The Exchange

Why the U.K. Can Privatize Its Postal Service, but the U.S. Can’t

The Exchange

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Britain’s postal service, the Royal Mail, has just joined the private sector as part of an effort by the U.K. government to raise cash to help pay down its debts. By selling a majority stake in the mail to investors through an initial public offering, the U.K. government has transformed a bureaucratic operation into a for-profit company overnight, one that must survive by competing in the market. It also earned at least $2.7 billion on the sale.

There’s been a lot of talk about doing the same thing with the U.S. Postal Service to help solve financial woes that include $41 billion in losses since 2006 and a business model that’s about as current as a 22-cent stamp. It’s extremely unlikely to happen, however.

“The U.S. Postal Service is nowhere close to being ready to be privatized,” says Richard Geddes, a professor in the Cornell University Department of Policy Analysis and Management. “I wouldn’t say it’s impossible, but it would be well into the future at a minimum.” That’s because America’s postal service has plunged into such a state of disrepair that it is perhaps the most troubled mail service of any developed nation.

Privatization might solve some of those problems by allowing the USPS to slash underperforming units, develop innovative new products and curtail losses that show no sign of abating. The postal service itself has even said that privatization is a viable way to reform the organization’s money-losing operations. As logical as the scheme might sound, however, there are two big barriers to privatizing the post office: Congressional meddling and near-certain public opposition to the consequences of privatization.

Members of Congress, and especially Republicans, love to chide the postal service for epic losses that may ultimately necessitate some sort of bailout. Yet Congress is the main reason the postal service is in such sorry shape in the first place. Even though the postal service is a “self-supporting government enterprise” that doesn’t get any tax dollars, Congress has retained just enough control to essentially veto big, needed changes such as closing unprofitable post offices and processing facilities and diversifying into profitable lines of business that don’t involve the mail. Politicians would lose that control if the postal service went private, which means they wouldn’t be able to prevent postal facilities in their districts from closing, or jobs associated with them from disappearing.

Even if Congress were able to get over its control issues, there would probably be an uproar once voters understood the likely consequences of privatization.

“If you go to privatization, you guarantee that either prices will go up or quality will go down,” says Rob Atkinson, president of the Information Technology & Innovation Foundation, which advocates a partial privatization. In his group's option, the postal service would still deliver mail “the last mile” to your mailbox. The government would continue to regulate postage rates under privatization, but the postal service would probably insist on higher rates in order to fully cover costs.

“American voters overreact to these kinds of things,” says Atkinson. “They don’t want any kind of pain inflicted upon them.”

There are reform bills in both the House and the Senate that would give the postal service more freedom to cut costs and innovate. But they won’t transform the business model nearly as deeply or rapidly as privatization would. Nor would they establish the structural changes that would be necessary for privatization, such as creating a real board of directors and a legal framework for ownership that would allow shares to be issued to the public. As it is, the postal service is organized the way a government agency would be -- despite its supposed self-sufficiency -- with a politically appointed “board of governors” and no ownership per se.

If not for the political hurdles, privatization might work. The postal service could still be required to offer universal mail delivery to every home in America, much as utilities and phone companies deliver electricity and phone service virtually everywhere. There might be sizable job cuts, as critics of the idea fear, but some laid-off workers might get hired by other companies suddenly free to compete with the postal service, or by contractors that might undertake parts of the mail delivery business and do it more efficiently.

Even if there are layoffs, a long history of corporate revivals, from IBM (IBM) to General Motors (GM), shows that protecting jobs while sacrificing innovation often causes more harm to ordinary workers than periodic layoffs do.

It’s more likely though that America’s postal service will remain an antiquated relic compared with what other countries offer. Malta and the Netherlands have fully privatized their mail service, while Germany, Austria and now the U.K. have partially done so. And 25 of 27 countries in the European Union allow some form of private-sector competition with the official post. (UPS (UPS) and FedEx (FDX) are the two big U.S.-based private parcel carriers.)

Back home, we may end up nursing a money-losing postal service simply because we can.

“No other country would tolerate a state-owned enterprise losing billions of dollars per year,” says Geddes. “It’s just because we’re rich. The postal service would have been reformed a decade ago if we were any other country.”

For all those billions, at least we still have cheap stamps.

Rick Newman’s latest book is Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman.

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