Washington is broke: why a monopoly government post office?
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Roughly 80 percent of the agency’s costs go to its workforce of more than 700,000, which trails only Wal-Mart in numbers. Postal employees enjoy staffing levels and wages set by a politically potent union rather than productivity in a competitive marketplace. Union contracts bar or restrict outsourcing, layoffs, part-time and contract work, and employee assignment outside of narrowly defined crafts. Hence an estimated wage premium of 30 percent. The average USPS salary is $83,500, which makes postal employees among the highest paid semi-skilled workers around. The problem may grow even worse as postal contracts with the four largest unions come up for renewal over the next two years.
There are 36,500 post offices in America, more than the combined number of Starbucks, McDonald’s, and Walgreens. Yet the average number of weekly postal customer visits was 600, one-tenth the average at Walgreens. Consequently roughly 26,000 of the post offices lose money.
Yet mail demand appears to be locked in a permanent decline. America’s population continues to rise, but the number of pieces of mail delivered was down 17 percent from 213 billion in 2006 to 177 billion in 2009. That number is expected to drop to 167 billion this year, the lowest since 1992, and 150 billion by 2020.
The USPS lost $1.4 billion last year. The red ink will be five times as great this year. And over the next decade Postmaster General John Potter predicts losses of $238 billion. The post office can’t borrow its way even out of immediate trouble, unless Congress lifts the current $15 billion loan limit, which will leave only about $2 billion in borrowing authority next year.
In short, warned a recent Government Accountability Office report: “USPS’s business model is not viable.”
IN MARCH THE USPS proposed ending Saturday delivery. But Ruth Goldway, chairman of the Postal Regulatory Commission, doubts that “they’re going to save as much money as they think they are.” Saturday delivery is one of the USPS’s “strategic advantages,” she opines, which means dropping that service might reduce mail volume. Yet one consultant hired by the post office proposed cutting mail delivery in half, from six to just three days a week.
USPS also wants Congress to eliminate the requirement to prefund retiree health care benefits. Most companies don’t even offer coverage for retirees, and virtually none provide such lavish benefits. Dropping the prefunding mandate likely would leave taxpayers paying the bill.
The postmaster general has come up with a number of other cost-saving ideas, but none would confront the government’s postal monopoly. And it is hard to know which steps make the most sense absent competition. Argued Dan Ortwerth, an analyst at Edward Jones: “If FedEx and UPS’s management team took over the Postal Service and were truly given free rein, man, I think they could probably do a lot to whip it into shape and take advantage of the Postal Service’s unique internal strength. But that is not how it is.”
Freer USPS management is not enough, however. The entire postal market should be set free.
Although most postal employees are horrified by the idea of shifting to market mail services, former postmaster general William Henderson disagrees: “Privatization may seem far-fetched, but it’s not.”
Admittedly, privatization still wouldn’t be easy given legacy costs and labor contracts. Nevertheless, this is the only realistic option. Observed the Washington Post: “If Congress gives management the tools it needs to meet the crisis, and if management uses them effectively — two big ifs, we admit — the Postal Service will have a chance to get its house in order and one day attract private capital, as European postal services have done.”
Despite its manifold failures, the postal system has its loyal defenders. The New York Times asserted: “all Americans should not have to rely solely on private businesses for anything as fundamental as mail delivery.” But why should they be forced to rely on the post office, which loses money while performing badly?
Indeed, in attempting to defend his health care “reform” proposal, President Barack Obama noted that “UPS and FedEx are doing just fine.” In contrast, “it’s the post office that’s always having problems.” So why preserve the latter’s monopoly?
“We intend to be around for decades and centuries to come,” Postmaster General Potter announced in March. Not likely, at least in the postal service’s current form. My Cato Institute colleague Tad DeHaven warned that “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.”
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