The Postal Service Has Defaulted. It’s Time To Privatize It.

Commentary about business and finance.
July 31 2012 2:46 PM

Going Postal

Tomorrow’s $5.5 billion default is the beginning of the end for the U.S. Postal Service. It’s time to privatize it.

Mail Delivery.
How can the Postal Service re-invent itself?

Photograph by Michael Shivers/Thinkstock.

Wednesday, Aug. 1, will be a banner day in American postal history, but not in a good way. The United States Postal Service will default on a scheduled $5.5 billion payment to cover future retiree health costs. The USPS has already said it will also default on a similar payment scheduled for September.

There is no immediate crisis here: The accounting obligation to pre-pay for future health care costs in this way is unusual, and not making the payments in no way prevents normal mail operations. But the short term isn’t the real issue. The Postal Service’s underlying financial model is broken, and it probably can’t be fixed without radical measures.

The model is pretty simple, albeit a little old-fashioned as a way of providing public services. Rather than having taxpayers directly finance mail delivery, Congress has chartered a freestanding entity, the USPS, charged with the legal obligation to provide low-cost daily mail service six days a week to all Americans at a flat rate—regardless of whether it’s cost-effective to do so. In exchange, that entity has a monopoly on ordinary mail delivery. The idea is that the lucrative monopoly over delivery to metropolitan areas will generate enough revenue to cover money-losing rural services without the need for direct taxpayer subsidies. The problem is that the monopoly isn’t nearly as lucrative as it used to be—and barring some wild technological shift, it’s going to keep getting less and less lucrative.

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That means that administrative fixes related to Saturday delivery or various schemes to more aggressively lay off workers or cut their pay will only kick the can down the road. Sooner or later the basic model will need a more thorough rethink.

The simplest idea would be to relax or end the universal service obligation, acknowledging the USPS’s permanently diminished revenue stream. In other words, let the Postal Service close down unprofitable post offices and charge hard-to-reach customers money for their mail delivery. The problem with that is politics. A very modest USPS move to shut down rural post offices led to massive congressional backlash earlier this year. And, indeed, since guaranteeing subsidized rural mail delivery is the whole point, it doesn’t make much sense to back away from the commitment. If we’re committed to universal service, then we need to get the Postal Service extra money. If we’re not committed to universal service, then we may as well just privatize the whole operation.

There are two main ways USPS could get enough extra revenue to sustain its regular operations. One would be to directly allocate taxpayer money to the USPS. The other would be to try to let the agency enter new businesses. In many countries, postal systems offer basic banking services. That, obviously, is not an idea the banking industry would embrace. The smaller local banks and credit unions that have been valorized in the post-TARP era would be particularly hard hit by postal banking. These, after all, are precisely the institutions that don’t offer a sophisticated menu of financial services or run lucrative investment arms. Instead they rely on the routine business of small depositors to fund their operation—exactly the market a successful postal bank would soak up. This makes postal banking a political long shot.

Privatization—also practiced successfully in many European countries—could make a lot of sense. If it happened, rural communities would either need to pay more for mail, accept diminished service, or subsidize postal services out of their own budget. But why shouldn’t rural America face this tradeoff? Just like small towns, big cities have unique public service needs—large police departments, for example—that they’re expected to pay for on their own. Why should rural Americans be insured against their choice to live in distant and hard-to-reach places? 

The other losers in privatization would be the Postal Service’s own workers. Postal privatization in the Netherlands hasn’t led to any catastrophic collapse in Dutch society, but it has transformed postal work into a much lower-paid occupation with grimmer working conditions.

But absent open-ended taxpayer subsidies, postal workers are going to suffer. A monopoly on daily mail delivery is an intrinsically much less valuable thing to have in 2012 than it was in 1992, and nothing can change that. A humane approach to privatization would note that the USPS currently owns a lot of valuable assets—not only a good brand, but a massive portfolio of real estate—and that the federal government has no real need for the one-time infusion of cash that would come from selling it. That means the privatized company could be turned over to its workforce as an employee-owned firm. Workers could have a say in how to manage the transition and the ability to benefit as owners from more efficient business even as they lost as workers from the same dynamic.

Meanwhile, the country should acknowledge that the original mission of creating the Postal Service—providing the entire population with access to state of the art communications technology—remains worthwhile. Americans’ broadband Internet continues to lag the world’s leaders as the FCC’s timid policies fundamentally fail to deliver meaningful competition. The best service in America, meanwhile, generally comes from the handful of cities who’ve invested in public-sector municipal broadband networks—the true 21st century successor to the old idea of a national postal service. Unfortunately, state legislatures around the country are, at the behest of cable company lobbyists, passing laws banning cities from building broadband networks. Hanging on to the public sector communications infrastructure of the past is no substitute for building the infrastructure of tomorrow. The Postal Service no longer provides a truly critical service, and the revenue model used to finance it is fundamentally broken. Tomorrow’s looming default will be just the first-step in a never-ending fiscal crisis until Congress is ready fundamentally rethink the enterprise.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

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