NCPA - National Center for Policy Analysis

Old Arguments for State-Run Postal Service No Longer Apply

May 14, 2004

A survey of economists specializing in postal services has found that they recommend that the government-supported United States Postal Service (USPS) be de-monopolized or privatized.

The U.S. government first got involved with the postal services as a way to support the growth of democracy. The more modern defense is cross-subsidization, where the profits in one region can offset losses incurred on less populous routes -- ensuring universal service to rural areas. Another defense is that there are economies of scale, with lower average costs, due to the size of the postal service and amount of mail. However, the study concludes that neither of these justifications are valid:

  • The proportion of unprofitable routes is about the same for urban and rural areas -- indicating that it isn't a lack of volume that determines whether or not a route is profitable.
  • About 16 percent of mail is subject to competition from private package services, suggesting a monopoly is not necessary to preserve universal service.
  • Due to the postal monopoly, the service pays a wage premium of $9 billion, while the benefits of having a single provider for delivery is only $6 billion.
  • Developments in technology and in economic engineering have reduced the significance of scale economies.

Generally, economists recommend some combination of rapid demonopolization and privatization, though there are some differences of opinion regarding the order in which those reforms should be made.

Source: Rick Geddes, "Do Vital Economists Reach a Policy Conclusion on Postal Reform?" Econ Journal Watch, Volume 1, Number 1, April 2004.

 

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