Government and creative destruction
The Postal Service is on its way out, ready or not, public or private. The debate over whether to continue Saturday delivery or not and about prepaying in retirement accounts obscures the fundamental question: does the U.S. need state provision of a postal service?
I grant that there was a compelling case for a postal service at the time of the founding--the Postmaster General was one of the original positions in the Cabinet--but I think that it's time to engage in a gradual winding-down of the state program, complemented by a broad and simultaneous privatization.
The case against this is extraordinarily weak, relying on demagogic rhetoric, non-sequiturs, and ignorance, and almost all of it comes from the public union interests of mail-carriers and other postal service employees, whose interest lies in protecting their jobs rather than taxpayer dollars or even the existence of a postal system, whether public or private. For the next five years, the federal government ought to take action as would a conservator appointed by a bankruptcy court.
Allow me to sketch out the way ahead:
- Continue to reduce the Postal Service employment through attrition as far as increases in productivity will allow. Given that mail volumes are at 1986 levels and allowing for a reasonable rate of productivity gains, I think a target of 500,000 jobs is appropriate in the medium term. That's 112,000 less than the current level. With attrition currently eliminating roughly 2,500 jobs a month, this will be done in 45 months.
- Correct payment of retirement accounts to private-sector standards. The union argument tries to paint prepayment programs as the root cause of the Postal Service's troubles and would like to effectively defund the accounts of future employees to buy itself a few more years of superficial fiscal rectitude. That is of course the wrong approach, but for the sake of this analysis, let's assume that the payment has been over-aggressive compared to private accounting standards. Let's say that a change to private standards cuts costs the Postal Service by $2 billion annually--that ought to buy them a few years to adjust their business and to dodge outright default.
- Roll out a privatization/liberalization program to urban areas first in a deficit-neutral manner: offer a "do not mail" option to end the subsidy on direct mailers, auction off post offices, relocate some branches to malls and other retail areas instead of stand-alone buildings, end Saturday delivery, revoke the monopoly on first class mail to addresses in urban zip codes. Congress should repeal the law banning post office closure for economic reasons--31,000 offices is too many, and 80 percent of them are net losers. Let stamp and shipping prices be set by revenue-maximizing considerations. Congress should also remove any federal guarantee, explicit or implicit, of Postal Service debt obligations by legislation. It should preemptively ban any entry of the Postal Service into other businesses--this runs against the end-goal of a private system.
- Gradually introduce the privatization/liberalization to suburban and rural areas. At this point, the Postal Service should be operating with no net losses, although with steadily shrinking revenue and costs. Use an auction system to rent out existing post offices to private carriers, under a contract which guarantees a level of service for 10 years in return for an auction-determined subsidy, capped at a percentage level. Those which cannot be auctioned off are closed, with business relocated to offices within malls or supermarkets.
- Now that the Postal Service has been appropriately downsized, complete the liberalization by legislation which ends all government obligations other than the rural-office subsidy programs. Remove the restraints on entering other businesses, and allow it to expand, add services, or end rental agreements as it chooses.