May 31, 2002

May 31, 2002 | Commentary on

Snail Mail Failing?

Kramer: ...I'd like to cancel my mail ... .
Newman: What about your bills?
Kramer: The bank can pay 'em.
Newman: ... What about your cards and letters?
Kramer: E-mail, telephones, fax machines, Fedex ... .
Newman: All right, it's true. Of course nobody needs mail. ... But you don't know the half of what goes on here. So just walk away, Kramer. I beg of you.

- "Seinfeld," Oct. 30, 1997

More than a few Americans may think about joining Kramer next month, when another postage-rate increase - one that will increase the price of a first-class stamp from 34 to 37 cents - goes into effect.

Postal officials may be blaming massive budget deficits for the increase, but even they acknowledge it will do nothing to improve the system's long-term prospects. Faced with a changing technologies and shrinking business, the U.S. Postal Service (USPS) is in trouble, and its future in doubt.

The numbers aren't encouraging. Even before September 11, the postal system was projecting a $1.35 billion deficit, and a third straight year of losses. The reason: While postal costs continue to grow, the amount of mail is stagnating. Total volume dropped in 2001, for the first time in 10 years. The first half of fiscal 2002 saw the largest decline since the Great Depression.

The "villain" here is the Internet. Increasingly, communication is taking place online, rather than via letter carrier. Bills, correspondence and even greeting cards are increasingly handled through e-mail. Last year's anthrax attacks, in addition to adding substantial security costs, may actually speed this long-term trend. Due to either fear or necessity, large numbers of Americans were forced to find alternate ways to communicate.

Having found them, they may not come back. In Washington, large swathes of Capitol Hill and the executive branch have been without normal mail delivery for months. Ominously for postal officials, life has gone on much as before for these policy-makers.

USPS itself hasn't helped things. The organization is run like, well, the post office. Despite a huge investment in automation, productivity growth has been pathetic - about 11 percent over the past three decades. The system's inefficiencies - inflexible labor agreements, skyrocketing retirement costs, redundant layers of management - are legendary.

So what's in the postal future? Kramer could be right - maybe no one really needs mail. In a decade, paper mail could be a quaint feature of the past, like getting a telegram or renting your phone from AT&T. More likely, mail delivery will continue, but at a smaller scale. No matter what, the business of delivering mail is in for some real challenges.

Recognizing these problems, USPS - in a detailed "transformation plan" submitted to Congress last month - proposes some welcome reforms. These include closing unneeded post offices, reforming labor rules and more.

The Postal Service also considered changing its structure, but fell short of the mark. It rejected the option of going private - although Great Britain and others have taken this sensible step. Instead, it chose to remain a government-owned enterprise, but with increased flexibility - including the ability to set rates and enter related businesses, such as e-commerce, transportation and printing.

The case for increased flexibility is strong. (Postal officials raise the possibility, for example, of charging higher rates for the busiest mail periods and lower rates for times that are slower.) So the case for diversifying lines of business, especially for a firm in a declining industry.

But USPS is trying to have its package and mail it too. It wants the benefits of its present status without the downsides. While asking for the freedoms that come with being a private company, it wants the perks it gets from government - ranging from tax-free status to implied financial backing from the U.S. Treasury. The foremost perk, of course, is its legal monopoly on first-class mail; the privilege of sending competitors to jail is one few private firms enjoy.

Letting USPS enter new markets without eliminating its special protections is a recipe for economic distortion. More importantly, this kind of protection is exactly what fostered the Postal Service's famous inefficiency in the first place. The culture needs to change, and more competition, not less, is the way to do it.

The USPS plan thus falls short of the needed transformation. It should be stamped "insufficient" and returned.

James Gattuso is a research fellow in regulatory policy at the Heritage Foundation.

About the Author

James L. Gattuso Senior Research Fellow in Regulatory Policy
Thomas A. Roe Institute for Economic Policy Studies

Appeared originally in the Washington Times