Proposed Rate Increase Illustrates Why The Postal Service Should Be Privatized

Issue Brief

On Thursday, February 17, the U.S. Postal Service took the first step toward raising stamp prices when its Board of Governors directed management to file for an increase. First-class stamps have already gone up by 12 percent since early 2001. The rate-changing procedure will take months to complete. But many are predicting that by 2006, stamps could cost as much as 41 cents.

If the Postal Service were a private company, stamp prices would be falling, not rising. A December study by leading experts of the Postal Rate Commission explains: “The doubling of overall volume coupled with scale economies should have resulted in the average price of the stamp dropping in real terms.”

Despite new technology – like modern reader/sorters that process over 30,000 pieces of mail per hour – stamp prices have risen with inflation since 1970. Imagine if the price of a phone call or sending an email rose with inflation for 30 years. It doesn’t take an economist to understand that such price distortions would place an enormous strain on the U.S. economy.

The problem is, as a government agency, the Postal Service has no real market incentive to cut costs and improve productivity. Along with its locked-in monopoly on First Class and Standard mail, the Postal Service is exempt from taxes. It’s immune from anti-trust and truth-in-advertising laws. It has a direct line of credit with the U.S. Treasury. It can issue legally binding regulations against its competitors. It doesn’t even pay parking tickets.

Perhaps most problematic of all is the fact that whenever the Postal Service gets into financial trouble, it can levy taxes in the form of stamp-price increases. In the words of the President’s Commission on the U.S. Postal Service, rate increases should be “the last line of defense against rising costs, rather than the first. Unfortunately, the current rate-setting process achieves precisely the opposite effect.”

With all its cushy government privileges, USPS has little incentive to become more efficient.

The Postal Service is plagued by high labor costs – which gobble up nearly 80 percent of revenues – lack of financial transparency and an inability to cut costs and improve productivity. Currently, the U.S. Postal Service has over $70 billion in unfunded liabilities.

Breaking up the Postal Service’s monopoly and privatizing the $69 billion organization would force USPS to become a competitive, streamlined organization. And that would fix the problem of steadily increasing stamp prices.

At first glance, privatization may seem like a radical solution. But in fact, postal privatization has been embraced by many leading industrialized countries. In Germany and the Netherlands, stock in the former national carriers is being sold off to the public. Japan is also in the process of privatizing its national post. Just last week, Britain announced that Royal Mail will lose its monopoly at the end of this year.

Former Postmaster General William Henderson has said the Postal Service should be privatized. Current Postal Rate Commissioner Ruth Goldway has also noted that “the Service needs to be privatized and the letter and letterbox monopolies phased out.”

The fact is, USPS delivers mostly advertising and business correspondence today. It is no longer the glue that holds American society together. With telephones and email, very few people send personal letters anymore. The American people do not need a money-losing government monopoly to deliver their junk mail.