Critical Condition

Competition’s Absence Is the Real Danger

If competition’s “excesses” should give us pause, then how much more so its absences? If recent bank bailouts are evidence of the former, then the long-running bailout of the U.S. Postal Service is a perfect example of the latter. And the effect of competition’s absence has serious ramifications well beyond the delivery of mail — in particular, to the current debate over reforming the delivery of health care.

Just as summer reached full swing, the Government Accountability Office released a report putting the Postal Service on its list of “high risk” federal agencies. Not surprisingly, the report did not make most people’s beach-reading list. This is because, for the most part, it was not news.

The USPS has been failing for a long time. Every similar business — such as package-delivery companies — either makes money or goes out of business. In contrast, the USPS makes a business out of losing money.

GAO’s report states that the USPS “is the largest civilian federal agency, employing about 633,000 career and 94,000 noncareer employees and operating a total of about 38,000 facilities nationwide.” It projects that the USPS is on track to lose $7 billion this fiscal year.

The USPS has been losing money for almost three years, and little help is in sight. Mail volume has been flat at best for the last two decades, and in recent years it has plunged dramatically — down 14 percent over the last two years. The USPS “expects flat or continued volume and revenue declines over the next five years.” As a result, the USPS has a roughly 50 percent overcapacity in its mail-processing operations.

Despite this dismal past and darker future, during congressional hearings two years ago, Frederic Rolando, president of the National Association of Letter Carriers, denounced proposed facility closings as “a knee-jerk reaction to a temporary and fixable problem.” Postal unions say the problem comes from a 2006 requirement that the USPS pre-fund its future retirees’ health benefits — an onerous burden in government circles, perhaps, but a normal prerequisite for doing business in the private sector.

GAO concludes that the USPS needs to “optimize its retail, mail processing, and delivery networks to eliminate growing excess capacity and maintenance backlogs, reduce costs, and improve efficiency. The USPS has made limited progress in optimizing its networks.” To the layperson, that encompasses everything the Postal Service does.

The USPS’s problems occur not despite the fact that it is a monopoly, but because of it. And the problems are compounded because the USPS not only is a government-

enforced monopoly, it is a government-run one as well. Without profit-maximizing ownership but with captive consumers, the USPS has long existed in a vacuum free of competitive pressure.

Just as nature abhors a vacuum, economics abhors a monopoly. At the slightest crack in either one’s unnatural integument, pressure rushes in; with a monopoly, it is pressure of the competitive variety. The USPS survived for so long because there was no superior technology for transporting information on an individual basis. But after being whittled down successively by telephone, fax, and package delivery, its business has now been chain-sawed by the Internet.

These problems have been tolerated for so long because the Postal Service is just a small fraction of the federal budget. But America’s health-care system is of an altogether different magnitude, consuming well over half as much of the nation’s economy as the entire federal budget. So in the current debate over what to add to the system, an even more crucial point is what must remain in it: competition. The evils that result from competition’s absence in America’s postal system will be much larger if repeated in America’s health-care system, and the consequences will be far greater from long lines in doctors’ offices than from long lines in post offices.

– J. T. Young served in the Department of Treasury and the Office of Management and Budget from 2001 to 2004 and as a congressional staff member from 1987 to 2000.