Thesis: Opening up the mail delivery service to private hands can create economic and social efficiency.
Every day after I get done with class, I walk back to my house, climb up on the porch and check my (often empty) mailbox. While every so often I will get a piece of mail delivered by hand from a US Postal Service worker, they are few and far between and usually will go unopened right into the trash. And while mail has been on the decline since 2000, and projected to continue to fall through 2020, the same mail van will continue to park in my cul-de-sac and deliver the sparse volume of mail every day. However, with the rise of alternative shipping methods, like UPS and FedEx, it might make sense for USPS to cease to exist and the letter mail system to be privatized.
To understand why the USPS was founded, it is important to understand their mission statement. When it was founded in 1971, they were charged by Congress to facilitate communication in the US:
The Postal Service shall have as its basic function the obligation to provide postal services to bind the Nation together through the personal, educational, literary, and business correspondence of the people. It shall provide prompt, reliable, and efficient services to patrons in all areas and shall render postal services to all communities.
Effectively the Postal Reorganization Act give the US Postal Service monopoly power within the postal delivery space. In the 1970s, this monopoly power made sense: the immense fixed costs associated with processing, handling, and delivering mail required a “natural” monopoly in order to be feasible, much in the same way as utility companies. However, as technology has improved, it has cut these start-up and fixed costs, making it possible for other competitors (UPS, FedEx, DHL, etc.) to not only enter the market, but even earn a profit when competing against the monopoly power of the USPS.
The governmental power given to the USPS would not be an issue if it were not for the simple issue that the service is turning a large loss. In the Fiscal Year 2015 Integrated Financial Plan, it is outlined that the USPS lost a total of $5.5 billion in 2014 and project to lose $6.1 billion in 2015 and their financial health continues to be poor:
Despite the ongoing efforts of the Postal Service to improve its financial stability using measures under its control, the extent of the financial challenge facing the Postal Service remains daunting. Liabilities exceeded assets by approximately $45 billion…Further, there are approximately $46 billion in additional obligations for retiree health benefits…
If taken from the view of a private company, the USPS would be bankrupt several times over and would likely have ceased to exist a while ago. The one saving grace of the USPS is that they are operating at a profit, albeit a razor thin 0.86%, and most of their losses come from pre-funding retiree health plans. Nonetheless, as they continue to operate in this low margin, shrinking business, their financial situation will continue to strain the financing of the federal government.
One elegant solution to the postal problem is to allow letter delivery to be done in private hands. As mentioned above, plenty of companies have been able to build out operations to turn a profit on the delivery of packages. Allowing these companies to leverage their current delivery capabilities to take on the delivery of letters can be socially optimal for multiple reasons. First, it will give consumers a wider choice set, allowing them to pick and choose between competing companies on the merits of price, quality, service, speed, etc. Second, it can reduce the fiscal strain on the federal government by no longer requiring them to prop up a would-be bankrupt USPS “company”. Finally, it can reduce the inefficiencies that arise from the government’s subsidized mail price: as the private company cost will likely be higher, it can promote the shift toward less environmentally costly electronic communications/email.