'Tis the season to trim the tree, spend time with family and mail Christmas cards. But make sure to use up all of your 37-cent stamps. If the post office has its way, it will cost 41 cents to mail a first-class letter next year.

That would be a rate increase of almost 10 percent -- just two years after the last price hike from the U.S. Postal Service (USPS).

Ironically, the post office will be asking for this increase even as its core business is shrinking. Last year, for the third year in a row, total mail volume decreased. The postal service is famous for its inefficiency, and increasingly unable to keep up in a world of e-mail.

So the question policy-makers need to ask is: How can we make the post office, a government monopoly set up in the 18th century, relevant in a 21st century world?

Last year, a presidential commission set up to study the post office recommended reducing costs by closing unneeded branches, reducing the workforce and -- critically -- providing USPS management with greater flexibility, such as the authority to negotiate rates. Many of these reforms need Congress' approval.

The case for such flexibility -- which would allow USPS to operate with more of the efficiency of private companies -- is sound. Yet reform can't stop there. USPS enjoys legal privileges unlike those enjoyed by any private firm. Foremost among these is the ban on other companies delivering regular letters for consumers. These privileges distort markets and unfairly deprive Americans of choice.

Moreover, such privileges are harmful to the postal service itself. After all, its insulated status helped cause that notorious culture of inefficiency in the first place. More competition is just what is needed to turn that culture around. Thus, in return for increased flexibility, the postal service's special protections should be eliminated. Congress should allow any company to carry any mail over any distance, and charge any amount it wishes.

At first this idea might sound frightening. Right now we can send a letter across town or across the country for the same 37-cent price. What if rates suddenly soar?

But let's remember that, in recent decades, the government has lifted price controls on airline fares and long-distance phone calls, and the resulting competition has sent prices plunging. There's no reason to believe the same thing wouldn't happen with mail delivery.

What about hard-to-serve areas? Will Congress still be able to ensure that it costs the same amount to send a letter from New York to Honolulu as from New York to Philadelphia? It's not at all clear that it should. But if Congress thinks subsidies are needed, it doesn't need a monopoly. Instead, it can set up a special subsidy fund for long-distance mail, similar to the fund it set up when telephone rates were deregulated.

The idea of competition isn't radical. It's already working overseas. Finland, Sweden and New Zealand have already repealed their postal monopolies. And doing so has paid dividends.

In New Zealand, for example, the post office went from losing $37.9 million in 1987 to a $47.7 million after-tax profit in 1997. According to a government Web site, 40 percent fewer workers now handle 20 percent more mail. New Zealand Post now has more branches than it did before reform. And the price of a first-class letter has increased just once, by 5 cents in late 1991. But, amazingly, it was reduced again four years later. When was the last time postal rates dropped here?

There's no way to prevent innovation, and even if we could, we wouldn't want to. The business model that has sustained the U.S. Postal Service for hundreds of years is wrong for the new era.

Now's the time to create a nimble corporation that can survive in a wired world -- and stop tying our government to a monopoly that can deliver only increasing prices and decreasing levels of service in the years ahead.

Ed Feulner, president of the Heritage Foundation (heritage.org), a conservative think tank based in Washington.