Postal Service Privatization

April 10, 2015

For more than a century, the federal government has pursued a misguided witch hunt against perceived monopolies in the private sector. But in a glaring hypocrisy, Congress has long protected one of the nation’s largest businesses against competition. The legal monopoly conferred on the U.S. Postal Service (USPS) is a relic. Government-run mail makes no sense in our email-dominated economy, and other nations are showing that postal privatization works. If the centuries-old Royal Mail can be privatized, then so can our USPS.

In a new study, former Clinton administration economist Robert Shapiro provides useful input to the privatization debate. He looks at the subsidies that Congress confers on the USPS, as well as the extra costs.

Here are some background facts from Shapiro:

  • With more than 600,000 workers, the USPS is the nation’s second largest civilian employer, after Wal-Mart.
  • The USPS has three protected monopoly products: first-class mail, standard mail (bulk circulars, catalogs, etc.), and periodicals.
  • Employee wages and benefits account for 78 percent of USPS costs. Average USPS worker compensation is at least 32 percent higher than comparable private-sector workers.
  • Since the last time Congress supposedly fixed the USPS in 2006, the agency has been losing more than $4 billion a year.

 Here are some of the benefits that Congress confers on the USPS, according to Shapiro:

  • The USPS has exclusive access to mailboxes. That saves the agency more than $14 billion a year compared to the costs faced by private delivery companies. 
  • If the USPS had been required to compete in recent decades, it would have had higher productivity growth and lower costs today of about $20 billion.
  • The USPS can borrow from the U.S. Treasury at subsidized interest rates. That creates an annual subsidy of more than $400 million per year.
  • The USPS is exempt from state and local property taxes. Since the market value of USPS property is about $85 billion, that exemption is worth about $1.5 billion a year. The agency is also exempt from vehicle registration fees, tickets, and other local charges.
  • The USPS is required to pay federal corporate income taxes on some of its earnings. But those taxes go to the Treasury’s Postal Service Fund and are circulated back to the USPS, creating a benefit of more than $800 million in 2014.
  • The USPS enjoys economies of scale and scope created by its monopoly. Shapiro says, “the USPS can leverage these network advantages supported by its monopoly to reduce its costs in the competitive market for package delivery.”
  • The USPS is not bound by local zoning ordinances.
  • The USPS “is immune from certain civil actions, including libel, slander, misrepresentation and any injury arising from the misdelivery or loss of uninsured mail.”

While Congress confers those advantages on the USPS, it also imposes costs. Shapiro says that the USPS is required to:

  • Maintain residential service six days a week, which imposes added costs of $2.2 billion a year compared to five-day service.
  • Give discounted rates for non-profit groups, which costs it more than $1.1 billion per year.
  • Provide a special rate for periodicals, which costs it more than $500 million per year.
  • Retain inefficient post office locations, which costs it more than $300 million per year.

All in all, America’s postal industry is a complex mess of subsidies and inefficiencies. There is no good reason for all these special rules. The rise of email has created a powerful competitor to letter delivery, and so mail is no longer a natural monopoly, if it ever was. Furthermore, America is teeming with entrepreneurs who would love to take a crack at mail delivery. Our experience with deregulation in telecommunications and other industries has shown that open competition drives efficiency and innovation, which ultimately benefits consumers and overall growth.

In his essay on privatizing the postal service, Tad DeHaven concludes: “It’s time to let go of the nostalgia for the USPS and bring America’s postal services into the 21st century with privatization, open competition, and entrepreneurial innovation.”

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