Free-Market Mail Is on the Horizon
AUGUST 01, 1987 by MELVIN D. BARGER
Mr. Barger was associated with Libbey-Owens-Ford Company and one of its subsidiary firms for nearly 33 years. He was a public relations representative at the time of his retirement and is now a writer-consultant in Toledo, Ohio. He has been a contributor to The Freeman since 1961.
Writing in The Freeman in October 1962, I discussed a proposal that seemed hopelessly quixotic to friends and neighbors. This tilt at the Windmills was a plea for private operation of postal services. It seemed so radical that the mere suggestion evoked laughter. Post office services had been a government monopoly so long that any alternative seemed ridiculous.
It is pleasing to report, 25 years later, that the battle for private mailing services is all but won. People who would have scoffed at the idea in the 1960s now admit that private mail delivery makes good sense. Sooner or later, this will gain enough public acceptance to win private mail a fair trial. Why is this coming about?
There are several reasons. One is that a few libertarians managed to keep the idea of free- market mail alive. Early champions of the concept included Frank Chodorov and Leonard E. Read, who contended that no one has the right to prevent anyone from providing or using a mail service or, for that matter, engaging in any other peaceful activity. Private enterprise also has regained a respectability it hasn’t had since the 1920s. This came in the wake of disenchantment with failed socialist schemes. But another cause of this change is the U.S. Postal Service itself—its performance over the years has so exasperated Congress and the public that even radical alternatives to the current system can be considered.
Meanwhile, the relentless march of new enterprise has given rise to overnight mail and the promise of stunning advances in electronic communications.
Here’s what thoughtful writers have been saying about the U.S. Postal Service. Writing in the January 7, 1987 Wall Street Journal, James Bovard called the Postal Service “a mess” and concluded that contracting out mail service to private companies could achieve substantial savings. In The New York Times (August 9, 1985) Smart M. Butler focused on the USPS financial mess and asked if it isn’t time to sell the postal service. And a news article in Business Week (August 18, 1986) discussed newly appointed Postmaster General Bob Tisch as “a new man to tackle the postal mess”—a tacit way of saying that USPS’s troubles are a matter of common knowledge and agreement. Even a group associated with consumer activist Ralph Nader has focused on postal problems, and has published a book by Kathleen Conkey entitled The Postal Precipice: Can the U.S. Postal Service be Saved?
In my view, the answer is that the USPS cannot be saved in the sense of transforming it into a healthy enterprise deserving of respect. As in the past, it can be propped up and maintained indefinitely by frequent subsidies and other assistance. But the mood of the public and the rising tide of criticism suggests that a time for dramatic change is near, that we want something besides an outmoded and fumbling postal service. A leap forward into free-market mail could come shortly.
Let the Market Decide
Leonard E. Read thought there could be two phases in the move to free-market mail. First he would have repealed the Private Express Statutes that give the government postal service a monopoly over first-class mail, and then he would have stopped Congressional funding for the Post Office. But the second phase should not be needed for an effective beginning. In order to make the move to private mail, all that’s needed is to repeal the Private Express Statutes. After the repeal, let the market itself decide who should carry the mail and how it should be handled. As new systems come on stream, Congress could then decide about future support of the Postal Service.
There may be, in fact, good reasons for not making any changes in the U.S. Postal Service for the time being. Let private systems coexist with the USPS, just as the United Parcel Service now competes with USPS package shipments. Let users make their own decisions and comparisons. Also, let them have the opportunity to view private mail in operation before making any plans to dismantle the USPS.
One also should not overstate the case for private mail. Private mail offers many opportunities, but it could also force changes upon many who have vested interests in the current system. It would be false and misleading to promise that private mail systems would immediately provide every service now being supplied by the USPS. Rural free delivery, for example, would undergo radical change and probably curtailment under private systems. This is an issue that Congress and the public will have to face in due time. But rural free delivery should not be any part of a reasonable plan to repeal the Private Express Statutes and to let anybody carry mail. The libertarian goal should be to give private mail services the chance to prove themselves; it is not necessary to deal with political questions about the USPS at the same time.
Meanwhile, there are still a number of arguments which are raised in opposition to privatemail. What follows is a discussion of a few of them:
The Cream-Skimming Argument
One of the most persistent arguments against private mail is so-called “cream-skimming.” According to this argument, private mail services immediately would leap into the most profitable categories of mail delivery, leaving the USPS to serve only the high-cost routes and customers. The USPS would then lose revenues which help cover its costs on other services, with the taxpayers being forced to make up the difference.
The cream-skimming argument was dealt with by John Haldi and his associate Joseph F. Johnston, Jr., in a monograph for the American Enterprise Institute. They point out that the very existence of this argument demonstrates that “some mail users are overcharged under the existing rate structure.” In a truly competitive market, they say, such rate-making practices would be self- defeating. They note that “cream-skimmers” in a competitive market are really the “good guys” who cut prices and keep other suppliers honest!
There was a surprising reappearance of the cream-skimming argument during the recent breakup of the Bell System. Unknown to most people, the Bell telephone monopoly had traditionally undercharged for residential phone services while overcharging long-distance and business customers. But this practice was disrupted by the famous 1968 Carterfone court decision. Carterfone opened the way for business and residential use of interconnecting equipment and helped pave the way for MCI’s entry into long-distance services. And, needless to say, business and long-distance customers had no desire to pay higher rates to subsidize residential users once they had access to lower-cost sytems.
In both the USPS and AT&T examples, the cream-skimming argument is employed to justify what is essentially an unfair situation. It is wrong to impose higher rates on one class of customers in order to subsidize services to another group. Market forces will always move quickly to end such arrangements if suppliers have access to the market. Postal services need some cream-skimming “good guys” who can help clean up this unfairness!
Improving the Present System
From time to time, there’s been hope that a change in management might bring new life and efficiency to the Post Office. This was the case during the Eisenhower Administration when Arthur E. Summerfield, a successful businessman, was appointed Postmaster General. With considerable publicity, Mr. Summerfield assailed some of the “horse-and-buggy” practices of the U.S. mails and sought to make Post Office practices more businesslike and up-to-date. He was horrified, for example, to discover that postal clerks in Denver had to sort mail on the street because of cramped building space.
While Summerfield probably made some improvements in the Post Office, he ran into the problems that confront every business executive who moves into government. There is a vast difference, the executive learns, between managing for profit and managing in a bureaucratic, politicized environment. Mr. Summer-field also came into conflict with the postal unions and faced the usual resistance of an entrenched bureaucracy. His proposed changes made barely a ripple in the existing structure.
A seemingly more promising effort to revamp the system grew out of a 1968 report by the President’s Commission on Postal Reorganization, headed by Frederick R. Kappel, a former chairman of AT&T. The report recommended that Congress charter a government-owned corporation to operate the postal service. Mr. Kappel’s great prestige undoubtedly was a factor in Congress’s decision to create the new postal corporation launched on July 1, 1971.
Far from solving the postal problems, the reorganization appeared to make them worse. Within a few years, problems had intensified to such a point that Robert J. Myers, publisher of The New Republic, wrote a scathing attack on the new corporation. Coming from a source that usually favors government involvement in the economy, Myers’ book must have seemed a most unkind cut. Some of his criticisms in-cluded the charge that postal corporation managers had become a self-serving elite, while postal unions had been able to wring fatter contracts from the new corporation than they had been able to get from the old bureaucracy. Mal-investment was rampant in the new organization, service was rapidly deteriorating, costs were spiraling in all directions, and attempts to mechanize often had proven unsatisfactory.
Although Myers did not understand the basic problems inherent in government management, his book brought attention to the inefficiencies of government corporations. The executives of the new postal corporation had no mandate to make a profit or to heed the other disciplines of the market. They performed as well as might be expected under the circumstances.
Nader’s Proposed Rescue
Another way to save the Post Office has been proposed by Ralph Nader. Writing in 1982, Nader put forth a plan he called a Post Office Consumer Action Group (POCAG). Under this arrangement, a law would be passed requiring the Postmaster General to send a letter twice a year to all household patrons inviting them to join POCAG with a small annual dues payment. “Those consumers who so volunteer can shape the group’s policies and work with its staff to reconstruct an American postal system, from its local roots to the national arena, that would make Franklin proud,” Nader promised in The Postal Precipice. “A POCAG with a million or more members would be the representative constituency needed to reverse the decline and possible fall of the Postal Service in the coming generation.”
It’s hardly necessary for a free-market devotee to comment on Nader’s plan, which simply would create a group with a government mandate to hassle and bludgeon postal officials. No single organization could possibly represent the divergent needs and interests of various mail users, and his POCAG probably would serve as nothing more than a platform for Nader’s views. If government ownership and operation of the Postal Service is unsatisfactory, that is not likely to be corrected by a private group of gadflies. At the same time, however, Nader has helped by publishing a report which details the continuing problems of the Post Office.
What do we want from our postal services? The fact is, no two people have exactly the same expectations. At various times and in many places, the Postal Service has been unable to perform in a satisfactory manner. Retail business people, for example, are wary of using the Postal Service for deliveries that have time value. A number of important business messages are now sent through express overnight courier service—private firms operating outside the government- owned system.
Recent advances in electronic telecommunications appear ready to make even more changes. Efficient electronic “facsimile” systems already are transmitting documents between business offices, and it’s not hard to predict that low-cost units may soon become available on the consumer market. The postal monopoly already has been weakened to such an extent that little objection is raised to electronic “facsimile” systems, electronic mail, and overnight express mail.
The main pressure for these changes has come from business organizations, which need fast communications and already have substan-tial investments in electronic systems. While the USPS currently is providing express mail, its foray into electronic mail was a flop and was discontinued in 1984 following two years of operation and losses of about $50 million.
Of course, not all private ventures into electronic mail will succeed. But electronic mail and facsimile transfers offer new opportunities which cannot be ignored. It’s not inconceivable that the bulk of printed mail could be conveyed electronically in the early pan of the next century.
The Private Express Statutes
The idea of postal service as a government monopoly apparently was something the American colonies inherited from Great Britain. A government postal service was even included in the U.S. Constitution. But many private express companies flourished in the United States during the early 19th century. They were effectively outlawed by the 1845 Private Express Statutes which Congress passed at the urging of the Postmaster General. Even then, the cream-skimming argument had surfaced; the private carriers were operating on the most profitable routes and leaving the rest for the Post Office!
As with any law, the Private Express Statutes have been tested and interpreted over the years. It has been necessary to define what constitutes a letter, what is a postal route, and what limits should be placed on those who assist in the transfer of mail. Although there’s been some slippage, the federal government has been largely successful in maintaining its monopoly over first-class mail.
But private finns have made inroads into the third-class mail market, and the success of UPS in the parcel business has been one of the Post Office’s great embarrassments. The latest private breakthrough has been “time-sensitive” mail, a market now being served profitably by Federal Express, Airborne, and a number of other private firms specializing in overnight service. As new companies spring up to meet various communications needs, the pressures are bound to grow for easing or repealing the Private Express Statutes.
The Miller Proposal
The idea of repealing the Private Express Statutes received a recent boost from James C. Miller III, who was chairman of the Federal Trade Commission before becoming director of the Office of Management and Budget. “The postal system is a particularly good source (in the event that one is needed) for evidence that private enterprise performs better than government enterprise and that competitive markets perform better than monopolies,” Miller wrote. “The costs of the Postal Service are significantly higher than they should be because the incentive to hold down costs—most notably, labor costs—is limited. Postal workers are paid far more than is necessary to retain their services. Because entry into postal markets is restricted, the Postal Service is able to pass those higher costs along to its customers.” After discussing what might be expected to result from an end to the postal monopoly, he concluded that “All the available evidence suggests that competition in the market for first-class letter delivery would create substantial benefits.” And he added, “Private enterprise will get the mail delivered—just as it did in the Old West.”
The idea of making mail delivery private never had high-level support like this back in 1962 when my article was prepared for The Freeman. But times and attitudes have changed, and we even have Congressmen who support repeal of the Private Express Statutes. The only question is when and how this might be managed.
The most likely future, even without repeal, is that the USPS will continue to be prodded by new ventures which threaten its legal monopoly. This will weaken the hold of the USPS over first-class mall. New electronic ventures also will give mail users new alternatives to first-class mail. What would be the impact, for example, of a low-cost (say $500) facsimile machine which any person could use at home? How will new technologies like fiber optics change communications? And who is to say what might happen even in services such as home deliveries?
How soon will we have a free market allowing anybody to carry mail? There’s widespread approval of the idea already. Since the most powerful supporters of the status quo are the postal unions, the political problems of repealing the Private Express Statutes are formidable. But with enough competition from electronic messaging and other delivery services, the Private Express Statutes could simply bet come irrelevant.
It’s time something like this happened. Mail is far too important to leave in the hands of a government monopoly. Let anybody carry it, and let the market decide who does it best. That seemed like a radical proposal in 1962. With the help of free-market advocates, technical ad vances, and the failings of the United States Postal Service, it is becoming a reality.
1. “Could AT&T Run the Post Office?” The Freeman, October 1962. One point of the article was that AT&T’s need for profits had helped make it more efficient than the Post Office. AT&T’s regulated status, however, has not been without problems.