The
USPS is a major business enterprise operated by the federal government.
Revenues from the sale of USPS products are supposed to cover the company's
costs. But with the rise of electronic communications, mail volume has plunged,
and the 600,000-worker USPS has been losing billions of dollars a year. Other
countries facing falling mail volume have privatized their systems and opened
them to competition. America should follow suit and liberalize its postal
industry so that it can adjust to changes in the modern Internet-based economy.
Congress
confers on the USPS a legal monopoly over the delivery of certain types of mail:
first-class mail (letters under 13 ounces) and standard mail (bulk advertising
items). The USPS also has a legal monopoly on access to mailboxes, which is a
unique protection among postal systems in the world. This system prevents entrepreneurs from competing in
the postal industry to improve quality and reduce costs for the benefit of
consumers.
The
USPS also enjoys a range of other benefits:
·
It
has been able to borrow $15 billion from the U.S. Treasury at subsidized
interest rates.
·
It
is exempt from state and local sales, income, and property taxes and fees.
· It
pays federal corporate income taxes, but those taxes are essentially circulated
back to the USPS.
·
It
is not bound by local zoning ordinances, is immune from a range of civil
actions, and has the power of eminent domain.
·
It
has government regulatory power, which it has used to impede competitors.
Despite
those advantages, the USPS has lost more than $50 billion since 2007 and will
likely continue losing money unless there are major reforms. One problem
is that Congress stymies USPS efforts to improve efficiency. It impedes USPS
plans to close unneeded post office locations, even though the bottom 4,500 rural
locations average just 4.4 customer visits a day. It blocks the
consolidation of mail-processing centers, and it blocks USPS plans to end
Saturday delivery. Private businesses make such adjustments to their operations
all the time as demand for their products fluctuates.
The
USPS's costly union workforce is another problem. USPS worker compensation is
substantially higher, on average, than that of comparable private-sector
workers. Collective bargaining agreements — which cover more than four-fifths
of the USPS workforce — make it more difficult for management to make
cost-saving changes, such as increasing part-time work. And, in some cases,
unions have resisted the automation of postal functions.
The
postal system's financial challenges stem from the decline in first-class mail
volume, which fell from a peak of 104 billion pieces in 2001 to 62 billion
pieces in 2015, a 40 percent drop. The decline is driven by the rise of
email, Facebook, Evite, and Internet bill paying; a decrease in printed
magazines; and the rise of online advertising as an alternative to bulk print
advertising.
The
USPS's financial challenges have been compounded by a requirement passed in
2006 to pay down the company's large unfunded liabilities for retiree health
care. USPS defenders complain that private companies are not required to
prepay retiree health costs. But the vast majority of private firms do not even
offer retiree health coverage. Also, since traditional mail faces a continued,
long-term decline, it is better to tackle these costs now than to leave them to
taxpayers down the road under a possible federal bailout.
Other
nations with money-losing mail systems have either privatized them or opened
them to competition — or both.
Private companies have more flexibility to deal
with today's challenges. And with the rise of the Internet, the claim that mail
is a natural monopoly needing special protection is weaker than ever.
The
European Union has recognized those realities and pressed its member nations to
deregulate their systems. Most European Union countries now have a more
entrepreneurial postal industry than we do. The United States ranks near the
bottom of the Consumer Postal Council's 26-country "Index of Postal
Freedom."
Here
is a sampling of postal reforms abroad:
·
Sweden
in 1993 became the first major European country to repeal its postal monopoly.
Sweden's main postal company (now PostNord) was put into a corporate structure
but is still owned by the government.
·
The
Netherlands partly privatized its national postal company in 1994. Majority
control shifted to the private sector in 1995, and the company later became
part of TNT, a global delivery company. The Netherlands opened postal markets
to competition in 2009.
·
New
Zealand cut costs at New Zealand Post in the 1980s and put the company into
corporate form. The country repealed its postal monopoly in a series of laws
during the 1980s and 1990s.
·
Germany
partly privatized Deutsche Post in a stock offering in 2000. Today, 79 percent
of company shares are publicly traded. Germany opened its postal markets
to competition in 2008.
·
The
United Kingdom opened postal markets to competition in 2006 and privatized the
Royal Mail in share offerings in 2013 and 2015.
In
many countries, dominant national carriers now have some competitors, often
focused on niches such as business mail or bulk mail. Some privatized
companies, such as Deutsche Post, have expanded internationally. Progress
toward full competition has been a slow but steady process.
Experience
has shown that both privatization and open competition create efficiency gains.
In New Zealand and Sweden, government postal firms slashed their workforces by
about one-third when they were restructured and opened to
competition. Similar job cuts were prompted when Germany and the
Netherlands privatized their systems.
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 FedEx.
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 in which it could earn above-normal profits to funnel
excess cash back to support the mail system. But a government agency — if not
subsidized — is not likely to be able to out-compete private firms in other
industries. Past USPS forays into nonmail areas, such as electronic bill
paying, ended in failure. 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. The agency is able to do so because consumers are less sensitive
to prices for monopoly products than competitive products. Shapiro estimates
that the cross-subsidies amount to $3 billion or more a year.
For
FedEx, United Parcel Service (UPS), and other private firms, however, such
cross-subsidies are 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 receiving special breaks, the USPS
"probably could not compete at all" against the more nimble private
firms.
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 Thus a benefit of privatization and open competition would be
an increase in transparency in postal finances and pricing, and an end to 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. Elaine Kamarck of the Brookings Institution has also
proposed partial privatization. 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, the United Kingdom, 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 if the government no longer
required universal service. But economist Richard Geddes argues that is
probably not the case. Rural postal 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.
Economists
Robert Carbaugh and Thomas Tenerelli looked at nations that have privatized or
opened their postal systems to competition. They 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."
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, that change would allow the 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.
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. Advertising represents 60 percent of the entire household
mail volume. Bills and other business statements are the second largest type of
mail, but those are being replaced by electronic bill payments, which now
account for 63 percent of all bill payments.
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 —
while 205 billion emails blast around the planet every day. Retaining
special protections for the government's old-fashioned paper delivery system
makes little sense.
In
a Washington Post op-ed,
former U.S. Postmaster General William Henderson said, "What the Postal
Service needs now is nothing short of privatization." He is right.
Congress should wake up to changes in technology and to postal reforms around
the world. Other countries have shown that postal liberalization works, and it
would work in America as well.
Norb
Leahy, Dunwoody GA Tea Party Leader
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