Reforms for the Failing Postal Service

November 11, 2011

The U.S. Postal Service (USPS) is facing a fiscal crisis.  The demand for its core activity of mail delivery has collapsed, and further declines are likely.  Increasing use of substitutes for physical mail are all eating away at traditional mail volumes.  Simultaneously, the USPS has been held up in attempting to respond to a changing market by its congressional ties, which limit its autonomy and authority to address internal issues.  However, the USPS cannot survive in its current state if it is not given the ability to adapt to a changing market, says R. Richard Geddes, a visiting scholar the American Enterprise Institute.

  • Mail has fallen over 20 percent since its 2006 high.
  • First-class mail is down almost 25 percent since its 2001 peak, and declines are accelerating.
  • Revenue in real dollar terms has fallen over 15 percent since peaking in 2007.
  • Having already exhausted all of its $15 billion borrowing capacity from the U.S. Treasury, the Service still expects to lose between $9 billion and $10 billion for its 2011 fiscal year, on top of losses of $8.4 billion in 2010.

In order to address its growing issues, the USPS must sever its congressional ties through a process of de-monopolization, corporatization and privatization. 

  • De-monopolization will likely result in lower overall rates, as the industry that has been protected and insulated by government regulation is forced to compete. The experience of deregulation in other network industries, in addition to empirical evidence from the de-monopolization of postal services in Europe suggest that the overall impact for the efficiency of the industry and rates for consumers will be beneficial.
  • Corporatization would allow the USPS to have more internal authority. It would release the agency from onerous government oversight and would allow the body to be controlled by a board of directors.
  • Privatization, culminating in an initial public offering of USPS stock, would also improve the service, as it would keep a board of directors loyal to the company's owners.

Source: R. Richard Geddes, "Return to Sender: Reforms for the Failing Postal Service," American Enterprise Institute, November 1, 2011.

For text:

http://www.aei.org/docLib/GEDDES-USPS.pdf

 

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