The U.S. government is effectively bankrupt. This year’s deficit
is $1.3 trillion, the national debt is $13.5 trillion, and the
unfunded liabilities for Social Security and Medicare likely exceed
$100 trillion.
Unfortunately, the U.S. Postal Service also is effectively
bankrupt. The USPS expects to lose about $7 billion this year. The
post office already has borrowed roughly $13 billion from Uncle
Sam. At the end of 2009 USPS had $33.5 billion in outstanding
liabilities and another $54.8 billion in unfunded retiree health
and pension obligations.
In early July the post office, which can hike rates on its
own if the increase doesn’t exceed the inflation rate, filed for a
special increase of two cents for first class mail and varying
increases for other services with the Postal Regulatory Commission.
The commission rejected the hike in September, ruling that the
Postal Service’s problems were structural, rather than a result of
the recession. In any case, raising rates won’t save the Postal
System.
The USPS is in crisis. It is locked in a declining market.
It can only survive with indirect taxpayer subsidies and a ban on
private competition. Instead of forcing Americans to pay more for
less service, Congress should open mail delivery to all
comers.
The Constitution authorizes Congress “To establish Post
Offices.” But Congress is not required to institute government mail
delivery, let alone a public mail monopoly. Today there is
competition only in packages and urgent delivery. For regular mail,
you must use the USPS, or else.
In 1844, for instance, the noted libertarian Lysander
Spooner set up a low cost delivery service among Boston, New York,
Philadelphia, and Baltimore. Congress responded by imposing fines
on private mail carriers. More recently the post office threatened
to sue Boy Scouts who proposed delivering Christmas cards during
the holidays. When the USPS learned of companies sending
international mail abroad with traveling employees, it demanded
payment for services not rendered.
All the while postal rates steadily rose, more than 50
percent faster than the rate of inflation. A first class stamp
today would cost 27 cents rather than 44 cents had rates merely
matched the inflation rate since 1960. In contrast, bulk mailers
enjoy artificially low rates due to the political clout of these
businesses.
The post office also takes care of its own. In September
came revelations of no-bid contracts to former postal executives
for “knowledge transfer.” One former vice president received a
$260,000 contract to talk to the man who replaced him.
In short, the post office has a “customer last”
philosophy. Americans exist for the postal service, not the other
way around.
Whatever the theoretical arguments for a public mail
monopoly in the past, they have been superseded by a rapidly
changing marketplace. Opening the postal marketplace to competitive
innovation would not be as radical as some might think. Years ago
Australia, Germany, Finland, the Netherlands, New Zealand, and
Sweden liberalized their postal regimes. The result, reported the
OECD, was “quality of service improvements, increases in
profitability, increases in employment and real reductions in
prices.” Since then the European Union has pushed continent-wide
liberalization, especially by reducing the forms of mail “reserved”
to government operations. By the start of next year most EU members
must open their markets to competition; newer member states have
until the end of 2012.
There are almost as many models as countries. New Zealand
and Sweden have competing postal operators. Finland also has
dropped the national monopoly. Spain’s Correos y Telegrafos faces
private competition in many areas, including letters within cities.
The Netherlands privatized its postal service in 1994 and fully
liberalized its delivery market last year. So has Germany, though
the government remains a significant shareholder in Deutsche Post.
In Great Britain deregulation began in 2000; the Royal Mail still
delivers most mail but the market has been fully opened and private
operators are increasingly providing delivery
services.
Russia dropped its state monopoly in 1996, though Pochta
Rossii continues to handle the bulk of mail. Indonesia officially
followed suit last year; private companies had long ignored
state-owned Pos Indonesia’s monopoly. Israel allows competition to
Israel Post, though the latter receives government subsidies.
Austria and Belgium have partially privatized their postal
operations; the former also has been reducing categories of mail
reserved for state delivery. Poland similarly has limited the scope
of the state monopoly. Bulgaria, the Czech Republic, Estonia, and
Romania all are considering allowing postal competition. Even
Greece plans partial privatization of the national post.
At the same time, the USPS has run out of
options.
In 1970 Congress set the post office on its nominally
independent course. However, the system remained bounded by
regulations, cushioned by subsidies, and protected by its monopoly.
In particular, USPS is exempt from taxes, regulations, and even
parking tickets. Nevertheless, since 1971 the post office has lost
money in 24 of 38 years. Starting in 2007 the bottom fell out of
the postal system’s finances. Reports the GAO: “Given its financial
problems and outlook, USPS cannot support its current level of
service and operations.”
Retiree health costs continue to rise, but that problem
afflicts many companies. More important, notes
economist William F. Shughart, are “[g]enerous salaries for
Postal Service employees, restrictive work rules negotiated by the
labor unions that represent them, the continued operation of
thousands of obsolete, small-town post offices and failure to adapt
to a world in which people communicate by email rather than by
first-class mail and pay their bills online.…”
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.”
But bankrupt Uncle Sam has no money for a postal bail-out.
Only privatization is a realistic option. We need real change that
we can believe in.
