U.S. Postal Service Fares Worse in Recession than Foreign Posts
A new paper from postal expert Michael Schuyler compares the financial performance of the U.S. Postal Service to foreign postal service providers. Not surprisingly, the USPS, which has lost over $25 billion since 2006 and ranks near the bottom of the Postal Index of Freedom, doesn’t fare too well.
From the paper:
[Universal Postal Union] data indicate that, in each year, the majority of posts in high-income jurisdictions were profitable. Declining mail demand was stressful, though: the share of posts reporting losses increased from less than one in ten in 2007 to more than one in three in 2010. Nevertheless, few posts lost money consistently: under 20% over the period 2008-2010 and under 10% over the period 2007-2008, which suggests most foreign posts reacted quickly and effectively to financial setbacks. The good news is that posts can adjust to change and remain financially viable. Unfortunately, USPS is among the posts with consistent losses. Further, UPU data show that, in each year, more than half the reporting posts in medium-income jurisdictions were profitable. Few spilled red ink year after year.
Schuyler says that he will explore the reasons for the USPS’s comparatively poor performance in a future paper, but notes that “A key finding will be that Congressional restrictions and pressure often deny the Postal Service the operational flexibility needed to manage its costs properly.” In a Cato essay, I discuss the problems with Congress’s micromanagement of the U.S. Postal Service and conclude that it should be placed on the path to privatization.
Another postal expert, Alan Robinson, notes Schuyler’s piece and offers additional commentary on the need for policymakers to figure out what to do with the flailing postal service. Should the USPS go back to being subsidized by taxpayers? Or should the USPS remain a part of the federal government at all? Robinson concludes that “it is time for postal service stakeholders, and in particular its labor unions, to develop an acceptable path toward privatization.”
We Don’t Need No Art in Kansas
At POLITICO this morning we find a long opinion piece by Matt Stoller, “Public Pays Price for Privatization,” summarized as “The real infrastructure trend in America today is privatizing what is left.” If that weren’t enough to give you the flavor of the piece, the bio line tells us that “Stoller worked on the Dodd-Frank financial reform law and Federal Reserve transparency issues as a staffer for Rep. Alan Grayson (D-Fla.). He is currently a fellow at the Roosevelt Institute.” Say no more – except, there’s more to say.
Stoller notes, among much else, that Kansas Gov. Sam Brownback “just turned over arts funding to the private sector, making Kansas the only state without a publicly funded arts agency.” Don’t reel in horror; the cited Los Angeles Times article has already done it for you: “The governor erased state funding for arts programs, leaving the Kansas Arts Commission with no budget, no staff and no offices.” One imagines there will now be no art at all in Kansas.
Not surprisingly, Stoller extols the giant public works of the New Deal and after, which petered out in the 1970s, he says, after which “international competitiveness and environmental costs drove the logic of cost reductions into our political order. Today, we are still living in the Ronald Reagan-Paul Volcker era of low taxes, low regulations, low pay, low spending and high finance.” It seems not to have occurred to Stoller that perhaps the prior absence of “the logic of cost reductions” in our political order might have contributed to why, as he says, “the New Deal coalition melted in the 1970s.”
Art aside – that’s an easy case for defunding – Stoller does go on to criticize much of the “privatization” that’s taken place since – starting with Fannie Mae and Freddie Mac. He’s right there: These “private-public partnerships” are fraught with peril, not least by giving privatization a bad name, something he doesn’t consider. The idea of “public goods” is not meaningless, but the definition has to be strict, as economists know, and the means for privatizing ersatz “public goods” have to be clean. Given the vast public sector before us, we’ve got years of privatization ahead. Let’s hope it’s done right.
Postal Vision 2020
Postal Vision 2020 is a conference scheduled for June in Arlington, VA, that will discuss the U.S. Postal Service’s long-term prospects in our increasingly digitized world. Here’s how the Washington Post’s Ed O’Keefe frames the gathering:
As mail volume continues to plummet and more Americans use the Internet to pay bills and keep in touch, Google executives, social media experts and some of the most passionate tech evangelists are planning to meet in Crystal City in mid-June to sort out how to save and remake the nation’s mail delivery service.
That sounds like a good group for discussing ideas on how to “remake the nation’s mail delivery service” given that the USPS is the antithesis of companies like Google. Creative, innovative, entrepreneurial, and competitive are words that one would associate with Google—not the government’s mail monopoly. However, should these folks be getting together to discuss saving the USPS? That notion strikes me as akin to having Henry Ford come up with ideas on saving the horse and buggy.
As I discuss in a Cato essay on the USPS, the socialist mail enterprise cannot survive in its current form—at least not without a reintroduction of taxpayer subsidies. The USPS’s revenue base has been irrevocably undermined by the growth in digital communications, and congressional micromanagement makes sufficient cost-cutting extremely difficult. Thus, I would argue that the goal should be to create a market for postal services rather than to “save” the USPS:
Policymakers resistant to reform often depict the USPS as a “national asset” that “binds the nation together.” But these days, it’s the Internet and our telecommunications networks that bind families and businesses together across the nation. It’s time to let go of the nostalgia for the USPS and bring America’s postal services into the 21st century with privatization, open competition, and entrepreneurial innovation.
Unfortunately, the sclerosis at the USPS is a reflection of the sclerosis in Congress. As Chris Edwards and I have repeatedly discussed with each other, it is incredibly difficult for Congress to think outside the box on policy. One reason is that because the federal government has become so massive, policymakers have little time to devote to big ideas like transforming the USPS. That, of course, assumes that policymakers are interested in such big ideas. For many members of Congress, interest in the USPS doesn’t go much further than franking privileges and naming post offices.
Air Traffic Control: Too Important for Government
The government’s air traffic controllers have been sleeping on the job, watching movies rather than guiding planes, and misdirecting the First Lady’s plane over Washington. There have been soaring numbers of airplane near misses caused by ATC errors over the last year.
Yesterday, the president said that federal government technology systems are “horrible” “across-the-board,” which isn’t good news for citizens hoping that the Federal Aviation Administration’s computers will land them safely.
The government’s air traffic controllers are very highly compensated, but they are unionized and they work for a mismanaged bureaucracy. The federal ATC system has had serious labor and management problems since the 1960s. And the president’s comment on technology rings true with regard to ATC — the FAA has had huge troubles for decades efficiently implementing new technologies. And things could get worse as air traffic volumes rise and the FAA struggles to implement next generation ATC systems.
The solution is privatization, as discussed in this essay and these blogs. Privatization promises better management, a more disciplined workforce, more efficient financing, better technology, and safer skies.
The Case for Social Security Personal Accounts
There are two crises facing Social Security. First the program has a gigantic unfunded liability, largely caused by demographics. Second, the program is a very bad deal for younger workers, making them pay record amounts of tax in exchange for comparatively meager benefits. This video explains how personal accounts can solve both problems, and also notes that nations as varied as Australia, Chile, Sweden, and Hong Kong have implemented this pro-growth reform.
Social Security reform received a good bit of attention in the past two decades. President Clinton openly flirted with the idea, and President Bush explicitly endorsed the concept. But it has faded from the public square in recent years. But this may be about to change. Personal accounts are part of Congressman Paul Ryan’s Roadmap proposal, and recent polls show continued strong support for letting younger workers shift some of their payroll taxes to individual accounts.
Equally important, the American people understand that Social Security’s finances are unsustainable. They may not know specific numbers, but they know politicians have created a house of cards, which is why jokes about the system are so easily understandable.
President Obama thinks the answer is higher taxes, which is hardly a surprise. But making people pay more is hardly an attractive option, unless you’re the type of person who thinks it’s okay to give people a hamburger and charge them for a steak.
Other nations have figured out the right approach. Australia began to implement personal accounts back in the mid-1980s, and the results have been remarkable. The government’s finances are stronger. National saving has increased. But most important, people now can look forward to a safer and more secure retirement. Another great example is Chile, which set up personal accounts in the early 1980s. This interview with Jose Pinera, who designed the Chilean system, is a great summary of why personal accounts are necessary. All told, about 30 nations around the world have set up some form of personal accounts. Even Sweden, which the left usually wants to mimic, has partially privatized its Social Security system.
It also should be noted that personal accounts would be good for growth and competitiveness. Reforming a tax-and-transfer entitlement scheme into a system of private savings will boost jobs by lowering the marginal tax rate on work. Personal accounts also will boost private savings. And Social Security reform will reduce the long-run burden of government spending, something that is desperately needed if we want to avoid the kind of fiscal crisis that is afflicting European welfare states such as Greece.
Last but not least, it is important to understand that personal retirement accounts are not a free lunch. Social Security is a pay-as-you-go system, so if we let younger workers shift their payroll taxes to individual accounts, that means the money won’t be there to pay benefits to current retirees. Fulfilling the government’s promise to those retirees, as well as to older workers who wouldn’t have time to benefit from the new system, will require a lot of money over the next couple of decades, probably more than $5 trillion.
That’s a shocking number, but it’s important to remember that it would be even more expensive to bail out the current system. As I explain at the conclusion of the video, we’re in a deep hole, but it will be easier to climb out if we implement real reform.
This Week in Government Failure
Over at Downsizing Government, we focused on the following issues this week:
- Taxpayers received a rare, albeit small and temporary, victory when a pork-laden omnibus bill died in the Senate. We’re now about to find out how serious Republicans are about cutting spending.
- Chris Edwards looks at breastfeeding and argues that bigger isn’t better when it comes to subsidies.
- “The nearest earthly approach to immortality is a bureau of the federal government.”
- Former President George W. Bush defends his abysmal spending record in his book Decision Points. Upon further review, perhaps the book should be retitled Deception Points.
- A new Cato essay discusses the problems of the U.S. Postal Service and concludes that taxpayers, consumers, and the broader economy would stand to gain with reforms to privatize the USPS and open mail delivery up to competition.
This Week in Government Failure
Over at Downsizing the Federal Government, we focused on the following issues this week:
- Unfortunately, the party favored by tea party supporters at the moment has no interest in shuttering the Department of Education.
- Columnist Robert Samuelson is right: the Obama administration’s high-speed rail dreams “represent shortsighted, thoughtless government at its worst.”
- Attention GOP: the electorate wants spending cuts, and they will support the policymakers who take the lead on cuts if they are pursued in a forthright and serious-minded manner.
- New Republican members of Congress will be looking for ways to cut the budget deficit and also to increase economic growth. One way to do both is to privatize government assets.
- Will the House Republican leadership embrace spending cuts proposed by their own members in the conservative Republican Study Committee?
Republican Agenda: Privatization
In coming months, new Republican members of Congress will be looking for ways to cut the budget deficit and also to increase economic growth. One way to do both is to privatize government assets, such as the U.S. Postal Service, Amtrak, and the air traffic control system.
Privatization can reduce deficits from the one-time gain of an asset sale and from the elimination of annual taxpayer subsidies. Privatization can spur economic growth by moving resources from moribund government agencies to the higher-productivity and more innovative private sector.
A new report by a trade magazine specializing in privatization confirms that the United States lags many nations on innovative infrastructure financing. Public Works Financing has been tallying data on “public-private partnerships” around the world since 1985. PPP is sort of half way toward the full privatization of government assets such as highways. I prefer full privatization (such as this highway), but PPP has swept the world in recent years and it is a step in the direction of market reform.
Public Works Financing is subscription only, but I can summarize a few findings from their October annual survey.
- Since 1985, the magazine has tallied 1,867 PPP infrastructure projects worldwide valued at $712 billion. U.S. projects represented just 8 percent of the total value.
- With a population about 10 percent as large as the United States, Canada had 53 percent of the U.S. PPP deal value. With a population of a similar size as the United States, Europe has had five times the value of PPP deals.
- Of the 35 top global transportation firms doing PPP deals, the United States had only one firm, Flour, which was ranked number 33. Countries with firms heavily involved in PPP include Spain, Australia, China, and France. American entrepreneurs are apparently losing out because U.S. policymakers are asleep at the switch regarding private sector infrastructure financing.
Examples of PPP in the United States include the project to widen the Capital Beltway in Virginia, which involves the firms Transurban and Flour, and the leasing of the Indiana Toll Road, which involves Cintra and Macquarie. These deals aren’t full privatization, but they will hopefully bring some market efficiencies into an area of the economy dominated by the government over the last half century.
Congress is expected to write a major transportation authorization bill next year. The likely GOP chairman of the House Transportation and Infrastructure Committee, John Mica, has a more favorable view of private infrastructure than the prior Democratic chairmen. However, it is not clear that some of the incoming Republicans really understand the anti-spending message that voters delivered on Tuesday. Regarding President Obama’s $8 billion in wasteful high-speed rail subsidies, Mica did not call for killing them, but just for making them “better directed.”
The election ended the debate over whether to cut federal spending, but the debate about cutting particular programs has just begun.
Postmaster General Stepping Down
Postmaster General John Potter has announced that he is stepping down. The Washington Post speculates on the reason for Potter’s departure:
It is not immediately clear why Potter decided to step down, though USPS staffers and others in the postal community — a wide fraternity including the shipping industry, labor unions and large retailers — signaled recently that he was likely to go after another record year of financial losses and failing to earn greater management flexibilities from Congress.
When Potter testified before a Senate Appropriations subcommittee hearing in March on the USPS’s desire to drop Saturday delivery, I noted that his comments indicated the need to privatize the U.S. Postal Service.
In his testimony, Potter stated:
If the Postal Service were provided with the flexibilities used by businesses in the marketplace to streamline their operations and reduce costs, we would become a more efficient and effective organization. Such a change would also allow us to more quickly adapt to meet the evolving needs, demands, and activities of our customers, now and in the future.
Of course, Congress has shown virtually no interest in giving the USPS, which is bleeding red ink, the greater flexibility it needs. This makes me wonder if Potter will reach the same conclusion that his predecessor, William Henderson, reached following his departure from the USPS.
Three short months after Henderson stepped down as postmaster general in June 2001, he penned an op-ed in the Washington Post that called for the USPS to be privatized.
Henderson wrote:
But for all the ways in which the Postal Service already resembles a private company, it lacks the advantages of any other corporation, such as being able to turn on a dime when it comes to rate changes, perhaps raising prices at times of high demand and lowering prices to entice customers during traditionally slow times, which for the Postal Service means summer. Today, a price change requires the permission of the Postal Rate Commission — a yearlong process.
And unlike a private company, the Postal Service has a universal service obligation, meaning it must deliver everywhere, six days a week, at a regularly scheduled time, making the delivery even for a single piece of mail, which is not cost-effective. And it means delivering in the Grand Canyon and in rural Alaska and in high-risk neighborhoods and lots of other places where delivery is not cost-effective.
The trade-off is that the Postal Service gets monopoly protection; no private company is allowed to compete with it head to head by carrying letter mail or using the mailbox. It should give up that protection for the greater benefits of privatization.
Henderson’s conclusion still rings true almost ten years later:
I can’t believe that 25 years from now the Postal Service will still be owned by the federal government. But the point is that, as with any government asset, this one needs to be maximized. And that means we need to free ourselves from the usual discussion about controlling costs or keeping rates stable or mailing more, all of which is simply a form of denial about the real issue. The model itself is not going to work for the long haul: It must be changed.
Unfortunately, Congress is still in denial. In commenting on Potter’s departure, Sen. Susan Collins (R-ME) offered the vacuous statement that his successor “must strengthen the Postal Service by cutting costs, enticing more customers and putting this vital institution on a sound financial footing.” Instead, Sen. Collins and her colleagues need to recognize that the USPS model “is not going to work for the long haul” so long as politicians ultimately remain in charge.
Obama and Infrastructure
The President is continuing his push for the federal government to go deeper into debt in order to fund infrastructure projects. While nobody disputes that the country has infrastructure needs, the precarious nature of federal and state finances indicate that policymakers need to starting thinking outside the box. Specifically, policymakers should be looking to make it easier for the private sector to fund and operate infrastructure projects.
As my colleagues Chris Edwards and Peter Van Doren have explained, the main problem with government infrastructure spending is the lack of efficiency:
More roads and transit capacity may or may not make sense depending on whether the benefits exceed the costs. One sure way to find out is to have private provision and user charges. If users are not willing to pay the costs of extra or newer capacity, then calls for taxpayer involvement probably imply subsidy of some at the expense of others rather than efficiency.
A lot of what the the president wishes to spend taxpayer money on — for example, high-speed rail — is of questionable economic value. Unfortunately, policymakers all too often allocate resources on the basis of politics rather than economics.
For more on this topic, interested readers should check out our essays on the Department of Transportation. Also, an essay on privatization argues that “The benefits to the federal budget of privatization would be modest, but the benefits to the economy would be large as newly private businesses would innovate and improve their performance.”
Cuban Government Will Choke the Nascent Private Sector
Following the announcement of massive layoffs in the public sector, the Cuban government published today new guidelines that will allow private employment in 178 economic activities. Among the newly authorized private occupations are masseurs, clowns, shoemakers, locksmiths, and gardeners.
However, these new entrepreneurs will face a few hurdles before enjoying the benefits of their own work. Not only must they get a government license in order to operate (according to official sources the number of permits will be capped at 250,000), but they will also have to pay high taxes. A leaked document from the Communist Party says that small businesses will pay between 10 to 40 percent of their gross income in taxes. On top of that, they will have to contribute 25 percent of their incomes to social security.
Don’t expect a thriving private sector in Cuba any time soon.
Congress Is Hurdle to USPS Reforms
National Journal reports that two key policymakers don’t support the U.S. Postal Service’s desire to eliminate Saturday mail delivery. House Financial Services Appropriations Subcommittee Chairman Jose Serrano (D-NY) says he’ll be working with USPS management and the postal unions to avoid service cuts. And House Oversight and Government Reform Federal Workforce Subcommittee ranking member Jason Chaffetz (R-UT) announced that he too opposes the move.
Chaffetz intends to introduce legislation that would instead eliminate twelve delivery days a year. Twelve days? With the USPS facing $238 billion in losses over the next ten years, it’s hard to understand why the Republican congressman is fiddling around with such small changes.
From the article:
Chaffetz said he is concerned that if the Postal Service cuts Saturday deliveries, it could end up hurting itself in the long run by creating an opening for private delivery companies. “You have got to serve your customers, or somebody else will come in and do it for you,” he said.
What private delivery companies? UPS and FedEx are allowed to compete with the USPS on express mail delivery, but the USPS has a government-granted monopoly on regular mail. In pointing out that the USPS’s reduction in services isn’t good for customers, Chaffetz unintentionally make the cases for opening up the mails to competition from private providers.
“The challenge for the Postal Service is to become more relevant to people’s lives,” he said. “They have been cutting back … and I applaud them for that. The Postal Service is also one of the few things highlighted in U.S. Constitution. They’ve got to figure out ways to cut and make it more relevant.”
Mr. Chaffetz: The Constitution gives the federal government the power “to establish Post Offices and post Roads.” It doesn’t say the government has to have a monopoly over the provision of mail. Nor does it say that Congress must perform this service. Today, there are better private options.
The reality is that the USPS is bleeding red ink because it is becoming less relevant to people’s lives because of electronic communication. Surely Rep. Chaffetz doesn’t want the government’s mail monopolist involved in electronic correspondence to make it more “relevant”?
A story out of Finland demonstrates why that would be a bad idea. Finland’s state-owned postal service is testing a cost-cutting idea that would have it open mail, scan it, and then send an electronic copy to a digital mailbox. The original mail would then be sealed up and physically delivered, but delivery would only be done twice a week. Fins are rightly concerned about their civil liberties being violated by the government viewing their private correspondence.
The underlying idea behind the Finnish experiment is nonetheless sound. In a competitive market for mail delivery, electronic scanning and transmittal would be a more cost-effective — and thus perhaps profitable — way of getting people their mail. This could be especially appealing for costly-to-deliver rural areas, which proponents of the USPS often cite as a reason why mail privatization is untenable.
Cato on Facebook
Cato on Twitter
Cato on Google+
Cato on YouTube
