A Twenty-first-Century Postal Service
July 1, 2002
In contrast to the U.S. Postal Service, reformed postal services have been consistently profitable while paying standard business taxes.

The price of a first-class stamp will rise from 34 to 37 cents on June 30, 2002, on top of increases in January 1999 and January 2001. Consumers will thus pay billions in added postage. Yet even with the additional revenue and the $675 million Congress approved to offset the cost of the terrorist attacks, the U.S. Postal Service will continue to lose money.

It does not have to work like this. Whereas our postal service remains a government-owned monopoly, other countries have addressed similar concerns through privatization and limitations on, or elimination of, their postal monopolies. Sweden, Finland, New Zealand, and, most recently, the United Kingdom abolished their postal monopolies. Since 1997 all fifteen European Union countries have observed limits on their postal monopolies. Other countries, such as Norway and Australia, have limited their monopolies as well.

Large-scale postal privatization has also occurred. Shares in Germany's Deutsche Post were sold in that country's largest public offering of 2000. A majority of PTT Post, the postal service in the Netherlands, is now privately owned.

International reforms have had positive effects. The basic stamp price in Australia has remained constant, at 40 Australian cents, for ten years. New Zealand lowered its basic stamp price from 45 to 40 cents in 1995, and it has remained there ever since. In contrast to the U.S. Postal Service, reformed postal services have been consistently profitable while paying standard business taxes. Most reformed postal services have been able to downsize without mass layoffs, instead relying on attrition. Moreover, demonopolized postal services have not sacrificed delivery to rural areas. Universal service is an important business asset, and firms facing competition have an incentive to maintain it.

Postal reform can enhance the welfare of employees as well as consumers. Employees can be offered shares in the new enterprise at a discount, encouraging employee stock ownership. Employees at all levels would then have a personal stake in the firm, improving its performance.

Issuing tradable ownership shares would give the postal service the incentive to maximize profits, creating a variety of social benefits. One of the postal service's problems is its lack of a clear purpose. Instead of pursuing a vague notion of "the public interest," the postal service would be accountable to a well-defined group: its owners.

Under private ownership the postal service would have incentives to reduce costs and become consumer-oriented through improved marketing techniques, adoption of more efficient technologies, improved operations, more effective corporate governance, heightened service quality, and the introduction of more new products. Managerial pay could be tied to reliable measures of firm performance, giving managers the incentive to become more entrepreneurial.

The U.S. Postal Service has been a government-owned monopoly for more than two hundred years, and awkward ways of doing business are entrenched. Vigorous postal reform would create social benefits large enough so that all groups—customers, employees, and taxpayers—would gain. It would follow successful examples in numerous other countries and create a dynamic structure for the postal service that is appropriate for the twenty-first century.