>This bill calls for the privatization of the postal service.
Financial crisis. The postal service is facing a financial crisis and a solution needs to be found.
Poor management. The postal service is poorly managed and governed by Congress.
Solutions. Privatization allows the service to cut costs and innovate.
National unity/history. The postal service has a strong history and unifies the US.
Quality work. The postal service treats its workers well, providing a fair wage and retirement.
Five Charts Show the Grim Financial Condition of the U.S. Postal Service (2019). Last year, the U.S. Postal Service (USPS) ran a deficit of $3.9 billion. Unfortunately, losses are the rule rather than the exception for the agency. All this red ink has flowed despite USPS’s aggressive move into the parcel delivery business. These five charts depict the immensity of USPS’s financial challenges.
Then there is the Postal Accountability and Enhancement Act of 2006(PAEA), which some have taken to calling “the most insane law” ever passed by Congress. The law requires the Postal Service, which receives no taxpayer subsidies, to prefund its retirees’ health benefits up to the year 2056. This is a $5 billion per year cost; it is a requirement that no other entity, private or public, has to make. If that doesn’t meet the definition of insanity, I don’t know what does. Without this obligation, the Post Office actually turns a profit. Some have called this a “manufactured crisis.” It’s also significant that lots of companies benefit from a burden that makes the USPS less competitive; these same companies might also would benefit from full USPS privatization, a goal that has been pushed by several conservative think tanks for years.
Paying retiree obligations isn’t the issue here; rather, being singled out as the only company with a congressional requirement to fully fund those obligations is. It puts the USPS at a huge competitive disadvantage. Yes, a retirement crisis is brewing; most private-sector pensions are wildly underfunded. But the solution is to mandate that ALL companies cover a higher percentage of their future obligations — not just one entity.
What about lobbying Congress for changes to these rules? Unlike private-sector entities, the Postal Service is barred from lobbying. Similar restrictions do not apply to FedEx or UPS or other carriers.
Perhaps it helps to think of the USPS as two separate entities co-existing together: On one side is the congressionally mandated operation that delivers letters everywhere in the country. This is the side that helped knit together the far-flung cities, towns and settlements that defined the U.S. at the time of the nation’s founding. The modern innovations of email, texts and the internet helped turn this into a money-losing business.
The other side of the USPS is the parcel-delivery service, which is profitable. It both competes with, and provides services to, private-sector delivery businesses.
Indeed, both UPS and FedEx contract with USPS to perform so-called last-mile delivery for their rural and most-expensive routes. They leverage the existing infrastructure of USPS to provide services for their client base without having to build that same costly last-mile infrastructure for letters and parcels. Effectively, they arbitrage what would otherwise be low-margin or unprofitable deliveries.
The problem for the USPS isn’t the packages from the likes of Amazon, but rather, the rest of the Post Office’s mandate. In its annual report, the USPS noted that 2017 saw “mail volumes declined by approximately 5.0 billion pieces, or 3.6 percent, while package volumes grew by 589 million pieces, or 11.4 percent.” Amazon and other internet retailers are a source of profitable deliveries for the post office; the relationship is in no way a subsidy for the retailers. Incidentally, the PAEA bars the Post Office from pricing parcel delivery below-cost.
The Postal Service will run out of cash in five years. Postmaster General Megan Brennan shared this alarming news in her testimony before the House Oversight and Government Reform Committee earlier this month. The immediate consequence of such insolvency of the agency would be that the largest postal system in the world, which moves 150 billion pieces of mail every year, would be dead in the water. This is something that has never occurred during the long and storied history of the Postal Service.
If you think these primary effects would be devastating, the secondary effects would be catastrophic. More than 500,000 postal workers would be without wages. Magazine companies, which send millions of glossies each month, would have to find local deliverers. Retailers that sell through catalogs would see their main advertising medium vanish. The paper and printing companies that they work with would see their revenues plunge. Prescription drug deliveries would be disrupted as health care companies scramble to find alternate means. Jury summons, voting materials, ballots for our troops overseas, and international shipments would stop flowing.
Postal Service in Crisis (2019). What’s the solution? I testified to Congress that the USPS should be privatized and postal markets opened to competition. Those reforms would give the USPS the flexibility it needs to cut costs, diversify, and innovate, while creating equal tax and regulatory treatment of businesses across postal and package markets.
Privatize the US Postal Service before it collapses (2018). The Postal Service is a large government agency America uses to deliver catalogues we never ordered. It’s hemorrhaging money, and whenever it comes up with solutions to stay relevant in an age of free, instantaneous communication, Congress reliably jumps in to scuttle reform. The best way to fix the Postal Service isn’t to keep it tethered to bureaucrats afraid of change or unions. It’s to privatize it. Our technocrat friends over in Europe have been doing just this, selling off large chunks of calcified government for decades. In 1995 Germany privatized Deutsche Post. The Dutch, Belgians, and Austrians have privatized their own postal services, with respective governments retaining some of the stock. Between 2013 and 2015 the British sold off the Royal Mail and its iconic red wall boxes, ending five centuries of public ownership. The mail still gets delivered.
The Postal Service Should Go… Now (2012). There’s no doubt that postal privatization can work. At least two small countries, the Netherlands and New Zealand, have actually turned mail delivery over to entirely private firms with no real loss in service quality although both did see large numbers of post offices close. Other countries like Germany UK, Sweden and Israel have also moved towards privatization in various ways. Almost all developed countries — even heavily regulated places like France — now allow more competition for mail delivery than the United States. Useless is a strong word but, quite fairly, it can and does apply to the Postal Service. The bulk of the revenue comes from comes from monopolies it has on magazines, junk mail, and first class mail. (The later, under current service standards, won’t be delivered overnight to most addresses any after this year.) None of these things are necessary for the overwhelming majority of people: almost all written personal messages get delivered by e-mail, well over two-thirds of bills and all sizable magazines now have pretty good tablet editions. As for junk mail, well, what possible conception of the public interest indicates that it’s desirable to get unwanted, paper-wasting advertisements all the time?
Abolish the Postal Service (2013)
But there is another aspect to this: the monopoly aspect. The Postal Service uses the law to protect itself from competition. That is, if someone in the private sector seeks to compete against the Postal Service, the federal government will shut down that competitor immediately, owing to the special status that the Postal Service has as a monopolist.
In other words, it’s theoretically possible for the government to own and operate an enterprise that competes against similar types of businesses in the private sector. That’s objectionable under anti-socialism principles.
But the federal government has done more than that with the Postal Service. It’s has provided the Postal Service with an exalted position by granting it monopoly status — a status that protects this government enterprise from competition from the private sector.
Thus, one option is simply to abolish the Postal Service and completely open up the delivery of first-class mail to the private sector. That’s the preferred option, given that government has no business running an enterprise that rightfully belongs in the private sector.
The second option is to leave the Postal Service in existence and just repeal its monopoly status. That would enable private businesses to enter into competition with the Postal Service. Of course, for all practical purposes, this would probably bring about a quick end to the Postal Service, given the fact that private firms would most likely run it out of business very quickly.
Government-owned economic enterprises have no place in a free society and an economic system based on private property, free enterprise, and free markets. And neither do monopolies. It’s time to put the Postal Service out of its misery. It’s time to rid our nation of this huge socialist albatross and its privileged, monopolistic status in American society.
Instead, Congress should open the postal marketplace to competition and innovation. The idea only seems radical in the U.S. In recent years Australia, Finland, Germany, Great Britain, Indonesia, Israel, the Netherlands, New Zealand, Russia, Spain, and Sweden all liberalized their postal regimes. Some have dropped the government monopoly, allowed competition, privatized government operations, or adopted more limited steps. Indeed, the European Union has forced its members to open their markets.
The Organization for Economic Co-operation and Development concluded that such reforms had yielded “quality of service improvements, increases in profitability, increases in employment and real reductions in prices.” In yet another area the supposedly laissez-faire U.S. lags behind “socialist” Europe in market innovation.
Undoubtedly the Obama administration will support the option which preserves the largest role for government at the greatest cost. Yet even President Barack Obama knows better. He once acknowledged that “UPS and FedEx FDX +0% are doing just fine.” In contrast, he observed, “it’s the post office that’s always having problems.” Indeed.
Three years ago Postmaster General John Potter defiantly insisted: “We intend to be around for decades and centuries to come.” But monopoly won’t be enough to save USPS. The Postal Service is locked in a death spiral of more losses, poorer service, fewer customers, more losses. The system needs money, lots of it. However, Uncle Sam has none to give. The only answer is to turn mail delivery over to market competition.
Congress should privatize the USPS, repeal its legal monopolies, and give the company the flexibility it needs to innovate and reduce costs. Those reforms would give entrepreneurs a chance to improve America’s postal services. In 1979, when the USPS- under political pressure-lifted its monopoly over “extremely urgent” mail, we saw the growth of innovative private delivery firms such as Fed Ex.
Instead of privatization, some USPS supporters want the company to expand into banking, payday loans, grocery delivery, and other activities. But rather than solving any problems, such expansions would create more distortions. The USPS would have to find activities where it could earn above-normal profits to funnel excess cash back to support the mail system. But it is unlikely that a government agency-if not subsidized-could out-compete private firms in other industries. Past USPS forays into non-mail areas, such as electronic bill paying, ended in failure.12 And if the USPS used its government advantages to undercut private firms, it would be both distortionary and unfair.
In a 2015 study, economist Robert Shapiro found that the USPS raises prices on its monopoly products and uses those revenues to subsidize express mail and package delivery.13 This works because consumers are less price sensitive for the monopoly products than for the competitive products. Shapiro estimates that these cross-subsidies are $3 billion or more a year.
For Fed Ex, UPS, and other private firms, however, this is unfair because-unlike USPS-they have to pay taxes, borrow at market rates, and follow all the normal business laws and regulations. Shapiro thinks that “without its subsidies, [the USPS] probably could not compete at all” against these more nimble private firms.14
These problems are difficult to solve under the current postal structure because the USPS hides the cross-subsidies in its books by attributing a large share of costs to overhead.15 So a benefit of privatization and open competition would be to increase transparency in postal finances and pricing, and to end the cross-subsidies.
Policy experts are coming around to the need for major reforms. Economist Robert Atkinson proposed that the USPS focus on delivering the “final mile” to homes, while opening collection, transportation, and the processing of mail to competition.16 Elaine Kamarck of the Brookings Institution has also proposed partial privatization.17 She would split the USPS into a government piece that fulfills the “universal service mandate” for delivering mail to every address, and a privatized piece that would compete with other firms for activities such as collecting mail.
The Atkinson and Kamarck proposals move in the right direction, but foreign reforms show that full privatization is both feasible and consistent with universal service. In Germany, Britain, and the Netherlands, the dominant firms continue to provide universal service. Postal companies have a strong incentive to provide universal service because, as a network industry, the value to customers of the service increases the more addresses that are served.
USPS supporters fear that rural areas would be left out unless the government required universal service. But economist Richard Geddes argues that is probably not the case.18Rural post routes can be as cost-effective to serve as urban routes because rural letter carriers stay in their trucks and use roadside boxes, whereas urban letter carriers often walk their routes.
Looking at nations that have privatized or opened their postal systems to competition, economists Robert Carbaugh and Thomas Tenerelli found that rather than the price increases and service reductions that some people fear, “liberalizing countries have shown the ability to offer affordable, reliable, universal, and increasingly efficient postal-delivery services.”19
U.S. policymakers should be more flexible with the idea of “universal service.” For example, if delivery was reduced from six days a week to every second day, it would allow USPS to slash its massive fleet of 211,000 vehicles, which would reduce both costs and energy consumption. Other countries interpret universal service more narrowly than we do-some countries have cluster boxes for communities, some exclude bulk mail from universal service requirements, and some allow more flexibility in pricing.20
All that said, a universal service obligation for paper mail is not needed in the modern economy. Electronic communications bind the country together without it. Household-to-household personal letters have plunged to just 3 percent of total mail volume today.21Advertising represents 60 percent of the entire household mail volume. Bills and other business statements are the second largest type of mail, but these are being replaced by electronic payments, which now account for 63 percent of all bill payments.22
Essentially then, Congress imposes a rigid monopoly on the nation so that we can continue to receive mainly “junk mail” in our mailboxes six days a week. But there are 205 billion emails blasted around the planet every day, so it makes little sense to retain special protections for the government’s old-fashioned paper delivery system.23
DO WE NEED A POSTAL SERVICE? (2015)
We should be so lucky. Postal service has been absolutely central to the history and development of the United States, and the USPS continues to provide fast and efficient service despite being beset by enormous problems. If everything worked as well as the Post Office — and there’s certainly room for improvement — this country would be a much better place.
The Post Office is by far the oldest federal agency in America, and the only one explicitly authorized in the Constitution. As Winifred Gallagher writes in her delightful history How the Post Office Created America, its main architect was none other than Benjamin Franklin, who had been heavily involved in the earlier colonial postal service. On the orders of the Continental Congress, he built up its first iteration as part of the Revolutionary War effort.
Today the nation relies on a vast mailing industry that operates primarily for profit. But that network is underpinned by the U.S. Postal Service — a self-supporting quasi-corporate government agency that remains committed to universal service by constitutional and congressional mandate.Many Americans may not realize that it was the Post Office that pioneered parcel post in 1916 in response to the overpriced, poor, and inconsistent service disaster that was private package delivery. Or that the USPS came up with the concept of overnight mail and zip codes that UPS and FedEx rely on so heavily in their business.
Many don’t make the connection that e-commerce not only competes with but also generates U.S. mail. Or that during the turn of this century — the Postal Service’s peak years of revenue and mail handling — it was common to hear competitors and political ideologues calling for the agency’s privatization, while at the same time blocking USPS innovations like the proposed 1997 Global Postal Link program to help expedite parcels through customs.
Or that the post office is the victim of an artificial deficit created by the 2006 Postal Accountability and Enhancement Act, signed by President George W. Bush, which forces the Postal Service to pre-fund its retiree health benefits 75 years into the future over the next 10 years. What should have been annual revenue surpluses for the Postal Service over the last decade have instead contributed to nightmare annual deficits as it is forced to pay $5.5 billion a year out of operating funds to satisfy this unnecessary and devastating mandate. .We lose more than numbers when we lose postal jobs and post offices, or even the existence of a universal postal service. We lose more than just people committed to providing service, but also people engaged with their communities. People able to consume goods that others produce to help drive local economies.We would also lose the promise of jobs in the future that provide what has become a more dependable service over two centuries since the founding of this country (the post office was started in 1775). An alternative to this loss? People could demand that Congress treat the Postal Service as a venerable American institution worthy of fulfilling its enduring mandate, for which it has recruited generations of skilled and dedicated professional government employees.A good start would be H.R. 1351, introduced by Rep. Stephen Lynch, D-Massachusetts, a bill that would at least allow the Postal Service to transfer surplus pension funds to satisfy the retiree health plan pre-fund requirement. And that pre-fund requirement ultimately needs to be repealed to keep the Postal Service from running off the rails.
Contrary to popular belief, the Postal Service does not rely on taxpayer funds to function. However, because it is a government agency, Congress is able to demand that they provide universal coverage, and maximum service, regardless of cost – while at the same time refusing to allow them to make the tough business decisions that companies regularly face. Last year, ten postal workers went on a hunger strike to bring attention to a ridiculous requirement, instituted by Congress in 2006, that the Postal Service prefund its future retirees’ health benefits to the tune of over $5 billion a year (a requirement not present in any other government agency, and rarely seen in the private sector). These expenses have brought on the continual state of crisis that the Postal Service has been in for the last few years. Eighty percent of post offices lose money – but they are unable to shut these buildings down because few legislators want to answer to their constituents about why their local post office has closed.
Just as the decline of railroads forced the Postal Service to adapt in the 1970s, they are now again at a point where they must undergo major transformations – and luckily, there are plenty of ways to improve and modernize their services.
Our nation’s founders understood that a universal, affordable, and yes, public postal system helps knit us together as a nation. They recognized that commerce requires a common infrastructure and public institutions that belong to and benefit the entire country.
Instead of shrinking the Postal Service, we should build on it. That means, first of all, appreciating that the USPS can be much more than a delivery service.
In many small towns, the local post office continues to be a community hub, a place to meet neighbors and get news. And postal carriers don’t just deliver letters — they often keep an eye on the elderly and homebound, and alert first responders if things look amiss.
They could do even more. The Postal Service’s fleet of vehicles — the largest in the country — could be equipped to detect air pollutants and report potholes, water leaks, and other infrastructure repair needs.
Why stop there?
The USPS could raise tens of billions of dollars each year by reinstating post office savings accounts and banking services, which it efficiently provided for 55 years in the first half of the 20th century.
Customers received 2-percent interest on their savings accounts, and the post office loaned their money to community banks, which then made loans to local businesses. This virtuous circle benefitted the entire community. At its peak, 4 million Americans took advantage of these services, saving $36 billion in 2014 dollars.
Today, 34 million American families live in places without traditional banking services. High-interest payday lenders and check-cashing services charge low-wage working families in those communities an average of over $2,400 a year. Experts estimate that low-cost banking services could save American workers a trillion dollars a year.