USPS: A Giant Distortion Machine

The U.S. Postal Service (USPS) is a major business enterprise operated by the federal government. It has a legal monopoly over first-class mail, which prevents entrepreneurs from competing to improve quality and reduce costs.

I describe the postal system’s inefficiencies here, and discuss how European countries have privatized their systems and/or opened them to competition.

In this country, privatization is needed more than ever because the USPS is increasingly distorting the booming package delivery business. My study discusses USPS cross-subsidies between its mail and package activities, and a recent article in the Wall Street Journal explored the problem further.

Josh Sandbulte argued that the USPS gives Amazon an unfair advantage over brick-and-mortar firms:

The U.S. Postal Service delivers [Amazon’s] boxes well below its own costs. Like an accelerant added to a fire, this subsidy is speeding up the collapse of traditional retailers in the U.S. and providing an unfair advantage for Amazon.

… The 2006 Postal Accountability and Enhancement Act made it illegal for the Postal Service to price parcel delivery below its cost. But with a networked business using shared buildings and employees, calculating cost can be devilishly subjective.

… An April analysis from Citigroup estimates that if costs were fairly allocated, on average parcels would cost $1.46 more to deliver. It is as if every Amazon box comes with a dollar or two stapled to the packing slip—a gift card from Uncle Sam.

In a response to Sandbulte here, the USPS claims that they do not cross-subsidize. The solution for this dispute? Privatize the USPS, repeal the monopoly, and let competitive markets decide on product pricing.

Another way that the USPS distorts the marketplace was explored in the Washington Post recently. Stamps.com appears to have a sweetheart deal with the USPS related to selling postage, preparing labels, and servicing shippers:

At the heart of this dispute is the Postal Service’s use of discount deals, called negotiated service agreements, that allow some companies to sell postage for less than others even though the underlying service — having the Postal Service deliver a package to a particular address within a specified period of time — is identical. The details of these deals, and even the identities of companies receiving them, are not public because of the Postal Service’s broad exemption from public disclosure laws when it comes to its dealings with private businesses, leaving rivals to guess at who is getting better terms and why.

Several current and former industry officials say they believe that Stamps.com, through several subsidiary companies, has gotten particularly lucrative discount postage deals from the Postal Service and is using them in novel ways that give Stamps.com an unfair competitive advantage over other companies.

The WaPo story talks about USPS dealings with language such as “opaque,” “closely held secrets,” and “details of which are not made public.” I’m confused—I thought the USPS was the people’s mail service operated in the public interest?

Alas, as I explored in this study on privatization, government agencies are usually less transparent than private enterprises. The WaPo says, “The Postal Service declined multiple requests for interviews regarding its postage-discount programs and did not respond to written questions from The Post.”  Public agencies are often less responsive to the public than private ones.

Bottom line: We do not need a giant and secretive distortion machine in the middle of our mail and package industry, as the Europeans are showing us. Postal-socialism makes no sense in the Internet age.