Academic journal article The Cato Journal

Restructuring the U.S. Postal Service

Academic journal article The Cato Journal

Restructuring the U.S. Postal Service

Article excerpt

From 1775 when Benjamin Franklin was appointed as the first postmaster general of the United States, the agency known as the U.S. Postal Service (USPS) has grown to become an institution that delivers about half of the world's mail in rain, snow, and the dark of night. Employing about 656,000 workers and 260,000 vehicles and operating about 38,000 facilities nationwide, the USPS is the second-largest civilian employer in the United States, after Wal-Mart. If the USPS was a private sector company, it would rank 28th in the 2009 Fortune 500 (U.S. Postal Service 2010).

The USPS is obligated to provide a uniform price and quality to all Americans, irrespective of geography. Although the USPS is often mistaken for a government-owned corporation such as Amtrack, it is an independent branch of the federal government; it is controlled by a board of governors and a postmaster general and it is regulated by the Postal Regulatory Commission. The USPS is structured to operate like a business, financing its operations through the sale of postal products and receiving no direct taxpayer subsidies.

The USPS is proud of its efficiency gains. For example, 10 years ago it took 70 employees one hour to sort 35,000 letters. Today in an hour, only two employees process an identical volume of mail. Though the number of addresses in the nation has increased by nearly 18 million in the past decade, the number of employees who handle the increased delivery load has decreased by more than 200,000 (Potter 2010a).

Also, the USPS appreciates its high levels of national on-time performance (e.g., 96 percent for first-class mail) and a 94 percent customer satisfaction score. It also reminds Americans that its services are a global bargain. For example, a 2010 first-class letter mailed in the United States costs 44 cents. The same letter mailed in other countries would cost (in equivalent prices in U.S. dollars) 47 cents in Canada, 64 cents in Great Britain, 77 cents in Germany, 83 cents in Japan, and $1.25 in Norway.

However, the USPS is currently at a tipping point due to the combined effects of a large recent decline in volume and revenue that is projected to extend into the future, as well as increases in operating costs. Although the USPS has enacted an array of revenue-generating and cost-cutting activities, these measures likely are not sufficient to eliminate the gap between revenue and costs. Will the business model of the USPS crumble, resulting in its operations again being supported by taxpayer subsidies as they were at one point?

This article, which is an extension of Carbaugh (2007), discusses the economic problems of the USPS and possible changes in its structure that would help keep it solvent. It concludes that, given the state of technology, privatization probably is the only long-term solution for the USPS.

Nature and Operation of the Postal Service

Prior to 1971, the government provided postal services through its U.S. Post Office Department, an agency that received annual appropriations and heavy subsidies from Congress. Members of Congress influenced many aspects of the Post Office Department's service operations such as pricing of postal products and selection of managers.

In 1971 Congress replaced the U.S. Post Office Department with a new agency, the U.S. Postal Service. Since that time, the USPS has been an independent agency of the executive branch and it operates as a commercial entity, relying on the sale of postage, mail products, and services for revenue. The USPS is required by law to cover its costs, and it has not received taxpayer subsidies since the early 1980s. However, it does receive an annual appropriation from Congress of about $100 million (or 0.1 percent of its $75 billion operating budget) as compensation for the revenue it forgoes in providing, through congressional mandate, free mailing privileges for the blind as well as absentee-ballot mailing for overseas military personnel. …

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