Demise of the United States Postal Service
The United States Postal Service has been running at a loss for years now. Things cannot continue as they are, and there are several options that the Postal Service and our government can adopt to solve the problem. What is the problem? What does it mean for us? How do we solve it? This article will attempt to answer these questions by taking stock of the factors undermining the postal service, looking into the history that brought these problems about, and examining the solutions other countries have adopted.
Before we discuss the problems, we must ask how the Postal Service affects us. First, is the financial (in)solvency of the USPS a tax burden? The answer is technically no, but practically yes. In 1970, Congress passed the Postal Reorganization Act, which made the USPS an agency independent of the Federal Government (before, it had been a department of the executive branch, the Post Office Department). As such, it was to be financially self-sufficient, and received no annual appropriation from federal tax revenues. However, in the last decade, it has taken out loans from the U.S. Treasury to compensate for recent losses, and it’s current outstanding debt is nearly $15 billion (it’s official debt ceiling). This should not be surprising, but it is far from the worst bailout in recent history.
Second, what would happen if USPS went bankrupt? It would mean an immediate cessation in the delivery of letters, because the USPS has a legal monopoly on this activity. It is illegal for any non-postal worker to deliver the mail (packages/parcels are exempt).
So, why is this happening? The losses incurred by the USPS stem from a convergence of several hardships. First, mail volume has decreased by 20% since 2006 – there is now more junk mail delivered than normal mail – presumably due to increased use of e-mail and the internet. Second, the USPS operates under a Universal Service Obligation (USO), which means two things: it must serve all addresses in the U.S., and it must serve them at a universal, cheap (sub-market) price. On account of this, it is estimated that 80% of the ~36,000 post offices in the US run at a loss. Third, the postal workers unions, such as the National Association of Letter Carriers (NALC) and the American Postal Workers’ Union (APWU), are the dominant forces shaping USPS financial policy. About 80% of USPS revenue goes to employee wages, compared with FedEx’s 43% and UPS’s 61%. In addition, the USPS has agreed in union contracts to pay for 79% of it’s employees’ health care, compared with the standard 72% for federal workers. Fourth, the USPS is subject to Congressional oversight that prevents it from using its discretion to adapt to market conditions, and is prohibited from making a profit or entering markets unrelated to mail.
Some argue that more recent hardships, such as the economic recession and, especially, a 2006 Congressional mandate that the USPS pay $5.5 billion annually into future retiree pensions, are more immediately threatening. However, since both Postmaster General Patrick Donahue and many of the unions agree that the pension payments are a bizarre and unsustainable expense, Congress will likely relax its mandate.
But what about the other problems? Donahoe is making every attempt to reduce costs within the given framework. Some make sense, but many compromise the USO, including: a raise in postage rates by 29% since 2001; closing 3,700 of the costliest post offices; and eliminating Saturday service. The latter two still await Congressional approval (this could change by the time this article is printed). If they pass, the USPS can only pretend to continue offering universal service. If they don’t, the USPS will continue to lose revenue until it must be bailed out with taxpayer money.
That is, unless Congress adopts this solution: 1) remove the USPS’s monopoly on mail delivery, 2) remove regulations on and privileges enjoyed by the USPS which do not apply to competitors like FedEx and UPS, and 3) relieve the USPS of it’s universal service obligation, or at least redefine the USO so that the USPS is only required to provide mail service for citizens who have not or cannot select a private mailing alternative.
All of these steps go hand in hand. The reason that the USPS is subject to so much regulation and oversight is because these were the conditions on which it was granted it’s monopoly, in lieu of competition and to balance out the privileges it enjoys (no federal taxes). No monopoly means no reason to regulate it any differently than other businesses in the industry, and the USPS could have the same flexibility as their competitors in adapting to market conditions. Also, the monopoly was conferred so that it would have the market access necessary to meet its USO. No USO, no need for a monopoly.
Many believe the elimination of the monopoly would be detrimental to citizens because they see mail delivery as an essential service that can only be reliably supplied by the government. Besides the fact that the USO is tenable only as a contribution to the federal deficit, as demonstrated above, and that the status of mail as an “essential” service is plummeting rapidly, the argument is flawed because it assumes that a single organization must be responsible for universal service. A newly privatized USPS will start out with 100% of the letter delivery market. Any reduction from that is necessarily an improvement for citizens, because it means that those who turned away have found a more suitable alternative mail service otherwise unavailable during the monopoly. Thus, service distribution is not only maintained, but it is also improved by allowing competitors to take up some of the service.
Postal privatization has worked in Europe. Sweden became one of the first countries to open its postal service, Posten, to competition in 1993, adopting provisions similar to those outlined above. Germany was quick to follow in 1994. These governments require the privatized postal departments to maintain their USO, primarily to ensure that rural residents maintain access to postage rates comparable to urban residents, despite the increased cost of delivery to remote locations. (Whether or not a market solution to the problem of rural delivery exists is a debate for another time.) But the legal monopolies are gone, and competitors have moved in to satisfy niche markets. Allowed to freely innovate, the businesses have decreased costs by moving their operations and employment into supermarkets and banks, and brought themselves up to speed with new telecommunications technologies by offering increased online and cell-phone services to replace traditional mail services.
Joshua is a junior in Warren College studying Environmental Engineering.