Can The Postal Service Really Reform Itself?
I’m a mail guy. That is, I love getting mail and packages delivered to the house. E-mail is fine too, but there’s something far more enjoyable about receiving the tangible -- whether it be books, CDs or DVDs from Amazon.com, for example, a thoughtful birthday or Christmas card, or periodicals and catalogues to thumb through and read.
Obviously, businesses of all types and sizes rely on mail for promotions, advertising, invoicing, as well as sending and receiving goods.
However, at the same time, the dramatic rise of electronic communications means a decline in the volume of mail for the U.S. Postal Service. When was the last time you sat down to write a letter to grandma, put in an envelope, and dropped it in a mailbox? And since the Postal Service has never been a model of low costs and efficient service, this spells trouble.
Just consider some of the problems already plaguing the Post Office. Consumer costs have risen dramatically. For example, between 1998 and 2002, the price of a first-class stamp jumped from 32 cents to 37 cents – a 16.2% increase compared to inflation (as measured by the GDP price deflator) registering only 7.2% over that period. The same story can be seen over the longer haul. In 1970, a first-class stamp cost 6 cents. So, from 1970 to 2002, the price jumped by 517%, compared to inflation coming in at 281%.
These outrageous price hikes, though, have not guaranteed that the Postal Service has been running in the black. For example, in fiscal year 2002, the Postal Service raked in almost $67 billion, but lost $677 million. That followed on a $1.7 billion loss on FY2001 and a $200-million deficit in FY2000. For good measure, the Postal Service has some $92 billion in outstanding debt and other unfunded obligations.
Labor costs and productivity are a major problem. In its April 2002 Transformation Plan, the Postal Service acknowledged that `costs are rising faster than revenues.` And the bulk of those costs – `76 percent of total Postal Service expenses` in 2001 – go to labor force compensation and benefits.
In a July 2002 report for the Institute for Research on the Economics of Taxation (IRET), senior economist Michael Schuyler reviewed the economics literature regarding labor force costs for the Postal Service. These studies pointed to Postal Service workers receiving a substantial pay premium versus comparable private-sector workers. For good measure, another analysis by Schuyler noted that private sector businesses have exhibited far greater increases in labor productivity than what has been achieved in the Postal Service.
After the 2002 rate hike went into effect, though, the Postal Service reportedly netted more than $4 billion in FY2003. However, losses are projected to start mounting in coming years once more, and the Postal Service is expected to seek further increases in postal rates. More price hikes are not the answer. In reality, the price of a first-class stamp, for example, would be substantially less in a competitive market.
Last year, President George W. Bush appointed a commission `to ensure the efficient operation of the United States Postal Service while minimizing the financial exposure of the American taxpayers.` The President’s Commission on the United States Postal Service released its report – `Embracing the Future: Making the Tough Choices to Preserve Universal Mail Service` -- in late July.
The report offers a variety of proposals – some fairly sound, others more dubious. But a sweeping fault underlying the report is its rejection of privatization, and the misguided assumption that the Postal Service can be `maintained as a public entity, but refocused and reorganized to enhance its efficiency and adaptability in the face of an uncertain, and ultimately more competitive, future.`
When was the last time you saw a government entity substantively refocus its mission, become more efficient, and legitimately compete? It just doesn’t happen because government operates under completely different incentives than do private businesses.
Business operates under the disciplines of the free market, that is, prices, profits and losses guide how resources are allocated. One must innovate and become more efficient and responsive. If not, failure looms. That’s simply not the case in government, where decisions are guided by politics and special interests, and losses can always be thrown onto the backs of the taxpayers. Poor performance merely translates into a push for more revenue.
Are there reforms that can be implemented to improve matters at the Post Office? Well, at the least, the damage can be limited. For example, if the Postal Service is to remain a government entity, then its mission should be constrained to the basic notion of universal mail service. For good measure, such service should not be monopolized, but open to competition from private providers on equal footing. Also, the Post Office should not be allowed to venture into other areas where the private sector has proven quite capable of providing service. Such mission creep only threatens further losses and greater risks for the taxpayers.
But in the end, it needs to be acknowledged that maintaining the Postal Service as a government entity basically dooms it to inefficiency and high costs. Full-scale privatization – with no remaining ties to government or the taxpayers – is the only way that improved efficiency and lower costs have a real chance at becoming reality.
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Raymond J. Keating serves as chief economist for the Small Business Survival Committee.
