Postmaster Indicates Need for Privatization

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A recent Senate Appropriations subcommittee hearing on the U.S. Postal Service’s dire financial prospects found little enthusiasm for the USPS’s idea to eliminate Saturday mail service. Financial Services subcommittee chairman Sen. Richard Durbin (D-IL) said “serious questions need to be asked and answered,” and ranking member Sen. Susan Collins (R-ME) expressed concern that it would send the USPS into “a death spiral.”

The USPS is already in a death spiral due to changes in technology, high labor costs, and costly congressional mandates that have left it facing a projected $238 billion in losses over the next ten years. The USPS says dropping Saturday service would save the USPS $3 billion a year. However, the Postal Regulatory Commission believes the savings would be significantly smaller. Regardless, if the USPS stops Saturday service then private firms should be allowed to provide Saturday mail service. 

Better yet, the USPS monopoly should be completely repealed and private firms allowed to deliver mail every day of the week. Interestingly, Postmaster General John Potter’s testimony inadvertently makes a case for privatizing the USPS.
 
Potter notes that when private businesses are losing money, they sell off assets, close locations, and reduce employment. He cites Sears, L.L. Bean, and Starbucks as recent examples of companies making cost cutting moves in the face of declining revenues. The Government Accountability Office’s testimony noted that the USPS has more retail outlets (36,500) than McDonalds, Starbucks, and Walgreens combined. Yet, its post offices average 600 visits per week, which is only 10 percent of Walgreen’s average weekly traffic.
 
In his testimony, Potter states: 
If the Postal Service were provided with the flexibilities used by businesses in the marketplace to streamline their operations and reduce costs, we would become a more efficient and effective organization. Such a change would also allow us to more quickly adapt to meet the evolving needs, demands, and activities of our customers, now and in the future. 
This is precisely why the USPS needs to be privatized and subjected to the demands of the market and not the whims of Congress. Members of congress always raise a fuss when the USPS targets postal outlets for closure in their districts. 
 
Potter wants Congress to suspend a requirement that the USPS pre-fund its retiree health benefits. He argues that the trust fund for these payments has a $35 billion balance, which he says is enough to pay the health premiums for its 500,000 retirees through their lifetimes.
 
The more fundamental problem is the existence of this generous benefit to begin with. Potter notes that private companies aren’t subject to a pre-funding mandate. But the vast majority of private companies don’t even offer retiree health benefits. The GAO also points out that the USPS retiree benefits are generous even by government standards: 
USPS pays a higher percentage of employee health benefit premiums than other federal agencies (80 percent versus 72 percent, respectively). In addition, USPS pays 100 percent of employee life insurance premiums, while other federal agencies pay about 33 percent. 
Potter naturally wants more flexibility in dealing with the USPS’s excessive labor costs. The average postal employee receives $83,000 a year in total compensation. Employee pay and benefits constitute 80 percent of the USPS’s cost structure, which despite increased automation has remained the same since the 1960s. But so long as the USPS remains a government enterprise, it’s hard to imagine Congress standing up to the postal unions and giving management the labor flexibility it desires.
 
Finally, Potter wants the USPS to have more freedom when it comes to pricing and getting into new lines of business: 
We also need the ability to expand our products and services, and ensure prices for our Market-Dominant products are based on the demand and cost of each individual product. 
“Market-Dominant” is an Orwellian way of saying “Government Granted Monopoly.” Again, if the Postmaster wants mail prices to have an economic rationale, then the USPS needs to be privatized so that the market can efficiently set prices. Further, the USPS has a poor track record when it comes to expanding into services not protected by its monopoly. Plus it would be competing against the private sector on advantageous terms due to its status as a government enterprise.  

What Potter wants – and needs – is something that only the private sector can provide. If the Senate hearing is any indication, Congress has no present plans to relinquish its control over the dying government monopoly. Instead, the USPS will likely continue to bleed red until policymakers run out of band-aids and are finally confronted with the choice of either privatization or direct taxpayer funding.