The Compelling Case for Postal Privatization

Issue Brief

President Bush created the Commission on the U.S. Postal Service with an executive order charging the panel with considering, among other things, “the extent to which postal monopoly restrictions continue to advance the public interest.” Halfway through its 6-month study window, the Commission has now heard persuasive testimony casting doubt on the need to continue the first-class mail monopoly. Instead, insights offered by two officials from the service’s Postal Rate Commission make a clear case for how privatization would vastly improve its current dire financial predicament.

The costs of the monopoly exceed its benefits, testified the Rate Commission’s Director of Planning Robert Cohen, by approximately $3 billion annually. Such savings could not only turn around mounting deficits, but if accompanied by improved business practices, even result in reducing the price of stamps – a concept altogether unheard of under the present management regime.

Cohen went on to dismiss the notion of an existing disparity where urban delivery routes cross-subsidize unprofitable rural routes. His analysis demonstrated how rural routes as just likely to be profitable as urban ones. This dispels a prevalent myth that, following privatization, private carriers would simply ignore rural routes, leaving them for the Post Office to serve at a loss.

Among Cohen’s other suggestions was one originally proposed by the General Accounting Office: by closing the 10,000 smallest post offices, the service could save over $500 million annually. Many of these facilities currently average less than ten transactions daily, he noted. Closing unprofitable post offices is not a new idea. In fact, the Postal Service had been closing facilities every year until a moratorium on closings in 1998 – reducing the nation’s total from 77,000 post offices in 1901 to about 38,000 total facilities today. No doubt such decisions are difficult to make politically, but the savings would prove crucial to long-term viability. The Base Realignment and Closure Commission could prove a valuable model for such a process.

Postal Rate Commission Ruth Goldway emphasized these and other arguments in her own testimony. “The free market will provide universal service,” Goldway said, “in fact it might provide more service to rural areas.”

She observed that the Postal Service primarily uses contract services because private transportation companies move mail better and more cheaply. Currently, many large mailing houses do their own sorting and drop-shipping to save money under Postal Service worksharing discounts. Unfortunately, the Postal Service’s financial operations make it impossible to confirm the suspicions of some prominent observers that such discounts are money losers subsidized by Aunt Minnie through the price of stamps.

Don Soifer is Executive Vice President of the Lexington Institute.