by Christina Sandefur
August 15, 2018
A recent article on MSN reports that while e-commerce, and thus demand for package delivery, has been on the rise, the United States Postal Service (better known as USPS or “the post office”) nevertheless sustained losses of $2.7 billion last year. The article attributes the decline in revenue in part to Americans sending less mail, especially Millennials.
One might ask, if the post office is doing so poorly, how does it stay in business?
For starters, the government has outlawed its competition. As I pointed out over a decade ago on the Mackinac Center for Public Policy’s blog, competing with the United States Postal Service in the delivery of first-class mail is illegal.
That’s part of the reason why, throughout its history, the post office has operated at high costs, provided boons to politicians and special interests, and failed to keep pace with technological advances, while private mail services generally have lowered prices, introduced innovations, and intrepidly challenged the government’s legal control of the mail delivery market. For example (from the Mackinac Center blog):
One of the first private companies to directly defy the Post Office was Wells Fargo & Co., created by Henry Wells, William George Fargo and Daniel Dunning. Wells got the idea for the company after a hotel operator offered to pay a handsome price for the speedy delivery of oysters to his chef. Wells soon realized that many people were frustrated with the sluggish and unreliable Post Office, so he sought to provide superior services. Not long after its formation, Wells Fargo gained a reputation for fast deliveries and prices that beat those of the Post Office.
Because the Post Office began to lose customers to Wells Fargo, especially in New York, the federal government began to arrest its delivery agents within the state. But Wells Fargo’s services were so popular that the plan backfired. Upon hearing of the arrests, people rushed to pay bail for the delivery agents. Congress eventually was forced to lower postal rates so that the Post Office could remain competitive. In the end, even a statutory monopoly and the backing of the federal government could not stop Wells Fargo’s success.
Years later, the Post Office even offered Wells Fargo a government contract, although the company had never sought it. In 1868, after it was unable to keep up with western mail deliveries, a desperate Post Office turned to Wells Fargo to carry mail out West. Thus the private company that the federal government had tried so hard to suppress ended up coming to the Post Office’s rescue.
Wells Fargo is only one of many private competitors that challenged the postal monopoly by providing quality services at low costs. The Post Office still clings to its government-enforced monopoly on first-class mail because it knows that if it had to compete fairly in the market, we’d all be buying our stamps from its competitors.
Given the post office’s legal monopoly over certain services as well as its ability to engage in deficit spending and utilize subsidies, historian Larry Schweikart astutely observes in The Entrepreneurial Adventure, “The surprising thing is not that private competitors lasted only a short time but that, given the structural disincentives, they existed at all.”
Because the post office is perpetuated by the force of law rather than market competence, it has no knowledge of how (or incentive) to provide its customers with efficient and innovative services. After all, when a private company performs poorly, it loses business; when a government agency performs poorly, it earns more subsidies.
So why not just privatize the post office? In this regard, the U.S. lags behind many European countries, who have taken significant steps to reform or privatize their postal systems. And those reforms haven’t resulted in price hikes or service halts, but rather “have shown the ability to offer affordable, reliable, universal, and increasingly efficient postal-delivery services.”
But as Reason’s Nikhil Sridhar points out, “The case for privatization is strong, but it there are political hurdles,” such as the postal unions, who risk losing their generous (and unsustainable) federal benefits.
Still, there is hope. The Trump Administration has established a task force to recommend steps to reform the outdated and inefficient service, and a report outlining those recommendations is supposedly imminent. Earlier this summer, the Administration hinted that privatization was on the table. After decades of calls for reforms (and centuries of disservice to the American people), it’s time to do away with “postal socialism.”
Christina Sandefur is Executive Vice President of the Goldwater Institute