- The Washington Times - Wednesday, November 21, 2001

The Postmaster General is asking Congress for $5 billion to help the U.S. Postal Service (USPS) recover from anthrax attacks and to make the mail safe. But the USPS is unlikely to recover from the downward financial spiral it was in before the September 11 attacks, and a bailout could delay the inevitable privatization that would help postal customers and the American economy.

Before the attacks the Postal Service was projected to lose $1 billion to $2 billion annually over the next decade as people turn to electronic bill-paying and as the composition of the mail changes in the e-mail-Internet era. The losses are now accelerating.

The Postal Service wants part of the bailout money to cover costs associated with the anthrax attacks, and to purchase equipment such as irradiation machines to make certain the mail is free of biohazards. But should the taxpayers foot the bill and should the fund come with no strings attached?

Private companies such as Federal Express and United Parcel Service will have to pay for their own protection equipment, passing on the costs if necessary to customers. If higher prices could scare off customers, those companies might simply have to take a temporary hit on the bottom line.

Pitney Bowes, which operates 1,300 mailrooms, including those of 40 percent of the Fortune 500 companies, already offered its customers a special mail security service, mainly to protect from bombs. And the company will be offering protection against bioterrorism, as well. So why should taxpayers rather than customers pick up the tab for protection of the U.S. mail?

The argument is that the Postal Service is a government monopoly, and just as tax dollars go to protect the U.S. Capitol, courthouses and other government installations, so they should protect the mail. But this argument ignores the situation of the USPS that predates the attacks, and the need for the bailout points to the USPS problems that must be addressed.

Consider:

Many hotels have cut work forces to reduce costs and cut prices to attract more customers who are staying away because of the recession or fear of traveling. But the Postal Service will not make major work-force cuts.

Predating the attacks, the Postal Service had been seeking to raise the price of a stamp from 34 cents to 37 cents. Further, it wants to increase the price of commercial mail, which has already gone up twice in the last 10 months by nearly 20 percent.

The Postal Service in the past has spent billions of dollars on new high-tech equipment, not for protecting against anthrax but for improving productivity. But in the three decades since its creation, USPS productivity has risen only by a total of 12 percent, compared to an average of 55 percent for all businesses during that period. Three decades ago, nearly 80 percent of Postal Service revenues went to cover labor costs. Today the figure is about 76-77 percent. (And let's not forget that this poor showing occurs even though the USPS enjoys special privileges, e.g., it pays no taxes and is not subject to most of the regulations that burden the private sector.) In other words, the Postal Service and, more to the point, its captive customers, benefit little from innovation. New irradiation equipment might eliminate anthrax but it will not stop the Postal Service's decline.

But out of adversity often comes opportunity. For example, when Germany reunified, the mail service in the East was on the verge of collapse. Since the West was going to clean up the mess the communists had made, German officials decided they might as well clean up the mess in the West, as well.

Deutsche Post (DP) in the West would absorb the system in the East but also would be put on the road to privatization.

DP was reorganized as a joint stock company, inefficient operations were sold, and the work force reduced by about one-third through attrition and retirement rather than through massive layoffs. In 2000, an initial public offering of 30 percent of DP stock was made and in 2002 another offering will push the private share of that company to more than 50 percent. DP now offers innovative lines of service and is a larger European and global player. In a few years DP will lose all its monopoly protection.

American policy-makers can learn from the German example. If they insist on handing tax dollars to the U.S. Postal Service, they should do so as part of a long-term plan to reorganize the USPS, to place it in private hands, and to remove its monopoly protection. Such an outcome will probably occur in any case. But the transition will be far smoother for postal workers, for managers, for postal customers, and for taxpayers if the need to deal with these terrible attacks is used as an opportunity do the right thing.

Edward L. Hudgins is director of regulatory studies at the Cato Institute.


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