US Postal Service is Bathing in Red Ink: Time for Privatization

The U.S. Postal Service is bathing in red ink.  It lost over $5 billion in the last fiscal year (over $10 billion, if a required pre-funding of future employee health care costs is included).  And the slide is worsening, with a forecast of over $14 billion in losses in the current fiscal year, rising to over $18 in billion losses by 2015.

Because those massive losses will max out the Postal Service’s current $15 billion borrowing cap from the Treasury this year, many “reforms” have been proposed, which Adam Summers describes as “higher prices, slower delivery, fewer delivery days and more junk mail.”  And even those efforts intended to save money, such as closing postal distribution centers, must navigate a minefield of politicians intent to ensure that any savings fall in someone else’s district.

With such abysmal and unsustainable results, what is striking is that there is virtually no consideration of abandoning the Postal Service’s monopoly on first class mail, allowing rivalry from private providers to reveal the services and prices market competition could offer.  Not only does competition have a long record of success in countless products and services, history shows it is not impossible in postal services.  As Summers summarizes, “Several private mail entrepreneurs sprouted up from about 1839-1851.  While they were eventually shut down by the government, they proved that private mail delivery was possible.  And the competition they provided forced the government to drastically reduce its prices in the process.”

Summers brings up an important question.  Why don’t people today even think of allowing postal competition?  What makes us so blind to even such a possibility?

But he is not the first to ask that question.  Leonard Read, creator of the Foundation for Economic Education and a tireless advocate of the “freedom philosophy,” discussed the postal monopoly several times in his writings, starting more than half a century ago.  The currently mail meltdown makes it worth revisiting his understanding. Consider his insights from “Pre-Emptors: Agents of Destruction,” in Comes the Dawn (1976) and “Causes of Authoritarianism,” in Why Not Try Freedom? (1958),

Any time any activity is preempted, all thought as to how it would be conducted by free and self-responsible people is deadened.

[A]n example…mail delivery. Our postal system is a socialistic institution …Its record? As all users know, a dramatic increase in rates, enormous deficits mounting annually, and service deteriorating rather than improving.

Observe the effect of this pre-emption: no intelligent thought of what this type of communication would be like among a free and self-responsible people.

[T]here are many among us…without the slightest idea of what the freedom alternative would be.  Why this blindness as to the results of freedom? The answer is: the actions of free men are quite impossible to foresee!

It is one thing to believe that competition affords more efficient service than does a monopoly. Indeed, this very belief is implicit in the arguments of government officials who refuse to permit private delivery of mail: the U.S. Postal Service couldn’t stand the competition; someone else would do it more efficiently and at less cost to the customer.

But as long as the monopoly is coercively maintained, there is no legal way to prove that the cost of performing an identical service would be lower under competition–or how much lower. Nor can it be proved beyond doubt that competitive private enterprise would indeed perform precisely the same services now available through the Postal monopoly.

But this is the whole point of anyone who believes in the blessings of competition as the most efficient way to provide the goods and services customers are willing and able to pay for. Such faith must concede that no one knows or can know in advance just the form in which the postal service would emerge and develop were everyone free to devote his own ingenuity and time and scarce resources toward serving the ever-changing demands of willing customers in a free market.

If all those changing conditions could be foreseen by any one individual, there is no logical reason why he could not make socialism work. But that is the whole case against socialism and for competitive private enterprise: the unknown is not foreseeable or predictable with certainty; conditions change, and freedom affords us the best possible chance to cope with those changes.

If one believes the Postal monopoly should be abolished, it is in part because he has witnessed miraculous market developments in the delivery of items other than mail.

Take voice delivery. How far could the human voice be delivered prior to the beginning of the Bell system…[now] the miracle of the market–around the earth…at the speed of light…Those who find this not particularly amazing are nonetheless reluctant to entrust the delivery of mail to the unhampered and unpredictable ingenuity of a free and self-responsible people!

Why this fear to try–this lack of faith in the potential wonders that might be ours? There are at least two reasons: (1) we cannot foresee the unknown and, thus, we are not attracted to the unimaginable, and (2) the moment a miracle is wrought, we take it as much for granted as the air we breathe… We no longer give it a second thought…

Years ago, I observed that no person knows how to make such a “simple” thing as an ordinary wooden lead pencil.  Yet, that year, we made 1,600,000,000 pencils in the U.S.A.  Were we to grasp this single miracle of the free market, we would know that there is not a person who knows how to operate a postal service…

Why, then, does the Free Society work its wonders? Why, when no one knows how to make a pencil, do we have such a proliferation of goods and services…ideas by everyone are free to flow!…Ideas configurate and show forth in everything from billions of pencils to jet planes.

[B]ut most people fail to generate ideas on activities that have been pre-empted.

As the belief grows that coercion is the only practical way to get things done…belief in the competence of man acting privately, freely, voluntarily, competitively, cooperatively declines. As the former increases, the latter decreases.

In the U.S.A., for example, government has a monopoly of mail delivery. Ask citizens if government should do this and most of them will reply in the affirmative. Why? Simply because government has pre-empted this activity for so many decades that all enterprisers have ceased to think how mail could be delivered were it a private enterprise opportunity. Indeed, most of them have come to believe that private enterprise would be wholly incapable of effective mail service.

Yet, I note that each day we deliver more pounds of milk than mail. Further, milk is more perishable than a love letter, a catalogue, or an appeal for funds. We also note that the delivery of milk is more prompt and less costly to us than is the delivery of mail.

I ask myself, then, why shouldn’t private enterprise deliver mail? Private enterprise delivers freight.

But, no; my countrymen have lost faith in man’s ability, acting freely, to deliver letters…men who do such fantastic things have lost faith in themselves to do the simple chore of letter delivery.

Today, even the massive and accelerating failure of the U.S. Postal Service seems unable to overcome a pervasive blindness to the potential of completion to benefit Americans.  That seems to vindicate Leonard Read’s insight that not only are the ideas and the benefits that freedom can create pre-empted, but people lose the belief that a free society can do those things that have been coercively crowded out by government.  In his words, “A decline in faith in free men and what they can accomplish results in a rising faith in disastrous authoritarianism.”

The current postal situation offers a chance to re-think what many, lulled by what they have thoughtlessly taken for granted.  Not only is real competition a valid alternative, despite our inability to know in advance precisely what it would look like, it would be far superior, if the history of freedom is any guide.

(Gary M. Galles is a Professor of Economics at Pepperdine University in Malibu.)