The postal union dilemma: Shrink to survive or corporatize

U.S. Air Force/Tech. Sgt. Shane A. Cuomo

Finance and postal clerk Enrique Garza sorts through incoming mail payment documents on Aug. 23, 2007.

Article Highlights

  • The USPS lost another $1.3 billion for the first quarter of its 2013 fiscal year

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  • The Postal Service’s core business–the delivery of first-class letter mail–is 4.5% relative to same quarter in 2012

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  • Justification for USPS current structure as a government-owned firm with legally enforced monopolies is weakening

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  • With monopolies in place, the Postal Service will be consigned to a "shrink to survive", cost-cutting strategy

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Thursday's National Academy of Public Administration report on the United States Postal Service highlighted the need for reform. However, the proposal - which essentially recommends increased postal "worksharing," or greater private participation in such activities as mail collection, processing, and local mail transportation - might not work well for one of its key stakeholders: postal unions.
 
Many labor groups have already voiced their opposition to the concept. What they have not done is stepped back and pushed for a third way that promises growth opportunities for their members while addressing budgetary and business concerns. Yet there is a third way that allows the Postal Service, postal unions, and American taxpayers to emerge as winners. 

First the context: Postal Service news continues to be grim. The USPS lost another $1.3 billion for the first quarter of its 2013 fiscal year, on top of the $16 billion lost in its 2012 fiscal year. The Postal Service's core business - the delivery of first-class letter mail - was down by 4.5 percent relative to the same quarter in 2012. Though standard mail was up 3.6 percent, fueled by the fall elections, and parcels were up 4 percent, the numbers are worse than they appear at first, since first-class mail is by far the Postal Service's most profitable business.
 
These trends suggest that the justification for the Postal Service's current structure as a government-owned firm with legally enforced monopolies (one over letter delivery and the other over the use of the mailbox) is weakening. That structure was designed to use profits from low-cost (typically urban) mail routes to help pay the cost of delivery to high-cost (typically rural) routes, and was intended to guarantee the delivery of letters, rather than parcels or advertisements. Indeed, the USPS faces intense competition in parcel, overnight, and in other services not covered by the delivery monopoly.
 
The steep decline of letter mail suggests that the Postal Service's monopolies should be phased out. Legally enforced monopoly is always - and for solid policy reasons - accompanied by regulatory oversight that constrains the firm's ability to innovate in raising additional revenue. That is, the USPS can never become a true enterprise because it is prohibited from being enterprising.
 
With the monopolies in place, the Postal Service will be largely consigned to a "shrink to survive", cost-cutting strategy.
 
Any benefits the mail monopolies have provided in the past are now greatly reduced. First, letter mail delivery itself is becoming less important as electronic communication becomes more popular, so the social benefits of ensuring delivery are smaller. Second, because of decreasing mail volume, the profits once generated by the monopolies to help ensure rural delivery are today greatly diminished.
 
Meanwhile, the social cost from hampering postal operations with monopoly-related regulations is rising. In the face of growing threats from electronic alternatives, the harm from a regulatory straightjacket increases over time. This may explain why all 27 European Union member countries eliminated their postal monopolies in a wave of postal liberalization, as have many other countries.
 
Given that about 80 percent of the Postal Service's costs are labor-related, no group should be more concerned about a shrink-to-survive strategy than organized labor. There is simply no way to downsize in the face of declining mail volumes that does not involve continued, large reductions in the work force.
 
Labor is thus the key group that should be pushing for monopoly phase-out. Without it, the Postal Service will never enjoy the commercial flexibility necessary to use its existing assets to generate more revenue, and to therefore avoid faster downsizing. If the monopolies were phased out, the Service would be freed up to innovate in pricing, in new products and services, and in new partnerships with the private sector.
 
So far, however, organized labor has shown little interest in postal liberalization by phasing out the monopolies. Perhaps that is because the link between the regulation of monopoly and the freedom to generate more revenue remains under-appreciated. Hopefully an outright collapse of the Postal Service will not be required to draw attention to that crucial link.

 

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About the Author

 

R. Richard
Geddes
  • Rick Geddes is associate professor in the Department of Policy Analysis and Management at Cornell University. His research fields include private infrastructure investment through public-private partnerships, postal service policy, corporate governance, women's property rights, and antitrust policy. He is a Research Associate at the Mineta Transportation Institute, and a visiting scholar at the American Enterprise Institute. He was a Fulbright Senior Scholar at Australian National University in Canberra in the fall of 2009, and a Visiting Researcher at the Australian Government's Productivity Commission in the spring of 2010. His research focused on Australian public-private partnerships in both positions. Geddes teaches courses at Cornell on corporate governance and the regulation of industry.

    In addition to his teaching and research at Cornell, Geddes served as a commissioner on the National Surface Transportation Policy and Revenue Study Commission, which submitted its report to Congress in January 2008. He has held positions as a senior staff economist on the President's Council of Economic Advisers, Visiting Faculty Fellow at Yale Law School, and National Fellow at the Hoover Institution at Stanford University.

    In 2008, Geddes received the Kappa Omicron Nu/Human Ecology Alumni Association Student Advising Award. His published work has appeared in the American Economic Review, the Journal of Regulatory Economics, the Encyclopedia of Law and Economics, the Journal of Legal Studies, the Journal of Law, Economics, and Organization, the Journal of Law and Economics, the Journal of Law, Economics, and Policy, and Managerial and Decision Economics, among others.

  • Email: rrg24@cornell.edu
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