From Thinking Outside the Boxe’s London Correspondent

The U.S. Postal Service is in trouble. The USPS ended 2010 with an $8.5 billion loss, and it is predicted to lose another $10 billion by the end of 2011. According to the Newspaper Association of America, the volume of mail carried by USPS has declined by 36 billion pieces, or 17%, in 3 years, but its set delivery schedules mean that operating costs have not declined to match this lower demand. Many argue that the only way to stop the postal service from bleeding money and to make it a profitable venture once more is to allow it to privatize. Many other countries have privatized their postal services in recent years, including Germany in 2000 and Japan in 2005. However, the United States has many unique problems, particularly in terms of size, that do not apply to other nations with privatized postal services. Although a private system might make mail delivery profitable again, it will result in sub-standard service and may even leave many Americans virtually cut off from postal services.

The U.S. Postal Service is not a government agency, but its activities are overseen by Congress. This means that it is exempt from paying taxes but must get Congressional approval for any changes in its operation, despite the fact that it has not received any direct subsidies from the government since the early 1980s. This Congressional oversight leaves the postal service unable to respond to changing economic circumstances or to make the changes necessary to save the system money. In 2010, for example, the Postmaster General had to ask Congress for permission to end Saturday deliveries in order to save the system $3.1 billion annually. A year and a half after the proposal was officially made, no decision has been reached, although Obama supports the change, and a subcommittee of the House of Representatives approved a bill that would end Saturday delivery in September 2011. However, the independent Postal Regulatory Commission, which was asked by Congress to investigate the proposal, has suggested that the change would delay the delivery of 1 in 4 first class letters and would actually save the Postal Service only $1.7 billion a year, and USPS will have a difficult ongoing battle in Congress before the changes could actually take effect. Similarly, the USPS hopes to close 3,700 of its 32,000 post offices in order to save $200 million a year, but last time this was attempted, in 2009, the original figure of 3,200 closures went down to 140, due to community protests, and only 80 of these have actually closed since. Yet 4 out of 5 post offices are operating at a loss, and the problem is growing worse every year, due in part to the ease of using the Internet for communications and to growing competition from UPS and FedEx.

Privatization would therefore solve many of the U.S. Postal Services’ problems. By freeing itself from Congressional control, the USPS could update its technology faster to keep up with its competitors and could streamline its operations, such as through ending Saturday deliveries and closing unprofitable post offices, for financial reasons alone. Considering the extent of the USPS’s current financial losses, the flexibility and financial focus brought by privatization might be the only way to save the system without serious economic consequences for the U.S.

However, Obama previously stated in 2010 that the privatization of public services is a “bad idea most of the time,” and examples of private postal services abroad suggest that the change would have many unpleasant consequences for the United States. The Netherlands, for example, has had a privatized mail system since 1989, and it has frequently been criticized for having unreliable service, with a massive mail backlog, underpaid workers and no job security. Both Germany and Japan, which have initiated the process of privatizing mail in the past decade, have had changes of heart and cut back on the extent of the changes, and the problems in the U.S. could be even more extensive, due to the sheer size of the country, and the number of citizens who live in highly remote locations. UPS and FedEx are profitable, in part, because of their ability to charge extra for deliveries to obscure locations, including anywhere outside the contiguous United States or remote, rural communities. A truly private U.S. Postal Service would have no obligation to deliver to unprofitable locations, and so such rural communities could find themselves left with either an irregular and prohibitively expensive service, or no mail service at all. As these rural communities are often also the ones without access to high speed Internet or quality telephone service, they could find themselves virtually cut off from the rest of the country.

The U.S. Postal Service cannot continue without adapting to take into account decreasing demand. However, access to a regular and reliable postal system is vital for businesses and individuals across the country, and the U.S. government cannot fail these people by handing USPS over to a corporation that values profit margins over these customer needs. Complete privatization of the postal service is therefore not an adequate solution to the system’s current problems. The best way forward would therefore be to turn USPS into a federal government-owned corporation, like Amtrak, providing the postal service with the independence to adapt to changing financial circumstances, while also ensuring that the company’s main objective – providing reliable mail to individuals in every location in the U.S. – is not compromised in the process.