Amazon Won’t Save the Post Office

Commentary about business and finance.
Nov. 13 2013 11:30 AM

Amazon Can’t Save the Post Office

The core bargain underlying the Postal Service is irredeemably broken, and clever new arrangements don’t change that.

Shipping orders go by on a conveyor belt at Amazon's San Bernardino Fulfillment Center October 29, 2013 in San Bernardino, California.
Amazon, now coming on Sundays.

Photo by Kevork Djansezian/Getty Images

The U.S. Postal Service is teaming up with Amazon to do something great—deliver your packages on Sundays. This combination of America’s favorite nonprofit company with a government agency that’s hemorrhaging cash and on the road to bankruptcy is a powerful blend of cultural signifiers. Perhaps Jeff Bezos could be persuaded to buy the Postal Service and cover losses out of pocket, as he seems willing to do with the Washington Post. Or maybe Amazon and the USPS will merge, with mail delivery becoming part of the Amazon Prime bundle, just like episodes of Alpha House.

But flights of fancy aside, the USPS-Amazon deal is a powerful reminder that the conservative stereotype of the Postal Service as a prime example of public sector incompetence is simply wrong: The USPS does what it does—deliver stuff—perfectly well. On the other hand, liberals who imagine that the post office is just a tweak or two away from salvation are missing the point. The Postal Service is failing despite being good at what it does, because its underlying financial model and mission are totally outdated. The institution could be saved in any number of ways, but all of them involve it fundamentally becoming something other than what it primarily is—an organization dedicated to delivering daily first-class mail.

To understand the Postal Service’s financial woes, you need to recall that it’s essentially our oldest domestic program (it’s even in the Constitution!) and thus reflects a very old-fashioned way of delivering public services.

Advertisement

In the 18th and early 19th centuries, when government administrative capacities were very limited, it was difficult to collect taxes and equally difficult to manage agencies. Consequently, services would often be provided through indirect means. Back in 1785, for example, the Commonwealth of Massachusetts wanted a bridge over the Charles River between Boston and Cambridge. Instead of using tax money to build one, they chartered a private company to build the bridge with private capital and in exchange granted the company the right to profit from the bridge with 40 years’ worth of tolls. To make these kinds of projects sufficiently tempting to private enterprise, you would need to grant the company an explicit monopoly.

And this is essentially how the Postal Service is supposed to work. It has a monopoly on first-class mail delivery—the basic everyday letters that were once the backbone of American communications infrastructure. For most of its history, this has been a lucrative monopoly.

But rather than allow this monopoly to enrich shareholders (like with the Charles River Bridge Co.), Congress has always mandated that the monopoly profits serve some public purposes. Most notably, the Postal Service guarantees daily mail delivery to every single American household for a flat rate—even though, logistically speaking, mail delivery is much more efficient in a built-up suburb than a sparsely settled rural community. The Postal Service also overserves rural America with post offices. Small towns in Maine that don’t have the population base to support a high school or a supermarket nonetheless each have their own post office. That’s a convenience to small-town America and also a source of jobs. And speaking of jobs, the Postal Service’s monopoly structure and lack of private ownership traditionally made it a pretty good place to work. As long as the volume of mail was high, there was no contradiction between subsidizing service to remote areas and unions negotiating generous pay packages for postal workers.

The problem is that nowadays the volume of mail, though still high, is shrinking. The value of the underlying monopoly is shrinking with it. That undermines the Postal Service’s financial model. Consequently they’ve been seeking union concessions and fighting with Congress over ending Saturday mail delivery and closing rural post offices.

The Amazon deal is a reminder that a path out of this trap is possible. Outside the realm of first-class mail, the Postal Service has a nonmonopoly parcel delivery business where it competes with UPS and FedEx. Despite the lack of monopoly, this is a profitable business—and the deal with Amazon reinforces the fact that it’s a growing business. In principle, more of this kind of thing could save the Postal Service. Congress could generate the funds necessary to cover the cost of universal, six-days-a-week first-class mail delivery by letting USPS expand into more lines of business. We could bring back postal banking, or the Postal Service could get into other areas of telecommunications.

But the question we should ask is: Why?

Whatever we do with the Postal Service, the new deal with Amazon confirms that the fundamental model—monopoly on first-class mail delivery in exchange for providing universal service—is irredeemably broken. The USPS can seek out new profitable lines of business in the competitive economy and then use those funds to subsidize first-class mail. Or Congress could simply pony up direct subsidies. But at the end of the day, offering frequent, cheap mail delivery to rural America just isn’t that important anymore for the exact same reason that it’s becoming less affordable. People with cars and cellphones just don’t need daily home delivery of the mail to stay in touch with the world anymore. That’s made the Postal Service’s traditional monopoly less lucrative and the services it subsidizes less necessary.

Instead of forcing the Postal Service to seek out new sources of revenue to uphold its own mission, why not release it from the shackles of this outmoded mandate and let it become just another delivery and logistics company, free to seek deals with Amazon or whoever else wants to pay for its services? The legitimate concern with privatization isn’t really about the mail at all; it’s about the postal workers who might lose out if USPS were sold to private shareholders. But workers could be given an ownership stake in the company—in fact, the whole company could be granted to its workforce—and then left to manage affairs however they see fit. Keeping the enterprise saddled with an expensive but increasingly dispensable universal service obligation and then expecting it to chase new revenue streams elsewhere is absurd. To survive, the Postal Service needs to be allowed to shrink as well as grow.  

TODAY IN SLATE

Politics

The Democrats’ War at Home

How can the president’s party defend itself from the president’s foreign policy blunders?

Congress’ Public Shaming of the Secret Service Was Political Grandstanding at Its Best

Michigan’s Tradition of Football “Toughness” Needs to Go—Starting With Coach Hoke

A Plentiful, Renewable Resource That America Keeps Overlooking

Animal manure.

Windows 8 Was So Bad That Microsoft Will Skip Straight to Windows 10

Politics

Cringing. Ducking. Mumbling.

How GOP candidates react whenever someone brings up reproductive rights or gay marriage.

Building a Better Workplace

You Deserve a Pre-cation

The smartest job perk you’ve never heard of.

Hasbro Is Cracking Down on Scrabble Players Who Turn Its Official Word List Into Popular Apps

Florida State’s New President Is Underqualified and Mistrusted. He Just Might Save the University.

  News & Politics
Jurisprudence
Sept. 30 2014 2:36 PM This Court Erred The Supreme Court has almost always sided with the wealthy, the privileged, and the powerful, a new book argues.
  Business
Moneybox
Sept. 30 2014 7:02 PM At Long Last, eBay Sets PayPal Free
  Life
Lexicon Valley
Sept. 30 2014 1:23 PM What Can Linguistics Tell Us About Writing Better? An Interview with Steven Pinker.
  Double X
The XX Factor
Sept. 30 2014 12:34 PM Parents, Get Your Teenage Daughters the IUD
  Slate Plus
Behind the Scenes
Sept. 30 2014 3:21 PM Meet Jordan Weissmann Five questions with Slate’s senior business and economics correspondent.
  Arts
Brow Beat
Sept. 30 2014 8:54 PM Bette Davis Talks Gender Roles in a Delightful, Animated Interview From 1963
  Technology
Future Tense
Sept. 30 2014 7:00 PM There’s Going to Be a Live-Action Tetris Movie for Some Reason
  Health & Science
Medical Examiner
Sept. 30 2014 6:44 PM Ebola Was Already Here How the United States contains deadly hemorrhagic fevers.
  Sports
Sports Nut
Sept. 28 2014 8:30 PM NFL Players Die Young. Or Maybe They Live Long Lives. Why it’s so hard to pin down the effects of football on players’ lives.