What Would Happen If the Post Office Had Competition?


A few weeks ago, as I waited in a line about 25 people long in the largest post office in the section of town I happened to be in, I began to wonder: What about the operation of this place would change if there was actually competition for their business? For those who don't know, the post office has no competition, by virtue of government decree.

Ironically, just few weeks after that, I was interviewed at the same post office as part of a local TV station's attempt to get people's reactions about the increase in postal rates. (Full disclosure: I hadn't even noticed that the rate change was pending!) I told them simply, "It doesn't matter what I think about the new rates, since I haven't a choice." The reporter who interviewed me admitted that she was surprised to have never considered that fact. By law, we have to use the United States Postal Service (USPS) for delivery of first-class mail. What possible benefit can we, the users of this service, derive from this law? What's that you say? Did I hear someone scream out "none"? (Winner, winner, chicken dinner!) Lysander Spooner challenged the post office for the mail delivery business quite some time back, but Congress came to the rescue.

Given the historic facts of Spooner’s challenge to the USPS, and basic Austrian economic reasoning, let's brainstorm both the upside and the downside of open, free-market competition for the delivery of first-class mail, shall we? Let us also keep in mind that we really don’t know how the post office would change, either for the better or the worse, under a truly free-market scenario. But we know it would change. The most basic aprioristic analysis would seem to indicate that it would change for the better.

One other point, before we begin our brainstormed list. There are some people who might argue that the USPS is an example of a government service that actually does work. The U.S. has the cheapest stamps of any country where the delivery of mail is ostensibly not subsidized. (The USPS is supposedly not directly subsidized via tax revenue. As such, one might argue that they actually have to be self-supporting in some sense.) In the print version of the Rochester local article, the reporter says, "USPS is regulated by the federal government but isn't subsidized with tax money." Not quite.

Digging a little deeper provides the truth: the USPS is subsidized. One need only refer to the 2005 annual report to get some illustrative numbers. A line item showing as "U.S. government appropriations u2014 received" lists an amount of $503 million. The 2003 annual report shows a similar line item with a similar heading. That line item lists an amount of $762 million. Call me a nitpicker, but those listings both sound suspiciously like, well, government appropriations, A.K.A. taxpayer investment, to me. Looking further into the 2005 annual report we find this.

"We commenced operations on July 1, 1971, in accordance with the provisions of the Postal Reorganization Act (the Act). The equity that the U.S. government held in the former Post Office Department became our initial capital. We valued the assets of the former Post Office Department at original cost less accumulated depreciation. The initial transfer of assets, including property, equipment and cash, totaled $1.7 billion. Subsequent cash contributions and transfers of assets between 1972 and 1982 totaled approximately $1.3 billion, resulting in total government contributions of approximately $3 billion."

So even without the (apparently) semi-annual infusions of "government appropriations" the USPS received something like $3 billion in "start-up" capital. That is about as far from "no taxpayer support" as one can get! Additionally, these are economic benefits that private companies such as FedEx, UPS, and DHL do not receive and they are still kicking the Post Office’s butt in the realm where the USPS is not protected by fiat. (Have you seen the FedEx boxes placed outside the USPS recently?) Clearly the USPS benefits from government subsidy, no matter what they choose to call it. Now back to the question at hand: how might things be different with competition?

Benefits of Postal Competition

More Services

Business use of the post office would disappear almost completely, practically overnight if the USPS had to compete head-to-head with other vendors.  UPS and FedEx would likely offer incredible rates on first-class postage to existing customers who are already using their other services. That would leave the USPS with the job of basically delivering personal letters and junk mail. For a while, individuals would go with the name they trust, the USPS. Over time, though, more and more people would start using the mailroom at work and employers would offer the corporate rate for personal packages in many places, as they do with UPS/FedEx now. There would probably be discounts for sending from the UPS/FedEx store rather than having a pickup, too.  A lot of “scan and send” type operations would likely spring up, so people could send paperwork over the Internet.

Cheaper Rates

Spooner's experience already proved this conclusively. I found it interesting that Donna Hennessy, the spokesperson interviewed for that local story said, "41 cents is still a good bargain” when she talked about the rate increase. My question here is pretty simple. How does she know? If no one else can deliver the mail – no competition exists – how can anyone determine if the rate is good, bad, or indifferent?

Shorter Lines

This one seems like a no-brainer.  Can you imagine any truly well-run private enterprise that seemed to not care about long lines?  In fairness though, just because the post office doesn’t have competition doesn’t mean it lacks a plan to deal with long customer lines.  Just very recently they unveiled their plan:

At the end of last year, the Post Office did some research and was surprised to find that customers at the nation’s 37,000 post offices were not happy about wait times in line. In response, the Post Office came up with a brilliant idea, something that could probably only come from the federal government. They removed the clocks from all 37,000 post offices.  Stephen Seewoester, a Postal Service spokesman said, apparently with a straight face, “We want people to focus on postal service and not the clock.”

Now if that’s not the standard operating procedure (SOP) for a bureaucracy I don’t know what is!  It also sounds oddly familiar to what was done in communist Russia, when they centrally planned and ordered the hospitals to have fewer deaths. So the hospitals put the people who were in danger of dying on the streets and they didn’t accept people who were in danger of dying.  Who says the U.S. can’t learn a thing or two from the Soviets?

Better Handling of Mailed Items

What we're really talking about here is a clear recourse when items are damaged during shipment. Is there anyone who hasn't received a piece of mail that looks like it was dragged behind the truck like one of those cowboys behind his runaway horse? When this happens, what is your recourse? Nothing. This means you have to be happy you at least got it; even if does have to be repaired with Duct Tape before you can read it.

More Convenient Placement of Mailboxes

Currently the homeowner must place his mailbox at the convenience of the mail carrier.  This is why I can walk down a residential street and see all the mailboxes on one side of the street, placed at a point where the person receiving the mail might actually have to walk across the street (or farther) to get his mail!  In a system with ample competition the homeowner would very likely get to place that mailbox at his convenience versus the convenience of the mailman.

Risks of Postal Competition

Fewer Services and/or Mailing Options

Basic Austrian economic theory suggests that all services that are desired will be provided. This is simple supply and demand. The only situation where less services would be offered in a free-market post office scenario is if the current cadre of services includes some that are not useful, which is possible. That said, this is not a legitimate worry.

Higher Rates

Some might argue that without the "economies of scale" available to an erstwhile government agency, rates would go up. Of course this is fallacious. First of all, we already pay for all the services we get. Secondly, any government agency is rife with waste, almost by definition. The example of Spooner, who effectively forced the USPS to reduce their rates, shows that is not a legitimate worry.

Longer Lines

No currently available example supports this risk. Can you imagine a new pizza company entering the market and using the tag line, "we take longer than anyone else!" Unlikely, unless they offered something in trade, and then, the market would have "spoken" anyway. This is not a legitimate worry.

Worse Handling of Mailed Items

As with the risk above, no currently available example supports this risk. If FedEx begins to deliver packages days late, it won't be long before someone takes their place and all their customers. Similarly, if any vendor provides damaged mail as a modus operandi, he will be replaced, unless people really don't care about the condition of their magazines. This is also not a legitimate worry.

More Than One Daily Delivery

Imagine if your e-mail worked like the post office. You'd get all your messages in one big bolus, and that would occur at some approximate time each day. Currently, only one company delivers mail, so you get one daily delivery. If the market was open, it might mean that several companies would enter it. Some people might use Company A for their deliveries. Others might use Company B. If you received mail from both people, it might very well be delivered at different times during the day. For example, one receives FedEx deliveries separately from UPS deliveries. As such, this is a legitimate worry.

More Junk Mail

Again we return to the Internet motif. Each of us currently receives a veritable mountain of junk e-mail. In fact, a term has been invented for it: spam. If companies were competing for market share, they might also feel that they could enhance their profits by selling your name to marketers. These people could fill your (snail) mailbox with even more crap than is currently flowing into it. However, few could argue that there is strong market demand for less junk mail, not more. For that reason alone, this is not a legitimate worry.


So it seems that the ways we'd likely benefit exceed the ways we might be hurt by true postal competition. (Again, no one really knows what will happen in a free market, particularly in an area where there is no possibility of competition currently. I feel good about our chances though!) Of course, this is no surprise, but let me offer a challenge. If you think I've missed anything, on either side of the equation, let me know. Let's have some fun with this one.