Heritage Foundation Leadership for America

The Issues in Brief

Few entities personify the waste and inefficiency of the federal bureaucracy more than the U.S. Postal Service (USPS). Missed deliveries, rude service, and interminable waits in long lines constantly remind citizens of the shortcomings of government-provided service. Reform of this flawed institution would be much appreciated, and remembered, by its hundreds of millions of long-suffering customers.

Traditionally, labor unions and other supporters of the entrenched postal status quo have stymied efforts at reform. However, recent trends in the use of the Postal Service have made the status quo increasingly untenable. Mail volume, which had typically experienced a reliable increase each year, has become stagnant and has even declined. In fiscal year 2001, advertising mail decreased for the first time in 10 years. The contraction of total mail volume during the first half of fiscal year 2002 was the largest since the Great Depression. Making matters worse, as business has dropped off, Postal Service costs have continued to grow, resulting in mammoth deficits for the system. Despite the increase in postage prices in summer 2001, the USPS projects losses of some $1.5 billion for fiscal 2002. This follows losses of $1.7 billion in fiscal 2001 and $200 million in 2000.

While many factors have contributed to the system's crisis, a major cause has been the sharp rise in the use of the Internet. Increasingly, communication is taking place on-line rather than via letter carrier. Recently, it even has become commonplace to send greeting cards electronically. Bill payment (which currently accounts for approximately one-fifth of first-class mail volume) will likely be the next area of major loss for the postal system, as on-line bill payment becomes increasingly popular.

In response to this critical situation, the USPS released a detailed "transformation plan" in April 2002, proposing reforms that included closing unneeded post offices and reforming labor rules. Although the Postal Service has announced that it has begun to make changes in many of these areas, whether it will achieve substantial improvements remains to be seen.

Perhaps the most controversial portion of the plan is the proposal that the USPS be given increased flexibility in its operations, including wider powers to raise capital and set rates. In addition, the plan calls for more freedom to enter related businesses, such as e-commerce, transportation, and printing.

As a remedy for any firm in a declining industry, the case for increased flexibility is sound, as is the rationale for diversifying and expanding services. However, the U.S. Postal Service is no ordinary business. It enjoys a wide range of perquisites and protections tied to its government status, including exemption from taxation and implied guarantees from the U.S. Treasury. Foremost among these protections is its legal monopoly on letter mail: Competition with the post office in this arena is a criminal offense. This protectionism has created a justifiable concern that, despite the popularity of Internet communication, the Postal Service could distort markets, to the detriment of competitors and consumers alike.

Eliminating the USPS's special privileges and recreating the service as a private, competitive corporation would be good not only for consumers and competing businesses, but also for the Postal Service itself. After all, an insulated and protected status fostered much of the USPS's notorious inefficiency in the first place. The fundamental culture of the Postal Service needs to change, and such change will be spurred by more, rather than less, competition.