Post Office Socialism

Article Published in The American Enterprise Online

An enthusiasm for the free market is one of this country’s defining traits, and one on which many red-blooded, Budweiser-swilling Americans pride themselves.

So they should: This country’s exuberant private sector has made our nation the wealthiest in the world. Virtually any citizen can become an entrepreneur. And most industries once dominated by government bureaucracies have been opened to competition.

Why, then, are we all socialists when it comes to the U.S. Postal Service? An outsized and inefficient government-subsidized monopoly runs our mail system. Though it has steadily raised rates on its captive consumers for 30 years, during which time it has also received some $27 billion in taxpayer-funded appropriations, little protest is heard.

Now, stamp prices are going up again. On November 1, the Postal Rate Commission approved what is essentially an across-the-board rate increase of 5.4 percent. The upshot? As of mid-January next year, the cost of mailing a single letter will be 39 cents.

Don’t get used to that rate, though. Postal industry analysts are predicting that the USPS will request an even bigger rate increase in 2006. The Association for Postal Commerce predicts it will be “the mother of all rate cases.”

Meanwhile, Congress is currently considering landmark legislation to overhaul the Postal Service. It doesn’t take a genius to figure out that most of the Service’s problems stem directly from the fact that it’s a big bloated federal agency. But liberating the USPS from government ownership isn’t even under consideration.

Countries across the industrialized world-some of which, like Sweden, Americans tend to see as excessively socialist-have thrown open the doors to postal competition, viewing the idea as just plain common sense.

Sweden and Finland began liberalization more than a decade ago. This year, Japan’s prime minister gambled his political career on a privatization plan for Japan Post-and appears to have won. All 25 members of the European Union will open their letter-delivery markets to full competition by 2009.

Postal deregulation abroad and the deregulation of other industries here at home have meant huge savings for government and better prices for consumers. In the ten years following U.S. deregulation in their respective industries, natural gas prices fell (after adjusting for inflation) by 27-57 percent, the price of long-distance telephone service by 40-47 percent, and that of air travel by 29 percent. Why not let postal customers reap the same rewards?

To fully appreciate the pointlessness of the USPS monopoly, imagine what would happen if the Department of Defense decided to follow the USPS example and take over commercial air travel. Private companies would be allowed to compete, but only if they charged customers two times the Air Pentagon rate. Also, the government would subsidize Air Pentagon’s fuel, and private competitors would not be allowed access to airports.

Americans would be outraged.

Now, consider the USPS. Private competitors may enter the delivery market only if they charge at least twice what the Postal Service charges, and a minimum of three dollars. For a single letter, that amounts to more than eight times the USPS rate. Private companies are banned from using customer mailboxes. The Postal Service, meanwhile, receives massive government privileges: free real estate, exemption from most taxes, immunity from anti-trust prosecution, and eminent domain, which is the right to seize private property.

Where’s the outrage?

Perhaps it’s because many Americans believe the Postal Service provides a “public good.” In economics, a public good is one that everyone needs and wants, but that no one would produce privately because it wouldn’t turn a profit. One of the few true public goods, for example, is national defense, and it makes sense for government to provide it.

The Postal Service, however, does not provide a public good. It provides a notoriously inefficient service that almost everyone acknowledges private companies could do better.

Not convinced? While private companies strive to attribute 100 percent of their spending to specific products or services, the Postal Service lumps 40 percent of its spending into the vague category of “general overhead.” Anyone who’s ever run a business knows that accurate cost-attribution is critical to running an efficient operation.

So it’s no surprise that, according to the Treasury Department, “productivity at the Postal Service has lagged the private sector by large margins” for more than 30 years.

Privatization is not an extreme suggestion. Former Postmaster General William Henderson called for it. James Miller, now chairman of the USPS Board of Governors, argued for privatization back in 1988. “It has always been the private sector that has taken the lead in providing cheaper, faster, and more convenient mail delivery,” he wrote.

The USPS, to its credit, has taken some significant steps toward privatization under the helm of postmaster general John Potter.

Most importantly, the USPS gives substantial “workshare” discounts-usually to big mailers, who in exchange pre-sort their outgoing mail. In 2004, the USPS gave approximately $14 billion in such discounts.

These discounts resulted in $11 billion in savings to the U.S. economy, according to leading experts of the U.S. Postal Rate Commission. They’re also one reason Mr. Potter has been able to keep the USPS in the black recently despite a decline in First Class mail volumes, something many people thought couldn’t be done.

Under Potter, the Postal Service has also introduced some other innovative outsourcing measures that, if expanded, could really open the doors to privatization.

In Palm Beach County, Florida, for example, postal managers have contracted mail delivery to private companies, which costs half as much as it would to use federal postal employees on the same routes.

Meanwhile, the USPS has opened some 5,000 “Contract Postal Units” across the country, in which an existing business, such as a drug store, sells postal services.

These steps show that privatization need not be radical or instant. Rather, the USPS can move toward privatization by steadily expanding existing measures.

Congressman Jeff Flake (R-AZ) recently proposed legislation to allow local postmasters to subcontract delivery routes to private companies. Although legislative reform along such lines might streamline the process, it’s not even necessary. The USPS management has the power to implement such measures on its own accord.

It’s high time the Postal Service started expanding measures toward privatization. A free postal market is what U.S. businesses, consumers, and taxpayers deserve. To hang on to socialized mail delivery would be un-American.