Do We Still Need Universal Postal Service?

| Thu Aug. 2, 2012 8:19 PM EDT

David Dayen thinks that the postal service remains an important public function. Matt Yglesias isn't so sure:

What's so important about it? Obviously it's very important that people be able to get stuff delivered to their house. But there's no reason to think that absent a public entity this would suddenly become impossible....The Postal Service, in my opinion, does a really fantastic job of doing its job—namely providing guaranteed six days a week flat rate mail delivery. But when he says "right now the country still needs universal flat rate postal service" I'm left to wonder: Why? Why would it be so terrible to put up with differential pricing, or with a situation where some parts of the country had less frequent delivery?

This was all prompted by the fact that mail volumes are down and the postal service is losing money. Privatizing the post office is one solution, but David suggests instead that the post office should get into either the banking business or the broadband business in order to fix its financial problems. Unfortunately, I'm not much of a fan of that idea. It's true that this might bring in revenue if USPS were given some kind of monopoly position or public subsidy, but I don't really see how it would be profitable otherwise. USPS has no expertise in either area, and I simply don't see how they'd compete with existing banks or existing broadband providers. Having a bunch of buildings doesn't give you much of a leg up in the banking biz, since all the existing big banks have lots of buildings too, and knowing how to deliver mail effectively doesn't give you a leg up in either the internet backbone market or the last-mile market. A privatized USPS simply doesn't have much to offer in either area.1

Back on the ordinary mail front, my question has always been more about universal service than flat-rate service. I'm sure Matt is right that differential pricing wouldn't be a national disaster. But it really does seem as if universal service is an important function, and I've never believed that a private post office would provide it. A private USPS would provide differential pricing up to a point, with small towns having higher postal rates than big cities, but there would be plenty of places left that are just flatly unprofitable. At any reasonable postal rate they'd be money losers, and at very high rates they'd get so little use that they'd still be money losers. There would literally be no rate at which they'd be profitable to service.

Now, maybe that's OK. Maybe you could privatize the postal service with a requirement that they either deliver to an address or provide a free PO box for delivery and pickup. Unfortunately, this would work only if the privatized post office retained its monopoly status on first class mail, which means you'd lose all the benefits of competition.2 What's more, you'd almost certainly still be left with a pretty fair number of people who effectively have no mail delivery, since a private operator would probably shut down thousands of small post offices, leaving some customers with a 30-mile drive or more to pick up their mail.

Again: maybe you think that's OK. I'm not sure I do, but I might be exaggerating the problem. Nevertheless, that's the problem that needs to be addressed, and expanding into banking or broadband wouldn't help even if those ventures were successful.

1Honest, this is true. Postal banking is successful in other countries because it's been around forever and people still use it through sheer inertia. And foreign postal services sometimes provide broadband because they have government telephone monopolies already, so beefing that up with lots of fiber optic cable really does make sense. Neither of these things is true in the United States.

More generally, it's common to mock companies that get put out of business by new technology. "Train companies failed," goes the saying, "because they thought they were in the train business when they were actually in the transportation business." Well, no. That sounds like a sophisticated thing to say, but in fact they knew perfectly well what business they were in. The reason they didn't get into the airline business is because virtually none of their expertise gave them a genuine leg up against emerging airline operators. You can make up just-so stories about how they should have leveraged their logistics expertise to get into the airline business, but logistics is only a small part of these businesses, and in any case train logistics are quite a bit different from airline logistics. (There were also legal and regulatory issues that played a role here, though I don't know a lot about them.) The truth is that being in a business that provides a particular kind of service doesn't necessarily help you enter an entirely different business just because it provides a similar kind of service. In fact, often it's just the opposite. All you do is bring a train mentality to a business that needs something entirely new.

2If competitors were allowed, but the universal requirement applied to them, it's almost certain that there would be no competitors. The USPS would thus retain its monopoly. If the universal requirement weren't applied to everyone, then competitors would cherry pick service in the biggest cities, which would probably put USPS out of business.