Privatization of the United States Postal Service

By Adie, Douglas K. | National Forum, Spring 1990 | Go to article overview

Privatization of the United States Postal Service


Adie, Douglas K., National Forum


Businessmen, federal administrators and legislators sought a reorganization of the Post Office in the mid-1960s because of mounting consumer complaints, insistent and irresistible demands by postal unions, and sizeable annual deficits. In 1967, President Lyndon Johnson appointed Frederick Kappel, retired AT&T board chairman, to head a commission which recommended that the Post Office be reorganized as a public corporation. In 1970, Congress reorganized the Post Office into a monopolistic, independent public corporation called the U.S. Postal Service shielded from Congress, not regulated effectively by the Postal Rate Commission (PRC), and not accountable to shareholders. What have been the results? The U.S. Postal Service has lost most of its package business to United Parcel Service (UPS) due to high rates, slow and unreliable delivery, and careless handling. The Postal Service itself concedes that it takes longer to deliver a first-class letter today than it did in the 1960s. The U.S. Postal Service operated in the red, and raised first-class postage from six cents in 1971 to thirty cents today while service has deteriorated steadily.

What has the Postal Service done with the revenues raised through rapid increases in first-class postage, deficit financing, and the savings from the curtailment of services? These have been squandered on inefficiencies in operation, mistakes in innovation and on supporting the excessive wage demands of one of the highest paid semi-skilled work forces in the world. Nearly eighty-five percent of Postal revenues of forty billion dollars go to the wages, salaries, and benefits of 800,000 employees; the average annual wage and benefits of $42,500 has been shown to be excessive by more than one-third.

What does this mean? The 1970 reorganization of the Post Office into a public corporation has frustrated rather than helped efforts to make the Post Office more responsible and accountable leaving only a few alternatives. Although Congress could increase its own, the President's, the board of governors', and/or the PRC's surveillance powers, this tinkering would merely be ineffective reconfiguring of the regulatory powers. Changes in accounting and evaluative procedures, while needed, are not enough to motivate managers to perform efficiently. Just as regulation failed with AT&T, it is failing with the Postal Service. It is now clear that only competition in the marketplace can provide responsibility and accountability. The policy solution proposed here is privatization, which involves three essential elements: deregulation of mail service (analogous to our recent transportation and communications deregulations); divestiture of the current Postal Service corporation into several smaller entities (as was done with AT&T); and finally, privatization via a public stock offering (as with British Telecom). While separable, these reforms are designed to win the support of key interest groups and be a politically feasible package.

Deregulation. Repeal of the private express statutes is the hallmark of deregulating the Postal Service. Without repeal there can be no true postal reform. These statutes prevent private companies from delivering private correspondence. Without them a vigorous private industry would arise, with thousands of firms, and tens of thousands of workers. Like AT&T, the Postal Service argues that competition would be less efficient because it is a "natural monopoly." Melvyn Fuss and Leonard Waverman, however, suggest that competition improves service, reduces prices, and encourages technological improvements because the telephone industry may never have been a "natural monopoly." There is no persuasive evidence which indicates that a single firm can provide telecommunication services more efficiently than several firms.

Electric power companies likewise feebly justify their monopoly status on similar grounds. If true, we would expect higher prices, poorer service and less-advanced technology in towns which have more than one electric power company.

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