Universal Postal Service: Without Competition, the Tail Wags the Dog

Issue Brief

Why does a credit card company or a mail-order vender receive a government guarantee that its billings or solicitations will be delivered at a uniform price, even to every mailbox in the country? Because 90 percent of the mail is generated by business transactions, and governments around the world impose this provision for universal postal service onto their mail providers.

While much has been made of privatizing the mail in some countries, or removing the government monopoly in others, the consequences are the same: There is only one dominant mail provider in each country and that provider is required to serve all addresses. Could the cost of postage be less, and service better, if competition were permitted?

The notion that universal service must be protected from competition is longstanding. And while it was possibly valid during the development of industrial society, it is no longer so. The crucial issue is whether a freely competitive mail system would provide service to every address in the country. That is, would everyone be able to send and receive mail reliably regardless of how remote their location? The answer comes directly from the nature of the mail itself.

Since the vast majority of mail is business mail, companies would choose to do business only with a mail delivery service that consistently delivers their mail at affordable prices. Society would receive mail just as it receives phone service and various utility services. No legislated mandate to provide mail service is required. Further, American society no longer relies on the mails for its most basic and essential communications. The telephone long ago assumed this communications function, and increasingly Internet traffic is taking over from the telephone.

There are, of course, special circumstances, such as mail service to the bottom of the Grand Canyon, or mail service to the outreaches of Alaska. These situations would be better treated as isolated public service needs rather than constructing the entire continental postal system around serving these special cases.

The U.S. Postal Service asserts it is in need of dramatic transformation. Introducing competition into its universal service provision could provide just the sort of jolt the USPS’s stagnant system-wide productivity needs. It would also help bring the Postal Service out of the 19th century, just in time for the 21st.

– Charles Guy, Ph.D., is Adjunct Fellow with the Lexington Institute and former Director, Office of Economics, Strategic Planning, U.S. Postal Service.