Privatize the Postal Service?

(Flickr / Aranami)

(Flickr / Aranami)

This week, Britain announced that it would soon be privatizing its postal service, the Royal Mail. Estimated to be worth nearly three billion pounds ($4.8 billion dollars), the Royal Mail will begin selling shares of stock to potential investors sometime in the next few weeks. While it remains to be seen whether or not this is a smart move for Britain, the United States should think twice before following its lead.

There is no doubt that the Royal Mail has problems. True, it does appear profitable on paper. Royal Mail’s operating profit tripled in the last year, to just over $600 million. But this can be misleading – the Mail would not be turning a profit if the government had not paid off the $6.9 billion deficit in the Mail’s pension fund last March.

The United States Postal Service (USPS) is having an even harder time. Last year, the Postal Service reported a record loss at $15.9 billion. Most of this is due to a congressional requirement to pre-fund future health and retiree benefits for postal workers.

Although delivering mail may not turn a profit, it’s still a valuable public service. The Postal Service delivers 40 percent of the world’s cards and letters, according to the Center for American Progress. Sending letters, though less common today, is far from obsolete. Spending a small amount of tax money to keep the postal service afloat is not automatically a bad idea.

However, the biggest financial problem the postal service faces has nothing to do with 6-day delivery or the competition of e-mail. According to Business Insider, USPS spends 80 percent of its annual budget on employee salaries and benefits. By comparison, UPS and Fedex spend 61 percent and 43 percent, respectively. Cutting mail delivery will only hasten the postal service’s demise. Instead, fundamental reforms must be undertaken. However, postal service reform has often met strong opposition in the United States. Numerous congressional attempts to limit retirement benefits have been defeated.

If the United States were to privatize the postal service like Britain has done, the government would first have to invest billions of dollars into making the postal service appear as a viable, competitive business. This would likely be unpopular with both parties.

R. Richard Geddes of the American Enterprise Institute thinks there are some easy steps we can take without privatizing USPS.  By eliminating monopolies on postal boxes, for example, the Postal Service could encourage competition in the letter-delivery business to motivate increases in efficiency. “The United States now lags behind most other developed countries in all such reforms. All 27 members of the European Union have eliminated their postal monopolies,” he says.

The Postal Service doesn’t receive any direct federal subsidies, but Congress still controls many of its major decisions. Economists argue that deregulating USPS would allow it to branch out and become more competitive.

The Postal Service is extremely popular among American citizens, and any cuts perceived as overly drastic will not go over well.

Public opinion in Britain is vehemently against Royal Mail’s privatization, at the same time accusing Moya Greene, chief executive of Royal Mail, of exorbitant compensation. Still, Greene argues “employees will have a meaningful stake in the company and its future success” and that “the public will have the opportunity to invest in a great British institution,” according to the New York Times.

Royal Mail’s privatization will be a model worth watching, but the United States shouldn’t get any ideas too soon.

About these ads

6 responses to “Privatize the Postal Service?

  1. I agree we should be cautious. Yet privatization still seems better to me. Would that mean it’s not under Congressional control any more? Because my understand of the problem is that they have a very lucrative pension plan. Private companies would never maintain that type of plan in today’s market – most companies are closing their pension plans (or freezing them – making sure not to impact current employees negatively, but stopping the bleeding by not making promises of future pension growth and not offering the same pensions to new employees). Private companies are using 401(k) plans instead to contribute what they can and expect that employees will do their own investing.
    But the USPS, along with so many local and state governments, and some companies with strong unions, refuse to change either because it takes an act of Congress, or because the people needing to change the law are benefiting from the higher than market pensions. If private companies were delivering the mail, they would find a way to make a profit and and still treat their employees as well other private companies in the market.
    Even if the price of a delivering a letter went up somewhat, maybe it would eliminate all the junk mail. And maybe it would push forward regulations for allowing electronic delivery to suffice for paper delivery. If privatization would get us there, I don’t want to wait forever for it.
    Maybe the USPS should just stop everything – and let private companies totally fill the gap. Probably a concern here that rural areas might not have any delivery at all…

    • Good points – but, at the same time, some of those problems could be solved if Congress would only relax the regulations for pre-funding without having to fight the privatization battle.

Leave Your Thoughts?

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s