Congress failing the US Postal Service

Reuters

A woman walks out of a post office which is due to close in Los Angeles, California January 30, 2012. The Postal Service, which relies on the sales of stamps and other products rather than taxpayer funding, has limited alternatives for shoring up its finances.

Article Highlights

  • The USPS lost over $1 billion in each of the past six months, and over $12 billion since 2007.

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  • How should Congress proceed? These two reforms are central to creating a long-term viability for the USPS.

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  • Congress, acting as a board of directors, has found it difficult to run a complex business like the USPS.

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The U.S. Postal Service is in deep trouble. It lost over $1 billion in each of the past six months, and over $12 billion since 2007. And the USPS is likely to default on a $5.5 billion payment due to the Treasury on August 1st.  The reason?  Congress is trying to act as a board of directors.

Some contend that the changing communications landscape is to blame, which is partially right: Rising use of electronic communications and the ongoing recession have depressed mail volumes. Mail is down over 20 percent in the past five years while revenue has fallen 12 percent, but USPS costs have not yet adjusted accordingly.

"If Congress grants the Postal Service freedom to operate like a business ... the USPS will be able to change its business model and delivery network, allowing it to adjust to a new communications marketplace." -Richard Geddes It doesn't have to be like this. If Congress grants the Postal Service freedom to operate like a business, like many postal services worldwide, the USPS will be able to change its business model and delivery network, allowing it to adjust to a new communications marketplace. Though declining mail volumes necessitate change, they are not an insurmountable barrier to viability. The United States still sends more mail per capita than do many other developed countries that have commercially viable postal services.
 
How should Congress proceed? Two reforms are central to creating a long-term viability. The first is to make the USPS subject to private corporate law. This includes creating a board of directors with explicit fiduciary duties to shareholders and creating the shares as well-even if they are initially held by the federal government. The second is to give postal management the commercial freedom it needs to adjust the size and scope of the delivery network to the new communications marketplace. This includes shuttering little-used post offices and replacing them with contracted window services, as well as adjusting the number of large sorting centers to the reality of lower mail volumes. The UK's Royal Mail has closed the vast majority of its post offices, as has Germany, moving each service toward financial viability.

Both reforms require Congress to step back and give postal managers more latitude to make standard business decisions. And both move the Postal Service toward the form it should ultimately take: a fully privatized company facing competition in its core activities.
 
Congress, acting as a board of directors, has found it difficult to run a complex business in a changing environment. The last five years of USPS' financial performance make that clear. But by recognizing that dedicated business leaders can make more timely and cost-effective decisions for the USPS, Congress can move the historic service back toward long-term success.
 
Richard Geddes is an associate professor in the Department of Policy Analysis and management at Cornell University. He is also a visiting scholar at the American Enterprise Institute (AEI).

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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: [email protected]

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