The U.S. Postal
Service (USPS) is a major business enterprise operated by the
federal government. Revenues from the sale of USPS products are
supposed to cover the company's costs. But with the rise of
electronic communications, mail volume has plunged, and the
600,000-worker USPS has been losing billions of dollars a
The USPS has a legal monopoly over various types of
mail. Thus entrepreneurs are prevented from competing in the
postal industry to improve quality and reduce costs for the
benefit of consumers.
Other countries facing falling mail volume have
privatized their systems and opened them to competition. America
should follow suit and liberalize its postal industry so that it
can adjust to changes in the modern Internet-based economy.
Congress confers on the USPS monopolies on the
delivery of first-class mail (letters under 13 ounces) and
standard mail (bulk advertising items). The agency also has a
legal monopoly on access to mailboxes, which is a unique
protection among postal systems in the world.1
The USPS also enjoys a range of other
It has been able to borrow $15 billion from the
U.S. Treasury at subsidized interest rates.
It is exempt from state and local sales,
income, and property taxes and fees.
It pays federal corporate income taxes, but
those taxes are circulated back to the USPS.
It is not bound by local zoning ordinances, is
immune from a range of civil actions, and has the power of
It has government regulatory power, which it
has used to impede competitors.
Despite those advantages, the USPS has lost
more than $50 billion since 2007, and will likely continue losing
money unless there are major reforms. name="sdendnote3anc" href="#sdendnote3sym" id="sdendnote3anc">3 One problem is that Congress
stymies USPS efforts to improve efficiency. It impedes USPS plans
to close unneeded post office locations, even though the bottom
4,500 rural locations average just 4.4 customer visits a
day.4 It blocks
the consolidation of mail-processing centers, and it blocks USPS
plans to end Saturday delivery. Private businesses make such
adjustments to their operations all the time as demands for their
USPS's costly union workforce is another
problem. USPS worker compensation is substantially higher, on
average, than for comparable private-sector workers.5 Collective bargaining
agreements-which cover more than four-fifths of the USPS
workforce-make it more difficult for management to make
cost-saving changes, such as increasing part-time work. And, in
some cases, unions have resisted the automation of postal
The postal system's financial challenges stem from
first-class mail volume falling from a peak of 104 billion pieces
in 2001 to 62 billion pieces in 2015, a decline of 40
percent.6 The decline
is driven by the rise of email, Facebook, Evite, and Internet
bill paying; the decline of printed magazines; and the rise of
online advertising as an alternative to bulk print
The USPS's financial challenges have been
compounded by a requirement passed in 2006 to pay down the
company's large unfunded liabilities for retiree health
defenders complain that private companies are not required to
pre-pay retiree health costs. But the vast majority of private
firms do not even offer retiree health coverage. Also, since
traditional mail faces a long-term decline, it is better to
tackle these costs now than to leave them to taxpayers down the
road under a possible federal bailout of USPS.
Postal Reforms Abroad
Other nations with money-losing mail
systems have either privatized them, opened them to competition,
or done both. Private companies have more flexibility to deal
with today's challenges. And with the rise of the Internet, the
claim that mail is a natural monopoly needing special protection
is weaker than ever.
The European Union has recognized these
realities and has pressed its member nations to deregulate their
systems. Most EU countries now have a more entrepreneurial postal
industry than we do. The U.S. ranks near the bottom of the
Consumer Postal Council's 26-country "Index of Postal
Here is a sampling of postal reforms
Sweden in 1993 became the first major European
country to repeal its postal monopoly. Sweden Post (now
PostNord) was put into a corporate structure, but it is still
owned by the government.
The Netherlands partly privatized its national
postal company in 1994. Majority control shifted to the
private sector in 1995, and the company later became part of
TNT, a global delivery company. Netherlands opened postal
markets to competition in 2009.
New Zealand cut costs at New Zealand Post in
the 1980s, and put the company into corporate form. The
country repealed its postal monopoly in a series of laws
during the 1980s and 1990s.
Germany partly privatized Deutsche Post in a
stock offering in 2000. Today, 79 percent of company shares
are publicly traded.9 Germany opened its postal
markets to competition in 2008.
In many countries, dominant national
carriers now have some competitors, often focused on niches such
as business mail or bulk mail. Some privatized companies, such as
Deutsche Post, have expanded internationally. Progress toward
full competition has been a slow but steady process.
Experience has shown that both
privatization and open competition create efficiency gains. In
New Zealand and Sweden, government postal firms slashed their
workforces about one third when they were restructured and opened
to competition. href="#sdendnote11sym" id="sdendnote11anc">11
Similar job cuts were prompted when Germany and the Netherlands
privatized their systems.
Congress should privatize the USPS, repeal its
legal monopolies, and give the company the flexibility it needs
to innovate and reduce costs. Those reforms would give
entrepreneurs a chance to improve America's postal services. In
1979, when the USPS- under political pressure-lifted its monopoly
over "extremely urgent" mail, we saw the growth of innovative
private delivery firms such as Fed Ex.
Instead of privatization, some USPS supporters want
the company to expand into banking, payday loans, grocery
delivery, and other activities. But rather than solving any
problems, such expansions would create more distortions. The USPS
would have to find activities where it could earn above-normal
profits to funnel excess cash back to support the mail system.
But it is unlikely that a government agency-if not
subsidized-could out-compete private firms in other industries.
Past USPS forays into non-mail areas, such as electronic bill
paying, ended in failure.12 And if the USPS used its
government advantages to undercut private firms, it would be both
distortionary and unfair.
In a 2015 study, economist Robert Shapiro
found that the USPS raises prices on its monopoly products and
uses those revenues to subsidize express mail and package
works because consumers are less price sensitive for the monopoly
products than for the competitive products. Shapiro estimates
that these cross-subsidies are $3 billion or more a year.
For Fed Ex, UPS, and other private firms,
however, this is unfair because-unlike USPS-they have to pay
taxes, borrow at market rates, and follow all the normal business
laws and regulations. Shapiro thinks that "without its subsidies,
[the USPS] probably could not compete at all" against these more
nimble private firms.14
These problems are difficult to solve under
the current postal structure because the USPS hides the
cross-subsidies in its books by attributing a large share of
costs to overhead. href="#sdendnote15sym" id="sdendnote15anc">15 So a
benefit of privatization and open competition would be to
increase transparency in postal finances and pricing, and to end
Policy experts are coming around to the
need for major reforms. Economist Robert Atkinson proposed that
the USPS focus on delivering the "final mile" to homes, while
opening collection, transportation, and the processing of mail to
Kamarck of the Brookings Institution has also proposed partial
privatization.17 She would
split the USPS into a government piece that fulfills the
"universal service mandate" for delivering mail to every address,
and a privatized piece that would compete with other firms for
activities such as collecting mail.
The Atkinson and Kamarck proposals move in
the right direction, but foreign reforms show that full
privatization is both feasible and consistent with universal
service. In Germany, Britain, and the Netherlands, the dominant
firms continue to provide universal service. Postal companies
have a strong incentive to provide universal service because, as
a network industry, the value to customers of the service
increases the more addresses that are served.
USPS supporters fear that rural areas would be left
out unless the government required universal service. But
economist Richard Geddes argues that is probably not the
post routes can be as cost-effective to serve as urban routes
because rural letter carriers stay in their trucks and use
roadside boxes, whereas urban letter carriers often walk their
Looking at nations that have privatized or opened
their postal systems to competition, economists Robert Carbaugh
and Thomas Tenerelli found that rather than the price increases
and service reductions that some people fear, "liberalizing
countries have shown the ability to offer affordable, reliable,
universal, and increasingly efficient postal-delivery
U.S. policymakers should be more flexible with the
idea of "universal service." For example, if delivery was reduced
from six days a week to every second day, it would allow USPS to
slash its massive fleet of 211,000 vehicles, which would reduce
both costs and energy consumption. Other countries interpret
universal service more narrowly than we do-some countries have
cluster boxes for communities, some exclude bulk mail from
universal service requirements, and some allow more flexibility
All that said, a universal service obligation for
paper mail is not needed in the modern economy. Electronic
communications bind the country together without it.
Household-to-household personal letters have plunged to just 3
percent of total mail volume today.21 Advertising represents 60
percent of the entire household mail volume. Bills and other
business statements are the second largest type of mail, but
these are being replaced by electronic payments, which now
account for 63 percent of all bill payments.22
Essentially then, Congress imposes a rigid monopoly
on the nation so that we can continue to receive mainly "junk
mail" in our mailboxes six days a week. But there are 205 billion
emails blasted around the planet every day, so it makes little
sense to retain special protections for the government's
old-fashioned paper delivery system.23
In a Washington Post op-ed, former U.S.
Postmaster General William Henderson said, "What the Postal
Service needs now is nothing short of privatization."24 He was right. Congress should
wake up to changes in technology and to postal reforms around the
world. Other countries have shown that postal liberalization
works, and it would work in America as well.
href="#sdendnote8anc" id="sdendnote8sym">8 See Consumer
Postal Union, "Index of Postal Freedom," 2012,
href="#sdendnote10anc" id="sdendnote10sym">10 The
privatized Royal Mail delivers letters and packages. The
government retained the "Post Office," which operates a retail
chain providing postal and other services.
href="#sdendnote13anc" id="sdendnote13sym">13 Robert J.
Shapiro, "How the U.S. Postal Service Uses Its Monopoly
Revenues and Special Privileges to Subsidize Its Competitive
Operations," Sonecon, October 2015.
href="#sdendnote21anc" id="sdendnote21sym">21 U.S. Postal
Service, "The Household Diary Study 2012," May 2013, Tables
E.2. and 3.1. And see discussion in James L. Gattuso, "Can the
Postal Service Have a Future," Heritage Foundation, October 10,
href="#sdendnote23anc" id="sdendnote23sym">23 Email
statistic from The Radicati Group, "Email Statistics Report,
2015-2019," press release, March 2, 2015,