxpayers to bail out its lack of foresight and imagination.

Tad DeHaven is a budget analyst at the Cato Institute and co-editor of Downsizing Government.org.