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Postal Ploy: "Give Us Your Money or Don't Get Your Mail!"

by Edward L. Hudgins

This article appeared on cato.org on April 7, 2001.

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The U.S. Postal Service (USPS) recently announced that it might cancel Saturday mail delivery in light of a projected $2 billion to $3 billion deficit over the next year. This plan is a political ploy to obtain another increase in stamp prices only months after the last one.

This scheme should be a wake-up call to the public and policy makers. The time has come for this government monopoly to go private and compete for its customers the way any other enterprise must.

The latest USPS plan should strike one as strange. If a private company were running huge deficits and its business was stagnating, would it raise prices to its customers and cut back on its services? Of course not. Such a strategy would drive away customers and hasten the company’s demise. But the Postal Service in the short run doesn’t worry about driving away customers. It’s a government monopoly. You can’t switch to another postal service the way you can switch to another e-mail service.

Normally, a business faced with a deficit would try to hold down costs and use labor more efficiently. But the Postal Service, with $65 billion in revenues annually, has problems doing this because of its rigid labor regime. When the U.S. Postal Service was organized out of the old Postal Office Department in 1970, about 80 percent of revenues went to cover labor costs. Today, after billions of dollars of investments in new high-tech equipment, nearly 80 percent of costs are still for labor. Further, over the past decade the Postal Service has had significant increases in manpower. So because the USPS has trouble controlling its own labor costs, it raises prices and cuts services to customers. On this latter point, remember: We used to have two mail deliveries per day and new homes used to get mail boxes at the door rather than cluster boxes at the road.

What’s worse, postal workers can’t be used efficiently to serve consumers. Consider: You walk into a post office. There’s a long line of customers and only two windows open for service. If it were a grocery store the manager likely would page some stock clerks to open up more registers. But in the post office, because of inflexible work rules, it’s often impossible for a manager to tell workers in the back room to put down their coffee cups and get out there and serve customers.

The Postal Service wants to generate more revenue by offering new e-commerce services, online security, and coordination of business orders, shipping, billing and inventory. But this is inherently unfair competition with private companies. The USPS pays no taxes. It can borrow from the Treasury. It is exempt from most government regulations under which private businesses must operate and exempt from many of the safeguards that protect us from abuses by government agencies.

Perhaps worst of all, the Postal Service has regulatory authority that it uses against competitors. For example, recently it imposed costly new regulations on private mailbox companies, driving many customers away from those enterprises.

In the long run people will find ways to avoid using the USPS. An exception to its monopoly allows private companies to carry emergency mail for next day delivery, though at government-mandated high prices. The result: 90 percent of overnight mail goes by private carrier. Now the USPS is contracting out to Federal Express to carry USPS express mail. Further, more people will be paying bills electronically over the next decade, reducing USPS revenues by some $15 billion.

Postmaster General William Henderson recently told Congress that America has a third-world postal service compared with many European countries. Then perhaps we should copy Germany’s Deutsche Post, which has been reorganized and put under private management. It recently made an initial public offering of stock. Later this decade its monopoly will be repealed.

A private Postal Service, without special privileges, would have an incentive to operate efficiently and to offer innovative services that profit its stockholders, provide opportunities for its workers, and give customers the best service for the best prices.