By Raymond J. Keating Small businesses, ratepayers and taxpayers
beware. The Postal Service is on the prowl for more money and a
longer reach into the marketplace.
By Raymond J. Keating
Small businesses, ratepayers and taxpayers beware. The Postal Service is on the prowl for more money and a longer reach into the marketplace.
It has been widely reported that the U.S. Postal Service Board of Governors gave the OK to start preparing a filing for a rate increase with the Postal Rate Commission. Speculation is that the Postal Service will request a hike of 5 percent or 6 percent for 2006, followed by a similar jump for 2007.
Such rate hikes would only build on and further feed decades of incompetence and inefficiency at the Post Office. While the economy has experienced enormous productivity and efficiency gains, costs have just kept rising at the Postal Service.
Consider, for example, that the price of a first-class stamp registered 25 cents in 1990, but had climbed to 37 cents by 2004. That’s an increase of 48 percent. Meanwhile, inflation (as measured by the GDP price deflator) came in at only 33 percent over the same period. Going back further, price for a first class stamp jumped by 517 percent from 1970 (when it was 6 cents) to 2004, compared to inflation registering 293 percent.
Technological advancements and economies of scale should have led to lower postal prices in real terms, not higher, over the past few decades.
Nonetheless, the Postal Service seems poised to push for price increases running at two-to-three times the rate of inflation in 2006 and 2007. These rate increases would hit small businesses and their customers hard, as 93 percent of first-class mail is commercial related.
But the potential bad news for small businesses doesn’t stop there. The Postal Service Board of Governors has sent a letter to Congress spelling out its desires regarding postal reform.
The board’s emphasis obviously was not on cutting bloated costs. Nor was it on clarifying the Post Office’s murky accounting, contracting out postal duties to more efficient private-sector entities, or – dare I say it – full privatization (as is the aim in the European Union, for example, according to Sam Ryan at the Lexington Institute).
But the letter mentioned granting the Postal Service greater flexibility and authority in introducing new postal services. The Post Office justifies such new ventures on the grounds that its first-class mail monopoly is shrinking as technological changes (such as the vast expansion of e-mail) have eroded its revenue base.
This is a bad idea loaded with enormous potential negative costs. First, given the Post Office’s long track record of inefficiency, its notorious inability to allocate costs, and its monopolies in first-class mail and access to residential and business mailboxes, expanded ventures would mean greater risks for increased cross-subsidies. Those subsidies would come from small businesses and their customers to a great extent.
Of course, the risks of subsidies would not stop there, as a federal government agency, the potential for increased taxpayer handouts is obvious. Finally, the Postal Service possesses additional unfair advantages that would hurt private-sector competitors, particularly smaller enterprises. The Postal Service does not have to pay most taxes and has access to low-cost government loans, among other unfair advantages.
If privatization is not an option in the near term, then the Postal Service should not be granted enhanced abilities to wander further out into the marketplace, thereby putting ratepayers, taxpayers and businesses at risk. Instead, it’s time to limit the Post Office to its traditional business, that is, basic universal service mail delivery, and institute reforms meant to tame costs. That should include, for example, contracting out to the private sector to enhance efficiencies and thereby savings.
As postal reform is taken up once again by the U.S. Congress, the effort needs to focus on what’s best for ratepayers and taxpayers, not what’s best for the Postal Service bureaucracy and labor unions.
In so many ways, technology and innovation have left the Post Office behind. As the size of its traditional market continues to shrink, so should the Postal Service itself.
Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council based in Washington, D.C. He can be reached at
kK******@sb********.org
. Readers interested in writing a guest column should contact editor Walt Glines at
ed******@mo*************.com
or 408-779-4106.
