When the ship’s taking on water, that’s not the time to scrub the deck. But with the Postal Service facing chronic billion-dollar losses, some prominent “solutions” would ignore its most serious problems.
Postal management suggests that the Service’s ongoing financial woes are due to competition from alternative, electronic media, and from rigid pricing rules that prohibit it from competing effectively. They seek to free the Postal Service of these pricing rigidities entirely for what they deem to be “competitive” products. This new pricing freedom, they say, coupled with enhanced freedoms for introducing new postal products, would produce sufficient profit opportunities to encourage managers to create a more efficient Postal Service.
However, if the Postal Service retains its present monopoly over letter mail, comprising about 90 percent of its revenues, with freedom to raise the price of these “market-dominant” products within the limit of CPI inflation each year without review, this access to new revenue would seriously reduce the motivation to improve efficiency.
The USPS’s financial problems are a consequence of its failure to improve productivity by reducing the size and cost of its labor force, which currently constitute 80 percent of its total operating costs. Any successful reform must address the cost problem directly.
The Postal Service already has sufficient pricing freedom to grow mail volume. This is evidenced by the annual 6 percent growth of presorted, “automation-compatible” first-class letters offered at substantially discounted rates. However, Postal management has failed to turn the costs made avoidable by these mails into actual savings. It even cites the growth of discounted mail as a contributor to its financial deficits. Expanded pricing freedoms would likely result in more discounts for mailers without the commensurate cost savings ever materializing, and thus only worsen the Service’s financial condition. Combined with the increased debt ceiling the Service also seeks, the potential for disaster becomes serious.
The solution to the postal problem is not likely to occur without competition in the provision of hard-copy letter mail services. Other countries, especially the United Kingdom, have either removed the letter mail monopoly completely or scheduled the introduction of competition for letter mail. While these experiments are evolving and the results not fully known, this would be one superior model to transform the USPS.
– Lexington Institute Adjunct Fellow Charles Guy, Ph.D. is the former Director, Office of Economics, Strategic Planning, U.S. Postal Service.
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