USPS Is Bankrupt, But We Can Save It By Privatizing

The announcement on February 6 of the planned reductions in service of the United States Postal Service set off a flurry of articles around the blogosphere, conventional media, and in the halls of Congress. While many questions have been asked and many opinions have been shared, few have proposed viable solutions to reform and thereby save this critical institution. The fiscal hawks on both sides of the isle are seeking to eliminate the service entirely, arguing that a smaller private contractor will do a better and more efficient job at delivering the mail; meanwhile, the moralists and historians argue that this could spell the end of democracy as we know it.

The truth, and a best-of-all-worlds scenario, is somewhere in the middle. What most are missing is that the United States is not the only, and certainly not the first, country in the world going through a reform and possible decentralization of the postal service. There are valuable lessons to be learned.

In Germany, Deutsche Post AG is a publically traded company, with 30.5% of the shares being held by a government controlled bank, 62% by institutional investors, and 7.5% by individual investors. Since privatization in 2000 and the introduction to the stock exchange, Deutsche Post has consistently posted a profit and has paid out a dividend to its shareholders for the last 4 years.

Much of Deutsche Post's success can be attributed to slimmed-down operations and increased digitization of the sorting process. Reforms in the pay structures and benefits followed. Most importantly, the new institutional investors brought in and integrated reliable international services, currently known as DHL. As such, with fluctuations in the private correspondence and parcel services that are at odds under the current American system, Deutsche Post has the breadth of cost structure where one arm of the service can be used to sustain the shortcomings of another.

Royal Mail in the United Kingdom is also on the schedule to be privatized in 2013, with 90% to be sold off to potential shareholders. The service has experimented with many of the basic services that are being proposed for USPS: small scale banking, accessories shop, direct money transfers, and offerings of various forms of insurance. All of these schemes have failed to deliver the cash needed to balance the books of the service, as the number of letters and post cards sent through conventional means has decreased.

The biggest changes in the privatized versus nationalized services come to the negotiating power between the corporate managers and labor. Currently, the U.S. Postal Service is buckling under the pressure of labor unions and their unwillingness to bargain on pension and entitlement reform. The sale of the majority stake of the service to private shareholders would enable the new leadership to renegotiate contracts with the current employees and work to find alternatives for daily mail delivery in suburban and rural communities where volume of mail may not warrant a daily delivery.

Likewise, some of the currently competing structures such as FedEx and UPS will have a stake in the success of the U.S. Postal Service. Increasing cooperation in the for-profit sector should increase efficiency, reduce redundancies, and supplement the income structure for USPS through increased volume of shipped goods. We should encourage privatization of this vital industry if we are to have an affordable and reliable service.