How to save the U.S. Postal Service

The outside of the Old City Post Office in Washington, now home to the National Postal Museum, bears a noble inscription to the mail: “Bond of the Scattered Family/ Enlarger of the Common Life/ Carrier of News and Knowledge/ Instrument of Trade and Industry.”

It’s a proud statement about what the mail used to be. For more than 200 years after Benjamin Franklin was named the first postmaster general in 1775, the United States Postal Service provided services Americans wanted, in ways no other institution could match — and usually at a profit.

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But today, the “bond of the scattered family” comes from text messages, Skype and Facebook. And global businesses favor private letter and package carriers.

In 2010, the U.S. Postal Service projected that it would lose $238 billion over the following decade — a sum roughly equivalent to the gross domestic product of Chile. Sadly, it’s not only the forecasts that are grim for the USPS. On Thursday, the agency reported a $5.2 billion loss for the second quarter.

Despite years of study and recommendations, Congress continues to play small ball with the Postal Service. The leading bills in the Senate and the House each push for budget cuts and downsizing, but these are Band-Aids. They do not resolve the underlying problems of the USPS.

So what should the government do to turn around the Postal Service? Some people want a full and immediate privatization of the agency. That’s what Peter Orszag, the former director of the Office of Management and Budget, called for in a recent column for Bloomberg View, and other economists find the idea appealing. They say a privatized USPS would have the freedom necessary to deal with the agency’s large structural challenges, which Congress after Congress has failed to address.

While privatization may offer some advantages in the long run, doing it now is neither politically tenable nor wise. To take the USPS private, Congress would need to find a consensus to sell off the country’s second-largest employer during the longest stretch of high unemployment in modern American history.

Moreover, the Treasury is liable for post-employment benefits for federal workers. Supporters of privatization cite the $13 billion overfunding of the USPS’s pensions. But few mention the $46.2 billion in underfunded health benefits promised to employees, which no private bidder would ever agree to take on. Immediate privatization would leave taxpayers with yet another multibillion-dollar bill.

The Postal Service can become a sustainable business and stay under government control. And it can do this in a way that would ultimately lead to privatization without wreaking havoc on its employees or the taxpayers.

For good models, look abroad, where postal services have successfully navigated the extremes of privatization and government monopoly. Sweden eliminated Posten AB’s monopoly, allowed others to enter the market and forced the enterprise to go head to head with its new competitors, while maintaining 100 percent state ownership. Germany reduced its ownership of Deutsche Post to a third and has licensed more than 800 companies to provide alternative services, forcing Deutsche Post to expand and adapt with the competition. Even in Canada, which maintains Canada Post’s mail monopoly as a fully state-owned corporation, the postal service has the mandate and the authority to make changes to preserve public funds.

In the past 20 years, as the ways we stay connected to one another have changed dramatically, many of the postal services around the world have changed, too. But not here. Congress, in fact, has continued to restrict the USPS and aid its private competitors.

Congress fostered the growth of the companies that are eating the USPS’s lunch, passing the Air Cargo Deregulation Act of 1977, nicknamed the “Federal Express Act,” and the Motor Carrier Act of 1980. Both changed transportation laws to meet the needs of private shipping carriers. But the time when UPS and FedEx required special protections against the Postal Service has long since passed. It’s now time for lawmakers to consider how to work for the USPS, not against it.

There are three successful precedents for change that we should consider.

First, many national postal services have expanded and diversified their revenue by offering new competitive products, including global package delivery, logistics and freight forwarding. If it’s allowed to use its sizable revenue from first-class and standard mail delivery to invest in new and growing areas, the USPS can build revenue streams that will last beyond first-class mail.

Second, it is possible to deliver mail to everyone quickly and reliably at an affordable price. But this obligation must be coupled with competitive price adjustments and reasonable limits to delivery service. Postage rate increases are currently set by the Postal Regulatory Commission, whose commissioners are appointed by the president — not by the people who run the business. The USPS needs the authority to effectively cover its costs while preserving universal service.

Third, postal services are pursuing technical innovations to keep up with modern communication. In 2010, Deutsche Post embraced online and hybrid mail services, and made money doing it. (Hybrid mail systems give customers a choice between electronic or physical letters.) The Postal Service could adopt similar innovations.

These are all reasonable changes that have worked abroad. But Congress and presidentially appointed overseers stand in the way of trying them here. In addition to the stranglehold on pricing, the 2006 Postal Accountability and Enhancement Act severely restricts the USPS from expanding its services.

The path forward for the Postal Service will be difficult and involve compromise for everyone. But by loosening restrictions on its ability to compete and allowing it to adapt, Congress can allow the USPS to remain as an “enlarger of the common life” — not just an enlarger of our debt.

info@millsteinandco.com

Mike Tae and Adam LaVier are principals at Millstein & Co., a financial advisory firm, and previously held senior positions at the Treasury Department.

Read more from Outlook on the U.S. Postal Service:

— Philip Rubio on “What we’ll lose if we lose the Post Office

— Former postmaster general John E. Potter on “5 myths about the U.S. Postal Service.”

 
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