All Commentary
Tuesday, April 1, 1997

Book Review: The Last Monopoly: Privatizing the Postal Service for the Information Age edited by Edward L. Hudgins

A Free-Market Monopoly is an Oxymoron

Cato Institute • 1996 • 140 pages • $9.95 paperback

Mr. Peterson, a Heritage Foundation adjunct scholar, is the Distinguished Lundy Professor Emeritus of Business Philosophy at Campbell University.

Private Postal Service in the 21st Century. That was the brave title of a 1995 Cato conference seeking privatization of the vast vertically integrated, largely unionized 800,000-employee U.S. Postal Service.

The USPS fights back. Its newspaper ads trumpet the claim that it gets not a dime of federal subsidies. Oh. Edward Hudgins, Cato director of regulatory studies and editor of this volume of conference papers, begs to differ. He points to federal support of some $1.2 billion, mainly to offset revenue forgone by federally mandated free or reduced-rate mail such as Congress’s franking privileges. Still, with annual revenues at about $56 billion, that two percent or so of federal support seems not too tiny.

Hudgins also takes note of many indirect subsidies. He observes, for example, that the Postal Service is virtually tax-free, gets preferential federal borrowing treatment, and has billions of dollars of unfunded pension liabilities backed by Uncle Sam. Too, the USPS boasts monopoly power dating back to the private express statutes of 1845. This power has long enabled the post office to raise its prices, have a grip over all residential and company mail boxes, and allow no competitors on its exclusive turf.

Today, however, the Information Age intrudes more and more on this slipping monopoly via faxes, E-mail, Internet, telephone calls, electronic check deposits, and overnight delivery couriers such as United Parcel Service and Federal Express.

A key argument for maintaining the USPS monopoly is that it is a natural monopoly, so competition would fragment its ability to serve the public. Conferee-economist Thomas J. DiLorenzo of Baltimore’s Loyola College disagrees. He views the natural monopoly idea as a fiction. Why? He says that prices are not set by historical costs but by the interplay of supply and demand, that a free-market monopoly is an oxymoron because competition is a discovery process of dynamic rivalrous entrepreneurship.

DiLorenzo notes, for example, that California and other states are transforming the regulated electric utility industry of fixed-area franchises into a free market of price-cutting interstate and intrastate competition. He also sees that while cable TV operators complain of duplication and accordingly win franchise monopolies, prices tend to fall fast whenever new operators break into local franchises.

So, is USPS the last monopoly, as claimed in the title? Maybe. One proposed congressional bill would create the world’s largest ESOP or employee stock ownership plan and transfer the entire Postal Service to its 800,000 employees. They would get comparable retirement benefits and a spur to control costs and raise productivity. Postal unions show some interest, even if after a five-year grace period their industry would be open to all comers.

For his part, conferee-U.S. Postmaster General Marvin T. Runyon rejects the proposal. Mr. Runyon asserts that universal mail service must be backed by the full faith and trust of the U.S. government. He calls for the right amount of deregulation that will allow the USPS to compete on an equal footing with other couriers and alternative communication.

But what’s meant by the right amount and equal footing? Enter politics. Or will uninhibited competition with its cleansing action be at last allowed to enter the postal industry? In a sense, it already has, if imperfectly. So shouldn’t Congress act to privatize the USPS and avoid what Milton Friedman calls the tyranny of the status quo?

  • William H. Peterson (1921-2012) was an economist, businessman and author who wrote extensively on Austrian Economics. He completed his PhD at New York University in 1952 under the supervision of Ludwig von Mises.