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Can the Post Office Deliver?

by Elaine Schwartz    •    Jun 26, 2010

Having just read a Washington Post article about the U.S. Postal Service (USPS), I started thinking about its future. But first, its past:

While we have had postal services since the 1600s, Ben Franklin transformed the system. Appointed Deputy Postmaster for the Colonies by the British, he established our first home mail delivery system, diminished to a single day the letter delivery time between New York and Philadelphia, and to 6 days between Philadelphia and Boston. When Franklin was fired by the British for his rebellious political activity, the postal system was making a profit.

Not today.

Although it has a monopoly on letter delivery and mailboxes, still, the USPS lost a total of $12 billion during the past 3 years. As explained in a Teaching Company lecture, they face competition from UPS and FedEx, from email, faxes, and texts. Their salaries average 30% higher than the private sector, they have massive pension and retirement obligations, and their productivity lags behind national averages.

While Congress has begun hearings on Postal Service problems, it appears unlikely that they will select any solutions that New Zealand and Germany have successfully implemented. Congress could divide the system into separate privately or publicly owned, profit seeking corporations or just eliminate all monopoly protection. To cut costs, they could stop Saturday delivery. As 80% of its expenses, labor could be cut. (Only Wal-Mart employs more people than the USPS.) 

Having had nothing to do with the USPS, perhaps the title of the movie “You’ve Got Mail” sums it all up. 

The Economic Lesson

Hoping to preserve the status quo, some people have said that the Postal Service is a natural monopoly. Most economists disagree. Having a natural monopoly means that one firm is more efficient than a competitive market structure with many firms. Until new technology transformed the industry and government broke up AT&T, the U.S. phone system was called a natural monopoly. 

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