The modern-day Postal Service suffers from inefficiencies, increasing deficits, and a failure to be flexible enough to adapt to changing circumstances. Historically, governmental control and monopoly of the Postal Service have their roots in the reign of Charles I and was passed down through the Founding Fathers and defended in later legislative actions. In 1970, an important reform occurred which allowed the Postal Service to operate more like a private business, with less direct influence from governmental sources. However, these reforms were insufficient to root out inefficiency in the system. In order to truly realize cost savings and increased efficiency, full privatization of the Post Service must occur.
Even though some critics claim that this will lead to the lack of faith in postal operations, this argument fails to take into account a competitive market, validated by the trust people put into email services. As a public company, the individuals making decisions about goals are external to the organization. Furthermore, because individuals working in the Post Service do not have a vested interest in the financial success of the organization, and instead merely need to protect the status quo, there is less personal incentive to root out inefficiency. Competition in the market would also provide an organizational incentive to become more efficient. However, several institutional challenges have thus far prevented a switch to a more privatized system, including the prevalence of the postal unions and the upfront costs. Making changes towards a privatized system would enhance savings for taxpayers, increase efficiency, and allow the Post Service more flexibility when approaching modern problems.
In Section 8 of the US Constitution, the founding father enumerated a specific number of powers granted to Congress. Among them is the power to “establish Postal Offices and post roads.” Over the course of the next two and a half centuries, the Postal Service has become one of the largest federal organizations, regularly servicing nearly every individual in the country. According to Tom Readmond, federal-affairs manager of Americans for Tax Reform, “The Postal workforce is bigger than any two branches of the military combined. You could replace the Marines and the Army with postal workers, and you’d still have some mailmen leftover” (Ryan, 2005). However, with a dwindling volume of mail through the system, increasing inefficiencies in the structure and growing labor costs have left the Post Service with rising deficits which are made up for by growing congressional appropriations (Gattuso, 2003). In a time of fiscal crisis in which all government agencies must adapt to changing times, the Post Office is more flexible and competitive. To cut down on costs on an already businesslike operation, provide better service and increase competition, the US Postal Service ought to be privatized, and their legal monopoly revoked.
The history of the Postal Service monopoly in the United States began by something of an accident that has been left basically unchanged for hundreds of years. Many trace the advent of the monopoly to a decree issued by Charles I in 1635 in order to control the flow of information (Hudgins, 1996 p.20). The logic behind this decision is not hard to determine: if the king controls who gets what information, the chance of dissent is sharply decreased. The notation that the sovereign power of a state ought to control the postal service was passed onto the Founding Fathers, who embedded that authority within the constitution. However, even though creating a post office is an enumerated power, the Constitution, unlike the Articles of Confederation, does not specify that the federal post office must be a monopoly (Hudgins, 1996 p.12). The modern version of a postal monopoly came about as a result of later legislation and court cases; for example, the first postal code instituted in 1792 and the 1831 court decision the United States v. Chaloner (Hudgins, 1996, p.12). Throughout the next decades, Congress increasingly expanded the notion of the postal monopoly, launching prosecution of those in the mid 19th century who set up private express, and attacking the railroads for violating the monopoly around the turn of the century (Hudgins, 1996, p.15). Indeed, there can be no doubt that the US government vehemently defended the postal monopoly and that the Postal Service enjoyed the protections and complacency inherent in having no competition.
However, the inefficiencies of the Postal Service became increasingly evident around the middle of the 20th century. Not only was the service becoming increasingly poor, but efforts to adapt to changing circumstances were hindered by the overbearing adherence to the Postal Manual (Sorkin, 1980, p.27). This frustration lead directly to The Postal Service Reorganization Act of 1970, which “removed the postal department from the President’s cabinet, ended the authority of Congress and the White House to set employee wages and postage rates, bestowed on the new Postal Service its own personal system, and granted the new organization substantial financial autonomy” (Tierney, 1981 p. xv). In other words, in order to become more viable and useful to the American taxpayer, the Postal Service became less dependent on government and more business-like. Proponents of this act pointed to the success of the Tennessee Valley Authority, which was a governmentally owned and operated electricity cooperative (Tierney, 1981, p. xvii). By injecting business practices such as the ability to set wages and postage rates, the government took the first step towards privatization.
The provisions of the Postal Service Reorganization act helped ameliorate several of the larger problems with the system but were insufficient to eliminate the most pressing inefficiencies. In the immediate aftermath of the reform, it became evident that “the system still maintains a large number of third and fourth-class post office whose operating expenses exceed accrued revenues by a considerable margin” (Sorkin, 1980, p.29). The problems which were apparent back in 1980 have become even more complicated now that the Post Office does not have a hand in the most popular way of sharing information in the year 2009: over the internet. Technological advances have made it much harder for the Postal Service to stay relevant, even though the current structure is more efficient than it was prior to 1970. Therefore, in order to cut down n the structural inequities and adapt to a changing world, there is no choice but to complete the transformation of the Postal Service to a fully privatized company and eliminate the legal monopoly to allow competition.
Privatization and competition will increase efficiency and lower costs to the taxpayers while providing a better product. Those who argue against privatization claim that the benefits would not be substantial enough to warrant the switch. One of the perceived losses under privatization would be the public trust in the mail. According to Marvin Runyon, the Postmaster General for 6 years under Bill Clinton, “America benefits from one national system, backed by the full faith and trust of the United States government” (Hudgins, 1998, p.8). In other words, the government can better provide a service that is as universal and fundamental as delivering the mail better than any private organization. However, what this argument fails to take into account is that in a competitive marketplace, private organizations are compelled to maintain “full faith and trust” in order to stay in business. For example, under a hypothetical free market of postal services, when it came to light that a company did not respect the privacy of the individual, they would be run out of business. Email servers are not centrally controlled by the government, yet a huge majority of Americans use them to transmit sensitive data.
What Runyon may be attempting to point out is the difference in goals between public and private organizations. As Tierney writes “the goals of a private firm are set by its executives and board directors, but government agencies’ goals are set up by somebody outside the organization” (Tierney, 1980, p.2). In other words, how the Post Office ought to conduct its business, and in the furtherance of what end, are not determined from the perspective of those who are in the organization. Rather, they are dictated to them by a governmental authority, mandate, and charter. Even though the Post Office has some autonomy when it comes to finance and labor disputes, the overarching objectives are put into place legislatively. Hypothetically, the organization’s reliance on congress gives the Post Office more credit because they are acting at the discretion of elected officials. However, this dependency makes it extremely difficult for any substantive changes to take place. A major reason why the Post Office has been slow to adapt to a changing climate is that they must rely on congress to take action.
Another problem with the Post Office being a public business is that the individuals running the organization have less to gain and lose based on successful practices. According to Hudgins, “The owners of a public company are not able to divest themselves of their shares in the company; thus incentives for management to detect and correct mismanagement are far weaker than in a private company” (Hudgins, 1998 45). In a public position, what incentive do individuals have to do a good job? The concern most likely is “what is the minimum effort that I can put in so that I don’t get fired”? On the other hand, those who are running a private company have an incredible financial stake in the success of the organization, especially if they are partially compensated with stock options. Therefore, a private company will be more likely to root out and eliminate practices that do not work.
Furthermore, privatization would necessitate the changing of the postal service monopoly provisions, which opens the door allows for competition. The current Postal Service is not able to stay competitive even though it has in its favor the “postal service monopoly law” which states that anyone establishing “a private express for the conveyance of letters or packets, or in any manner causes or provides for the conveyance of the same by regular trips or at stated periods over any post route…shall be fined not more than 500 dollars or imprisoned for not more than 6 months, or both” (Hudgins, 1998 p.9).
Similar to the previous point about incentives to perform on an individual basis, the Post Office does not currently have any incentive to perform well on an organizational basis; “a legal monopoly is not restrained by competition or subject to incentives to perform well” (Hudgins, 1998 p. 23). Currently, if a customer is not satisfied with the quality of their service, they cannot go elsewhere. This dilemma is the reason that monopolies are not currently allowed in any private sector: monopolies do not lead to a good product for the consumer, and potentially lead to abusive business practices. For example, the Post Office insists on raising the price of a stamp in order to deal with rising deficits instead of cutting costs. According to some observers, “the Postal Service’s fees are double what they would be in a free market” (Hudgins, 1998 p.24). Labor costs would be reduced because of competition and harsher negotiations with unions: “The average postal worker earns over 25 percent more than his private-sector, factory-worker counterpart” (Ryan, 2005). Indeed, these cost savings have already been seen in other countries that have already privatized their Postal Service (Gattuso, 2003).
Unfortunately, the savings that would be realized with a privatized system may be hindered by a lack of political will to implement the switch. Such a transition would need to be enacted by Congress, many of whom have a vested interest in the current system. A large matter of contention would arise over the cost of postal labor; wages and benefits to employees are estimated to be over ¾ the total system costs (Tierney, 1980 p. 51). Since privatization’s primary concern would be to eliminate costs, organized labor would fight any political effort. The postal unions enjoy “the advantage of large size and wider geographic distribution” (Tierney 1980, p.83), which means they have the power to exercise a great amount of legislative pressure. Tackling such a large and organized opposition to an issue such as privatization would be difficult. Furthermore, according to a conclusion reached by a panel including six CEOs, the dean of the Harvard Business School, and political leaders, the initial outlay in order to affect the change would be substantial: a cost that would be difficult to justify in this period of economic downturn (Hudgins, 1998 p.105).
The benefits of making the Post Service operate more like a business are indisputable. However, the half measures which have been enacted so far have not had the results desired. Clearly, in order for true savings, efficiency, and competition to be realized, the United States Postal Service ought to be privatized.
References
Gattuso, J. (2003). Privatize the US Postal Service. Capitalism Magazine. Web.
Hudgins, E. L. (1996). The Last Monopoly: Privatizing the Postal Service for the Information Age. Washington, D.C.: Cato Institute.
Ryan, S. (2005). Privatize This. The National Review. Web.
Sorkin, A. L. (1980). The Economics of the Postal System: Alternatives and Reform. New York: Lexington Books.
Tierney, J. T. (1981). Postal reorganization: Managing the public’s business. Dover, Mass.: Auburn House Pub. Co.