Time again to tame the postal monopoly

Edward Hudgins Director of Advocacy, The Atlas Society
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Email versus snail mail: That pretty much sums up the current crisis facing the U.S. Postal Service. But sadly, even as the USPS seeks new revenue sources, a recent Postal Regulatory Commission ruling allows it to compete unfairly with private providers, harming them in the process. Here’s the story.

Monopoly mail

The Postal Service has a legal government monopoly on delivering first-class mail. There is a special exemption that allows private companies like FedEx to deliver urgent items. But they are required by law to charge a high minimum price and cannot undercut USPS rates. Set up a business offering same-day delivery for $1 of seasonal greeting cards in your neighborhood, and government agents will show up at your door and make you stop.

The USPS has regulatory authority that it has used against legitimate competitors like private mailbox outlets and express delivery companies. The Postal Service, unlike private companies, pays no taxes and is exempt from many government regulations. And while it is supposed to be self-financing, in a pinch it can go to the government for lines of credit and taxpayer bailouts.

Death spiral

But the Postal Service is in a death spiral and desperate for cash. Because more people now communicate, pay bills, and transact business through electronic media, mail volume has fallen by 30 percent over the past decade. Revenues fell from $75 billion in 2008 to $65.7 billion in 2011. The USPS now bleeds $25 million every day. Its cumulative losses from 2007 to 2011 are over $25 billion. Its projected 2012 deficit is $14 billion.

Private firms in such a situation might offer new products in order to earn money. But since the Postal Service is a government monopoly with special privileges and protections, private firms rightly insist that it not make such offerings, which would constitute unfair competition. There’s the dilemma.

Declining government agencies can do desperate things. Thus, in 2006 Congress passed the Postal Accountability and Enhancement Act to confine the USPS to its core public service function — “the delivery of letters, printed matter, or mailable packages.” That law also sought to bar the USPS from offering new “nonpostal” services. But it did allow the USPS to continue to offer, subject to regulatory approval, preexisting nonpostal services that were deemed to meet a “public need” that the private sector could not. But the devil is in the definitions. That narrow grandfather provision has been turned into an expansive grant of new authority for the USPS to compete in private markets.

License to expand

A case arose concerning the USPS’s nonpostal licensing authority. Could it enter into licensing agreements with third parties to sell new commercial products containing the USPS name and logo in general retail outlets rather than in actual post offices? Citing unfair competition and consumer confusion, the Postal Regulatory Commission initially ruled that it could not. But a court ruling forced the Commission to reconsider its decision and, in the end, it reversed itself.

Essentially, it opened the door for the USPS to offer almost any good or service in competition with the private sector — cell phones, printers, laptops, lunch boxes, banking, telecom, or logistics services, you name it — provided that it does so through a licensing agreement. Congress sought to prevent the Postal Service from engaging in just such activities. But the Commission’s ruling allows the USPS to use licensing to make an end run around the 2006 law’s limitations.

The Commission’s decision is fatally flawed. First, the Commission confused “public need” with the needs of the USPS itself by favoring activities that generate revenues that “accrue to the Postal Service” that “will help to sustain a viable, effective universal mail system that meets a widely recognized public need for postal service.” In past decades there was a much-ridiculed saying: “What’s good for General Motors is good for the country.” This is the government version. The USPS can argue that licensing third parties to slap its logo on products and services will generate revenue for it, which in turn will allow it to provide better mail delivery to the public. What’s to limit it?

Second, although the Commission initially identified unfair competition and consumer confusion concerns, its final decision simply ignored these issues. Sorry, but when a government monopoly throws its weight around by offering products competing with private providers, it distorts markets. Will all private firms competing with USPS-licensed products need to seek such licenses themselves to even the playing field?

The purpose of the 2006 law was to head off just such USPS activities!

The principal reason for the USPS’s decline is that entrepreneurs in past decades have triggered a communications and information revolution with personal computers, the Internet, laptops, iPods, smart phones, and iPads. We can only guess at the marvels they will offer us in the future. But it is certain that if entrepreneurs and consumers are forced to work around a government monopoly that distorts the market, innovation will be stifled.

The Postal Reform Act of 2011, a piece of legislation now before the House, prohibits the USPS from directly offering nonpostal services. The act also encourages cost controls and downsizing. It is doubtful that in the long term such measures will save the postal monopoly. But for now, through whatever means, the Postal Service must be made to stick to its core functions.

Ed Hudgins is director of advocacy at The Atlas Society and editor of The Last Monopoly and Mail @ the Millennium.