How not to fix the postal service

Published 1:50 pm Tuesday, October 26, 2021

BY KENNETH GOUGH
The Elizabethton Star recently ran an editorial calling on Congress to fix what ails the U.S. Postal Service. The Star is right when it states that the problems aren’t new, they aren’t going away on their own, and management’s hands are tied by federal law in ways that make it impossible for them to take the necessary actions to quit losing money hand over fist. It contends that, Congress having created the problem, only Congress can fix it.
I really, really wish that was true. To the contrary, it’s very likely that the actions the Star advocates wouldn’t make the situation better, they would almost certainly make it worse.
The basic reason is that the USPS is a government-mandated monopoly. By law, no one else in the U.S. is allowed to deliver first-class mail. The problems with monopolies are well-known and need no explanation here. Suffice it to say that they always result in higher prices, poorer quality, and a level of service that is just good enough to keep their customers at bay. Unless one deals with that problem — and the Star doesn’t — then anything else that’s done will be as useful as re-arranging the deck chairs on the Titanic.
Instead, it calls for Congress to declare the Post Office an “essential service”; in effect, to further entrench the USPS as a monopolist by declaring that it is too important to fail. But this would only make matters worse and is the exact opposite of what’s needed.
The fundamental fallacy in the editorial’s logic is that government can mandate things to be the way it wants them to be. Simply not the case. Take the internet. It allows us to communicate almost instantly almost everywhere in the world at very little cost. Can the same be said of regular mail? No, of course not; it’s called “snail mail” for good reason; for almost every sort of communication, the internet is vastly superior (almost, but not quite, at least not yet — but give it time). The same is true of “newspapers” (which I now read almost exclusively online) and magazines, books, and most of the plague of junk mail, too. The economics of electronic communications are simply too compelling to ignore, and certainly nothing that Congress could “fix”, even if it wanted to. Even the federal government no longer uses the mail for anything that can be done electronically, saving it billions of dollars a year. Yet every letter, newspaper, check, etc., not delivered to a mail box is income that the USPS won’t receive. Mail volumes have been declining for close to two decades, and will continue to decline, no matter what Congress does.
The immediate problem for the Post Office is how to match an inexorably-declining volume of business to the infrastructure needed to guarantee a very high (and wasteful) level of service almost everywhere, as mandated by law. A monopoly has an easier time of this than a business that must compete for its customers — it can raise its prices almost with impunity. But the Post Office isn’t a perfect monopoly; packages can always go by way of FedEx or UPS, and higher prices on letters only increase the (already powerful) incentive to move business to the internet. The constraints imposed by Congress and market forces are slowly killing the Post Office, and as long as the constraints remain, the slow death, and the necessity of life-supporting subsidies, will continue.
The only thing that can fix the USPS — if anything can — is real competition. Which means that, necessarily, failure must be an option. Nothing else can force the USPS — meaning its managers, employees, retirees, unions, contractors and customers — to face the facts and accept reality. And a hard reality it is. Just over 50 years ago, Congress faced up to the fact that the Post Office as a government agency was going to drain the government dry, so it cut it loose with a stern warning to get itself in order or else. Obviously, that hasn’t worked, at least not as well as Congress hoped (and as anyone with a lick of business sense knew to expect). There is simply no way that it can continue operating the same way it has for the last 50 years and come close to breaking even. Some combination of curtailed service, lower compensation, higher prices and draconian cost containment will be needed — a bitter pill to swallow for everyone involved.
Those who object to this approach will use the loss of services as a political battering ram, insisting that we can’t let this disaster for widows and orphans occur. We mustn’t shy away from the fact that something will have to give — that widows and orphans and rural residents and others who, for whatever reason, can’t or won’t take advantage of modern communication and business methods, will have to accept less in the way of services, for the good, plain and simple reason that we can’t afford it any longer. The same goes for everyone else in the ecosystem, from top-level managers to retirees to contractors; everyone is going to feel the pain. The good news is that there is a readily-available, time-tested, thoroughly proven, highly effective way to sort out the problems, if one is willing to accept that changes are necessary, that the process won’t be pain-free, and that the results won’t be perfect, just better than what any other approach could produce. It’s called the free market.
And to put it into play, all Congress has to do is really cut the Post Office loose. Set it up as a corporation with adequate capitalization to get it on its feet, and do an IPO. End the mandates, and end the monopoly. Allow anyone to deliver first-class mail — let anyone deliver anything to anyone else, for that matter — and let the market participants figure out how to do it; they can and will, just as airlines figure out how to share airports and airspace, yet still compete fiercely. Then stand back and watch the invisible hand do its work.
Frankly, I’m skeptical that the Post Office can make the transition from government monopoly to competitive international business. It’s just not in the nature of hide-bound, stuck-in-the-past organizations, public or private, to do it, and I can’t think of a single case where it’s happened in the U.S. But even if the worst happens and it goes out of business, that doesn’t mean the end of postal service. UPS and FedEx prove that. They and/or other entrepreneurial businesses will buy up the assets they want and just keep going — but at market-clearing levels of service and cost rather than artificially-mandated levels that are economically unjustifiable.
The Star is right that things can’t go on the way they are. They’re wrong, though, on the way to fix the problem. But it can be fixed. We just have to be willing to take the plunge. Easier said than done, eh?
(Kenneth Gough lives in Elizabethton and is semi-retired having been affiliated with Accurate Machine Products Corp. for 36 years, the last 21 as owner, president, and General Manager.)