Privatization Issues

U.S. Postal Service Isn't Competitive

Since a 1982 restructuring, the U.S. Postal Service hasn't been receiving large annual subsidies from the government; but it does benefit from privileges and exemptions not available to private-sector companies, and it cross-subsidizes its unprofitable operations.

The special privileges enjoyed by the postal service are substantial.

  • The chief one is a government-enforced monopoly on the delivery of all non-urgent first-class mail.

  • It can borrow directly from the U.S. Treasury -- it currently owes about $7.3 billion -- and issue debt to third parties backed by the full faith and credit of the federal government.

  • When it turns a profit -- as it did in 1995 for the eighth time in the past 24 years -- it doesn't pay corporate taxes or issue dividends, and it can demand payment of debts from estates and bankruptcies before any private creditors.

  • It is exempt from full compliance with Occupational Safety and Health Administration rules imposed on private business -- although an OSHA report identified major safety problems and the USPS paid over $521 million in fiscal year 1994 for workers' compensation, death benefits and medical expenses.

Economists suggest the postal service subsidizes its money-losing operations -- where it faces competition -- such as overnight and express delivery, by allocating those costs to its profitable first-class mail service.

The price of a first-class stamp has risen from 3 cents in 1940 to 32 cents today, a 967 percent increase, just 2.2 percent below the increase in the Consumer Price Index for that period. However, postal customers are turning to alternative services which have declined in price due to competition and innovation, such as electronic mail.

Some analysts think the U.S. should follow the example of successful postal-service privatization in England, Canada, Australia, New Zealand and Sweden.

Sources: Nick Gillespie, "Mail Fraud," Reason, June 1996, Reason Foundation, 3415 S. Sepulveda Blvd., Suite 400, Los Angeles, CA 90034, (310) 391-2245; and "The Post Office's New Math," Business Week, July 8, 1996.

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