Executive Memorandum #898
August 21, 2003
Can the Postal Service be saved? This was the question that President George W. Bush implicitly posed to the President's Commission on the United States Postal Service, a special presidential commission appointed in December 2002. In its final report, released in July, the commission acknowledged the vast challenges facing the United States Postal Service (USPS) in an age increasingly dominated by electronic communication. To survive these challenges, the commission recommended sweeping changes in the way the USPS works--from closing redundant post offices and shrinking the workforce to increasing accountability.
These are welcome reforms and certain to be controversial because they take on some longstanding USPS sacred cows. At the same time, to be truly effective, reform must also take on the Postal Service's government ownership and monopoly on letter mail. The USPS should be privatized and its statutory monopoly abolished. The commission did cautiously recommend narrowing the monopoly, but it rejected privatization.
The issue of reform now moves to Congress for implementation. While Capitol Hill has long been a graveyard for postal reform legislation, perhaps this report and the steady advances of the Internet will finally spur Congress to deliver.
The Postal Service has been in trouble for some time. Over the past several years, mail volume has been shrinking, leading to USPS deficits for three years running. (A surplus is expected this year, thanks largely to legislation recalculating pension contributions.) The reason for these woes is obvious: the Internet. Americans have been turning increasingly to e-mail and other electronic communication instead of going to the post office--a trend that is expected to accelerate. According to one study for the commission, total mail volume could shrink by 20 percent in the next 15 years, a dramatic contraction after two centuries of constant volume growth.
According to the commission, the Postal Service must change substantially to remain viable in this new environment. In short, the infamously inefficient USPS must become a modern, 21st century business. The commission recommended doing this by, among other things:
In addition to these much-needed improvements, the commission also proposed creation of a Postal Regulatory Board with broad powers over USPS activities. This would be a welcome step. The USPS enjoys special protections and powers unlike those of any private firm, ranging from tax exemptions to a statutory monopoly on letter delivery. Because of these special advantages, strict oversight is needed.
But more oversight is not enough: The Postal Service's very status as a protected government monopoly should itself be reconsidered. Among other things, this means privatization, a step already taken by several other nations. The commission, however, quickly dismissed this important reform. It cited the disruption privatization could cause, but its concern was more likely political, not economic, fallout.
A second, perhaps even more important step would be to repeal the USPS's statutory monopoly on letter mail. Few firms enjoy this sort of legal protection. Potential competitors can literally go to jail if they carry letters. Allowing such competition would be good for USPS as well as for consumers--after all, the Postal Service's insulated status fostered much of its inefficiency in the first place. The fundamental culture of the organization needs to change, and that would be encouraged by more competition, not continued protection.
The commission, however, stopped well short of recommending repeal of the monopoly. Instead, it recommended that the monopoly be redefined and narrowed by the new Postal Regulatory Board. The changes would be modest--with the rules remaining considerably more restrictive than those of the European Union. Nevertheless, the suggested reforms would be a step in the right direction and could perhaps open the door to more substantial change.
While certainly not perfect, the commission's report provides several good ideas for reform. But it is only the beginning. Now comes the hard work of implementing change. The following are among the items on the postal reform to-do list:
Implementing reform will not be easy. Numerous groups, including the unions, have an interest in the postal status quo, and policymakers in the past have shown little appetite for postal reform, considering it both too dull and too controversial. Perhaps this time, with the Internet breathing down the postman's back, Washington will find the issue more difficult to ignore.
James L. Gattuso is Research Fellow in Regulatory Policy in the Thomas A. Roe Institute for Economic Policy Studies at The Heritage Foundation.