Is the US Postal Service fit for business?

Benjamin Franklin was the first Postmaster General in the US. His operation became the United States Postal Service (USPS, often called the "Post Office") on February 20th 1792, when President George Washington signed the Postal Service Act. It has a monopoly of first class mail and of the use of boxes marked "US Mail," but it has experienced troubled times.

It makes losses into the billions of dollars. The latest year's current loss is put at $3.9bn, and it will not make a scheduled $6.9 billion in benefits prepayments. It still owes over $100bn to its retiree health benefits fund.

Part of the problem is that it has failed to adapt to changing times. It no longer makes big business mailing store catalogues, because people look up online what is on offer. First class mail has been replaced by e-mail in many cases. Most bills are now sent electronically, and such periodicals as survive tend to be often read online.

It has failed to adapt because it is big and cumbersome, and because it is run by government, directed to serve political needs to some extent. The same was true of both the German and UK postal services before they were privatized. It is always a critique of nationalized operations that the monopoly gives them captive customers who do not need to be lured by an attractive service, and the state's subsidy is a disincentive to cost-saving efficiencies.

Users of state-run monopoly services in effect pay twice. They pay once for the service itself as they use it, and again as taxpayers when they fund its subsidies and meet its losses. Funds needed for modernization and infrastructure improvement come not from investors, but from a reluctant government that always has more pressing claims on the resources it handles. That is why state-run services usually seem outmoded and old-fashioned. New technology means that people's habits change, and they change faster than the state service can keep up with.

There is a stronger critique of state monopolies, though. It is that their status magnifies the bargaining power of their employees, and enables them to gain benefits that no private firm could afford. Workers can strike, knowing that the government-backed operation will not go bankrupt as a private firm might, They can do so in the knowledge that government will come under pressure from customers anxious to regain their service, pressure that makes giving in to exorbitant demands an easy option. The USPS is struggling to meet the ongoing pension obligations that it conceded. State-run services tend to be subject to producer capture, meeting the needs of those who run them, rather than of those who use them.

The solution is privatization, as it was in Germany and the UK. President Trump is known to be considering this option in the US. When the company has to attract private investment, and to offer a service that customers will prefer to those offered by rivals, and when it has to cut costs where it can to improve its bottom line, only then does it have the incentives that will keep it on its toes.