All Commentary
Wednesday, August 1, 2001

Letting Competition Reign

The Post Office Remains a Backward and Inefficient Monopoly

Doug Bandow, a nationally syndicated columnist, is a senior fellow at the Cato Institute and the author and editor of several books.

Postage rates rose at the beginning of the year. It costs another penny for regular first class. And an extra 20 cents to send a letter overseas. Bulk-rate mailing is also a lot more expensive.

But no matter, we are told. The U.S. Postal Service (USPS) assures us that it is the best on earth. The hikes were a minor boost compared to the benefits received.

Oops. USPS now says that it expects to lose as much as $2 billion this year. Which means another price increase is in the offing, perhaps just a year away.

And even that might not be enough. Postal officials say they might have to cut Saturday deliveries.

The Postal Service is not the first business to find it tough going in the slowing economy. What makes USPS different, however, is that it is a government-protected monopoly.

When other companies find demand slumping and costs rising, they, too, can raise prices. But they risk losing business to more efficient competitors that respond more adroitly to changing market conditions.

Not USPS. It simply hires a few more lawyers to prevent anyone from poaching on its turf.

That’s why UPS and Federal Express deliver packages and overnight letters, but not normal mail. It’s why groups like the Boy Scouts can’t deliver Christmas cards locally.

It’s why postal inspectors have shown up at businesses ready to impose fines if workers carried letters overseas to mail. And why the USPS claims the right to determine whether messages were sufficiently “urgent” to warrant overnight delivery. The Postal Service tried to stop the Atlanta Braves from delivering their tickets via UPS—even though government agencies once routinely used private delivery services.

The post office benefits from additional government privileges. Uncle Sam pays the pension benefits of retired postal workers. The Postal Service borrows money at low government rates. And USPS pays neither taxes nor traffic tickets. The former alone saves some $4 billion, estimates Ruth Goldway, a member of the Postal Rate Commission, which exercises some regulatory control over USPS price hikes.

If you complain, the post office will remind you that delivering the mail is tough business. A few years ago the postal system’s vice president for New York, John Kelly, responded to complaints of poor service: it is “very difficult for the Postal Service to efficiently transport mail” in urban areas. D.C. postal worker Mickey Hall agreed: “The public doesn’t realize what we go through to get the mail out.”

Most people also don’t realize that although the postal system defends its monopoly to the political death, it hires private firms to presort mass mailings before they are sent. Many rural carriers are private contractors too.

Moreover, for years USPS shipped mail via Emery World Wide Airlines and Kitty Hawk Air Cargo. In January the Postal Service signed a contract to send 3.5 million pounds of Priority and Express mail via Federal Express. Postmaster General William Henderson explained that doing so would save $1 billion.

Although USPS can’t do its job without outside help, it has used its privileged position to jump into other markets. The various subsidies and first-class monopoly help it compete in packages and urgent mail. The system now sells phone cards and even clothes. It is also planning an on-line bill-paying service, as if there were a dearth of private activity on the Net.

Never Accused of Being Nimble

The post office likes to defend itself by saying that it is the world’s most efficient system, as if being the best monopoly were something to glory in. Nor was that ever obviously true—after all, it is easy to seem efficient when serving the globe’s biggest and most lucrative economy. Certainly nimble entrepreneurship and consumer responsiveness are not virtues ever associated with the post office.

Moreover, other countries are now abandoning their public monopolies. Germany, the Netherlands, New Zealand, and Sweden have moved toward competition and privatization. Australia, Britain, and even the European Union are looking at similar strategies.

What conceivable reason is there to preserve the government’s postal monopoly? USPS warns that ending its monopoly endangers cheap, universal service. Private vendors would “skim the cream” and charge more for more distant addresses.

In fact, there are obvious benefits for a company when it offers uniform service and price. Indeed, if consumers wanted uniform prices, they would presumably patronize the company or companies that offered them. (Rural shipments account for only 4 percent of the Postal Service’s revenues.)

But even if private firms chose to charge some consumers more, so what? Housing costs are lower in rural America. The natural vistas are more beautiful. If someone chooses to live on a mountaintop, why should the rest of us have to subsidize his mail delivery? The Constitution does not guarantee the right to cheap mail service.

Some USPS arguments reflect desperation. One retired postmaster told me that the postal monopoly was justified because government-subsidized mail shipments had helped create the steamship and airline industries.

The only real argument against America’s moving in the same direction as the rest of the world is that the Postal Service’s 900,000 employees, up from 820,000 at the start of the Clinton administration, wouldn’t like it. After all, a competitive market would make it tougher for them to demand their present wages for their present work.

But why do postal employees have a right to use a political monopoly to extort money from consumers? The steelworkers, say, have equal claim for the government to establish one monopoly company and outlaw any competitors. Indeed, that’s what many Third World states have done routinely, thereby impoverishing themselves. Postal employees are not entitled to their unique form of middle-class welfare.

In a market economy, companies usually thrive by satisfying consumers. USPS survives by pacifying congressmen. Customer service is an afterthought: In 1990 Postmaster General Anthony Frank explained that he planned to cut promised delivery times to provide “more consistent service, not less. I think that will save all of us money and a lot of pain.”

But we all suffer more than just inconvenience. Leaving the important mail communication link for all Americans in the hands of an overstaffed, unresponsive bureaucracy never made sense. It makes even less sense in this age of dramatic technological change.

Tough international competition and rapid technological change have been transforming the U.S. economy. But the post office remains a backward and inefficient monopoly. Before USPS raises rates again, Congress should enact a privatization blueprint, welcoming mail delivery to the 21st century.

  • Doug Bandow is a senior fellow at the Cato Institute and the author of a number of books on economics and politics. He writes regularly on military non-interventionism.