Ducking the Punch

IN 1789, ITS first year of operation, the United States Post Office inaugurated one of the hardiest of American traditions by reporting to President Washington a deficit of $40. That's the way it was two hundred years ago, and that's the way it is today. Only the figures have changed: in the last five years, the Postal Service has lost some $1.8 billion, and it expects to lose that much more this year alone, despite last month's rate increase, which averaged 26% on all classes of mail.

If God had intended the U.S. government to deliver mail, He would have given it a subsidy. Instead, as a victim of Washington's inability to discern Divine intentions, the American taxpayer has to cough up nearly a billion dollars a year to keep the postal corporation afloat--still not enough to prevent it from accumulating a current debt of over $3 billion. In the last fifteen years, the price of mailing a first-class letter has risen over 400%. In the oil industry, that economic no-man's land where rapacious monopolists reign supreme, the price of a gallon of gas rose less than 70% during the same period. Though it increased its prices almost six times more than the oil giants did theirs, the U.S. Postal Service kept losing money at a continually accelerating rate, while the executive boardrooms of the petroleum industry filled up with "obscene" profits.

As if its latest knee in the consumer's groin weren't more than enough, the Postal Service is now winding up for the rabbit punch. Postmaster General Benjamin Bailar says if it is to survive what he calls "a financial crisis of serious proportions," the USPS may have to end Saturday mail delivery, eliminate special delivery service, and slow down delivery. Congress, ever eager for false solutions, seems more inclined to abolish the corporation and return to the old politically-controlled Post Office Department, forgetting that the good old days weren't much better. After all, Congress set up the corporation in 1970 only because of public dissatisfaction with costly, inefficient mail service.

In fact, the problem lies not in the form of the Postal Service but in the nature of the beast. It is no more reasonable to expect the government to run a cheap, efficient system of mail delivery than it is to expect water to run uphill. The USPS is a monopoly, and a government-operated one at that. It has no profit motive; in the private sector, a firm has to make a profit to survive, and it can only do that by providing people with a service they want at a price they are willing to pay. If it raises its prices, a private firm faces the threat of competition from other firms. None of this is true of the postal service, which can count on Congressional subsidies to make up any losses, and which is protected from competition--in first-class mail by a legal prohibition of private competition, and in second-, third-, and fourth-class mail by laws against using mailboxes. In the only area in which relatively unfettered private competition is permitted--parcel post--USPS is steadily losing ground to a private company, United Parcel Service. UPS now delivers over half of all parcels mailed in the United States, at a lower cost than the USPS, while damaging less than a fourth as many items as the Postal Service.

The obvious solution to the problem of steadily deteriorating mail service is to legalize private competition in first class mail, and to lift those restrictions which inhibit competition in other classes of mail. In many areas, private companies already compete successfully with the Postal Service in second- and third-class mail, despite those restrictions and despite the fact that the USPS charges less than cost on such mail, subsidizing it out of revenues from its biggest money-maker, first-class mail. In Congressional hearings in 1974, Congressman Philip Crane reported that the American Postal Corporation was delivering advertising to over half a million homes in the Los Angeles area every week, and that the Private Postal System of America was serving 150,000 homes in the Miami-Palm Beach area of Florida. These are just two of the several companies he mentioned now competing with the USPS--all of whom have charged a lower rate and still made profits while the USPS was losing money charging more.

Even the Postal Service concedes that private companies could probably deliver first-class mail cheaper than it can. In a report for the USPS, McKinsey and Company estimated that private firms could deliver local mail charging only 43% of what-USPS charges, and still make an 18% return on investment. What was true over a century ago is still true: until 1850, when the first laws against private mail delivery were enacted, over 95% of all mail in the US was delivered by private firms. Companies in New York City even provided delivery two and three times a day.

Postal employees, ingenious in their fleecing of the public, have concocted a number of arguments for keeping their legal monopoly, and some have even proposed expanding it to eliminate the budding competition in lower classes of mail. One claim is that, if wide-open competition is permitted, firms will only exploit the lucrative first-class letter market, the only class in which the USPS makes a profit. According to this argument, private price-cutting will make it impossible for the USPS to compete in first-class mail, leaving it with only money-losing lower classes. But private firms have already shown their readiness and ability to deliver lower classes of mail at a profit, despite the obstacles created by present laws. Permitting private firms to use mailboxes would make it that much easier and cheaper for them to deliver such mail.

Defenders of the status quo also claim that fractious competition would raise total costs by eliminating the advantages of economies of scale. Uncharitable critics point out that the USPS has hardly shown that its huge size offers great financial advantages. In any case, if it proves true that large concerns can deliver mail cheaper than small ones, then, as in any other such case, large firms will grow up and drive out their smaller, less efficient competitors. Still another argument is that private companies will refuse to deliber to remote rural areas, due to excessive cost. In this case, as in any other, private companies will provide service if the patrons are willing to pay for it, though it will probably cost them more. Private firms--unlike the present Postal Service--will not be able to force urban dwellers to subsidize mail delivery to rural areas. But even if no private companies could be persuaded to make such deliveries, it would be cheaper to subsidize continued USPS delivery to such places than to continue the present system of postal service.

The problem with the U.S. Postal Service is the problem with all bureaucratic operations: it operates under Murphy's Law, which says that if anything can go wrong, it will. All evidence suggests that private enterprise could deliver the mail cheaper and more efficiently than the government can, but the issue will not be resolved until Congress decides to permit free competition in postal service. The postal patron has a great deal to gain from such an experiment, and nothing to lose but his thirteen-cent stamp.