The United States Postal Service is in deep trouble. This “independent agency” of the federal government, while it does not receive direct subsidies, has long operated in the red, its 2012 deficit projected to reach $9.2 billion. The situation has become so severe that its management predicts it will be unable to fund routine operations by early next year.
This fiscal crisis has resulted not only from declining demand for conventional mail delivery, but also from the political straitjacket that prevents any government-owned enterprise from adjusting to market developments. The best way to make the Postal Service solvent is to free it from political influence, which can only be achieved by forcing it to compete with other carriers as a private firm.
When the Post Office was created in the 1770s, federal ownership made sense. Given the expanse of the country and high transportation costs, government was likely the only institution willing and able to maintain a nationwide postal system.
It almost goes without saying that this is no longer true. Digital messaging and telecommunications have drastically reduced the need for conventional mail delivery, which itself has become so cheap as to be profitably conducted by private firms. Were the government to privatize the Postal Service and end its legal monopolies on first-class and standard mail (letters and bulk advertisements, respectively), as well as the use of mailboxes, private firms would fill the void. What would change is that the prices of the industry’s inputs and outputs would better reflect the true cost of services, rather than political jockeying within the federal government.
And the jockeying is substantial. Raising the rates for standard mail might be a good first step toward solvency were it not opposed by politically influential direct marketers (i.e., the companies that send junk mail), which provide 48 percent of USPS’s business. The Postal Service Inspector General issued a report last year concluding that discounts offered to direct marketers often result in rates lower than delivery costs. It would take a 22 percent increase in the rate for catalogs, for example, for the Post Office to break even on their delivery. The American Postal Workers Union has long criticized these excessive discounts, arguing that they deprive USPS of critical revenue.
But if anyone is depriving the Postal Service of revenue, it is the American Postal Workers Union, and the three other unions with which USPS has been required to bargain since the Postal Reorganization Act of 1970. Although postal employees cannot go on strike, arbitrators who resolve labor disputes are not required to consider USPS’s financial position. Thanks in large part to the legal framework within which the unions operate, the average postal worker in 2009 received an absurd $79,000 in wages and benefits for the task of sorting and delivering mail. Contracts with each of the unions prohibit USPS from terminating employees if business declines, which is perhaps the biggest obstacle to badly needed cost cutting.
Other ways of reining in the deficit, like raising first-class rates and ending Saturday delivery, require congressional authorization and are unpopular with the public. Closing post offices, which USPS can do unilaterally, is often difficult due to local opposition. Aside from these political hurdles, the implicit guarantee of a federal bailout makes self-preservation a less urgent motivator in the Postal Service than in the private sector.
Congress could largely eliminate these problems by privatizing the Postal Service and allowing other firms to compete for its market share. Since mail delivery would be structured to maximize profit rather than to satisfy the political needs of legislators and bureaucrats, prices would more accurately reflect costs, and unprofitable services would be curtailed. Labor unions could continue to look after the interests of postal employees, but unrealistic demands would be restrained by the prospect of the business’s failure.
Replacing a political motive with a profit motive would entail some adjustments. The government would need to contract with private carriers for delivery to some remote locations, since this would often be unprofitable, and residential pick-up and delivery six days a week would probably become a thing of the past for many citizens. It might be desirable to subsidize mail services for the poor, either through existing aid programs or a separate voucher system. Passports and voter identification, now frequently provided by post offices, would need to be offered elsewhere.
While these costs are significant, they are a small price to pay for a system of mail delivery that responds to consumer needs rather than political whims, and a government that is not on the hook for yet another insolvent public corporation. Letting USPS sink or swim on its own would also send a very positive signal after the bailouts of the past several years. The obvious caveat is that privatizing the Postal Service would itself be very difficult politically. But if Congress fails to stand up to corporate and union interests, this may be the only option besides a multibillion-dollar bailout.
Peyton R. Miller ’12 is a government concentrator in Winthrop House. His column appears on alternate Tuesdays.