This article draws on Professor Rick Geddes's new AEI study, The President's Commission on the Postal Service: An Assessment, and his latest book, Saving the Mail: How to Solve the Problems of the U.S. Postal Service (2003).
The U.S. Postal Service has not yet collapsed, but its foundation has some sizable cracks. In 2002 first-class mail volume, the core revenue source for the Postal Service, suffered the largest decline in 30 years. The number of letters sent in individual pieces (as opposed to bulk mail) is dropping at an accelerating rate. Any grade school kid knows why: Nobody sends letters anymore; everybody uses e-mail.
Meanwhile, the Postal Service's liabilities skyrocket. Its debts and unfunded obligations now total around $90 billion. In 2001 the General Accounting Office placed the Postal Service on its list of "high-risk" institutions because of its fiscal problems, raising the prospect of a taxpayer bailout.
The Postal Service has many unusual attributes, some of which may impede reform. It employs about 766,000 people. It has legal monopolies over letter mail delivery as well as the use of your mailbox, but competes with private firms in some services (such as overnight and package delivery). It's government-owned. It pays no taxes, borrows from the Treasury, is not subject to antitrust law, has its own police force and doesn't pay parking tickets. And its regulator can't control it.
The last major postal refit occurred back in 1970. Vast economic change, particularly in communications technology, has occurred since that time. Postal reform, always a complex, volatile issue, should be undertaken soon. Fortunately, the President's Commission on the Postal Service's recently issued final report is a thoughtful, thorough evaluation of the service's problems that contains solid recommendations for reform. It should serve as a basis for legislative action.
The recommendations are sensitive to the concerns of many. They seek to preserve mail service to all addresses (called "universal service") at affordable rates while avoiding dislocations to postal employees. The commission recommends retaining the monopoly powers, at least in the near term, and keeping government ownership, but strengthening the Postal Service's regulator. A new Postal Regulatory Board would have power to set strict limits on rates, to require the Postal Service to stick to its core role (it has recently ventured into selling artwork, for example), enhance its financial transparency (by requiring it to comply with Securities and Exchange Commission disclosure requirements and improve its accounting) and ensure that it does not compete unfairly in overnight and parcel post services.
But the key recommendation is that the regulatory board have the authority to revisit the Postal Service's monopoly power "when the evidence shows that suppression of competition is not necessary to the protection of universal service without undue risk to the taxpayer."
The only reason there is a legal monopoly over letter delivery is because of worries that firms facing competition would reduce service to unprofitable areas. But there are good reasons not to worry. First, some countries with remote hinterlands already have eliminated their postal monopolies and universal service has continued. Second, statistical studies of the U.S. market show that even rural routes are profitable, so firms facing competition would have an incentive to cover those routes. Third, universal service makes sense. It is a valuable business asset to any delivery company, so the company has an incentive to provide it.
Allowing an independent regulator to reduce the scope of the monopoly after careful review is a good idea. The Postal Service can't complain, because it "suspends" the delivery monopoly for certain types of mail, which allows companies such as FedEx and bicycle messengers to operate.
Although postal reform is challenging, there are reasons for optimism. Almost half of all postal workers will be eligible for regular retirement in the next seven years, allowing the Postal Service to reduce its workforce without layoffs. But first it needs a better legal framework to smooth the transition to a leaner organization. The commission's recommendations would give the Postal Service the commercial flexibility to accomplish that.
Most industrialized countries have started serious postal reform, so a lot of international experience is available to guide us. The president's commission has produced an excellent set of recommendations. It's now time for Congress and the president to act.
Rick Geddes is an adjunct scholar at AEI and the author of Saving the Mail: How to Solve the Problems of the U.S. Postal Service.