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Book Review: Monopoly Mail: Privatizing The U.S. Postal Service by Douglas K. Adie

JULY 01, 1989 by MELVIN D. BARGER

Transaction Publishers, Rutgers University, New Brunswick, NJ 08903 • 1989 * 197 pages * $34.95 cloth, $19.95 paper

Once a venerated and honored government institution, the U.S. Postal Service is steadily losing public favor and support. With amazing speed, private competitors have outgunned it for market share in package and bulk mail, while the resourceful overnight services have created a new industry out of time-sensitive letters. The Postal Service has a last bastion of defense in its legal monopoly of first-class mail, but even that position is now under sustained attack. Either the Private Express Statutes that protect this monopoly will be repealed, or new electronic technologies may simply bypass the USPS and leave it with a shriveled husk of its former empire.

How did this come about? Monopoly Mail, sponsored by the Cato Institute, traces the major currents of change that are converging on the Postal Service. Author Douglas K. Adie, an Ohio University economics professor who took his doctorate at the University of Chicago, leaves little doubt that the current USPS is in great peril. And he insists that there’s virtually no alternative but to change the organizational structure of the Postal Service. The only really workable solution is some form of privatization that will enable the service to survive and compete.

Professor Adie also offers convincing evidence that the legal mail monopoly—a seeming advan-tage-has been the Postal Service’s Achilles’ heel. The traditional justification for a government postal monopoly was its “public service” status and the need to bind the country together with effective communications. Whether this reasoning was sound or not in earlier days, Professor Adie shows that it’s certainly outmoded in this day of multiple communications systems. He also shows that early private postal ventures were widely patronized and had the healthy effect of forcing the government service to improve its practices.

Private postal companies eventually disappeared, however, with passage and strict interpretation of the Private Express Statutes. The postal monopoly also prevailed because it had strong Congressional support that only began to wane in the 1960s. With the Postal Reorganization Act, which became effective in 1971, an exasperated Congress tried to shed its responsibility for the service and to make it a self-supporting government corporation.

Though it resembles a private corporation in form, the new USPS has never functioned like one. While losing ground in other classes of deliveries, the USPS still holds a monopoly on first-class mail which enables it to shift a large part of its costs to this group of users. Postal managers also have been either unwilling or unable to innovate, and efforts to improve or speed mail handling often fail. The worst malady is soaring labor costs which now comprise about 84 percent of postal expenses. The postal managers have been ineffective in opposing the demands of the powerful postal unions or were undercut later when arbitrators granted liberal increases. As a result, according to Professor Adie, USPS employees now get about 35 percent more pay than they would receive in comparable private sector employment.

While the postal unions are still powerful enough to resist direct cuts and changes, they cannot prevail indefinitely. Professor Adie believes, for example, that the Reagan Administration’s success in facing down the air traffic controllers’ (PATCO) illegal strike set a new pattern in labor relations for Federal employees. Any President with enough backbone now has the public’s support in resisting high pay discrepancies and refusing to support useless institutions.

There are also some excellent lessons for the Postal Service in the AT&T divestiture, in the deregulation of airlines, and in Canadian and British experiences with privatization and/or deregulation. Professor Adie shows how each change has been beneficial in its way.

The use of the AT&T example for monopoly divestiture is a bit ironic, because some of us once cited the Bell system as a standard while criticizing the poor performance of the Postal Service. We know today, however, that AT&T looked good only in comparison with government communications systems around the world. Once shed of its monopoly, AT&T could no longer force one class of telephone users to subsidize other classes. Market realities also force AT&T and others to move more quickly with innovations that will cut costs and improve service.

If the government finally elected to divest the Postal Service, how could it be done? Professor Adie does not propose selling the Postal Service as a single unit, because he feels its very size would make it too much of a competitive threat (as others feared AT&T would be if deregulated and left intact). He suggests spinning off its five regional divisions as independent Postal Operating Companies (POCs). This would precede the repeal of the Private Express Statutes, and might give the POCs breathing time to become competitive with the new delivery systems and technologies that would arise to challenge them in the market. Professor Adie goes on to suggest other methods that might characterize the new POCs and their processes for working together. He also argues that a privatized Postal Service would offer tremendous opportunities for profits. This prospect, of course, would tend to enhance the share prices of the new POCs following initial offerings.

What’s most needed, however, is not a detailed plan for carrying out privatization, but simply a decision to do it. The postal unions and other vested interests still have some power to block a direct Congressional move to privatize the Postal Service. What they don’t have is the muscle to block new technologies that are coming on- stream as alternatives to first-class mail deliveries. The USPS and its unions also are in deepening trouble with the public, which is tiring of disproportionate increases in first-class mailing rates. And now they face the reality of new books, like Professor Adie’s, that deal with private mail as an idea whose time has come.

Mr. Barger was a business writer associated with Libbey-Owens-Ford Company and one of its subsidiary firms for nearly 33 years.

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July 1989

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