Free-Market Mail is on the Horizon; M. D. Barger

Read, who contended that no one has the right to prevent anyone from providing or using a mail service or, for that matter, engaging in any other peaceful activity. Private enterprise also has regained a respectability it hasn't had since the 1920s. This came in the wake of disen chantment with failed socialist schemes. But another cause of this change is the U.S. Postal Service itself-its performance over the years Mr. Barger was associated with Libbey-Owens-Ford Com pany and one of its subsidiary firms for nearly 33 years. He was a public relations representative at the time of his re tirement and is now a writer-consultant in Toledo, Ohio. He has been a contributor to The Freeman since 1961. has so exasperated Congress and the public that even radical alternatives to the current system can be considered. Meanwhile, the relentless march of new en terprise has given rise to overnight mail and the promise of stunning advances in electronic communications.

Here's what thoughtful writers have been saying about the U.S. Postal Service. Writing in the January 7, 1987 Wall Street Journal, James Bovard called the Postal Service "a mess" and concluded that contracting out mail service to private companies could achieve substantial savings. In The New York Times (August 9, 1985) Stuart M. Butler focused on the USPS financial mess and asked if it isn't time to sell the postal service. And a news ar ticle in Business Week (August 18, 1986) dis cussed newly appointed Postmaster General Bob Tisch as "a new man to tackle the postal mess" - a tacit way of saying that USPS's troubles are a matter of common knowledge and agreement. Even a group associated with consumer activist Ralph Nader has focused on postal problems, and has published a book by Kathleen Conkey entitled The Postal Precipice: Can the U.S. Postal Service be Saved?2 In my view, the answer is that the USPS cannot be saved in the sense of transforming it into a healthy enterprise deserving of respect.

As in the past, it can be propped up and main tained indefinitely by frequent subsidies and other assistance. But the mood of the public and the rising tide of criticism suggests that a time for dramatic change is near, that we want 287 something besides an outmoded and fumbling mail. What follows is a discussion of a few of postal service. A leap forward into free-market them: mail could come shortly. Let the Market Decide Leonard E. Read thought there could be two phases in the move to free-market mail.3 First he would have repealed the Private Express Statutes that give the government postal service a monopoly over first-class mail, and then he would have stopped Congressional funding for the Post Office. But the second phase should not be needed for an effective beginning. In order to make the move to private mail, all that's needed is to repeal the Private Express Statutes. After the repeal, let the market itself decide who should carry the mail and how it should be handled. As new systems come on stream, Congress could then decide about fu ture support of the Postal Service.

There may be, in fact, good reasons for not making any changes in the U.S. Postal Service for the time being. Let private systems coexist with the USPS, just as the United Parcel Ser vice now competes with USPS package ship ments. Let users make their own decisions and comparisons. Also, let them have the opportu nity to view private mail in operation before making any plans to dismantle the USPS. One also should not overstate the case for private mail. Private mail offers many opportu nities, but it could also force changes upon many who have vested interests in the current system. It would be false and misleading to promise that private mail systems would imme diately provide every service now being sup plied by the USPS. Rural free delivery, for ex ample, would undergo radical change and prob ably curtailment under private systems. This is an issue that Congress and the public will have to face in due time. But rural free delivery should not be any part of a reasonable plan to repeal the Private Express Statutes and to let anybody carry mail. The libertarian goal should be to give private mail services the chance to prove themselves; it is not necessary to deal with political questions about the USPS at the same time.

Meanwhile, there are still a number of argu ments which are raised in opposition to private The Cream-Skimming Argument One of the most persistent arguments against private mail is so-called "cream-skimming." According to this argument, private mail ser vices immediately would leap into the most profitable categories of mail delivery, leaving the USPS to serve only the high-cost routes and customers. The USPS would then lose revenues which help cover its costs on other services, with the taxpayers being forced to make up the difference. The cream-skimming argument was dealt with by John Haldi and his associate Joseph F. Johnston, Jf., in a monograph for the American Enterprise Institute. 4 They point out that the very existence of this argument demonstrates that " some mail users are overcharged under the existing rate structure." In a truly competi tive market, they say, such rate-making prac tices would be self-defeating. They note that "cream-skimmers" in a competitive market are really the "good guys" who cut prices and keep other suppliers honest!

There was a surprising reappearance of the cream-skimming argument during the recent breakup of the Bell System. Unknown to most people, the Bell telephone monopoly had tradi tionally undercharged for residential phone ser vices while overcharging long-distance and business customers. But this practice was disrupted by the famous 1968 Carterfone court decision. Carterfone opened the way for busi ness and residential use of interconnecting equipment and helped pave the way for MCl's entry into long-distance services. And, need less to say, business and long-distance cus tomers had no desire to pay higher rates to sub sidize residential users once they had access to lower-cost sytems. In both the USPS and AT&T examples, the cream-skimming argument is employed to jus tify what is essentially an unfair situation. It is wrong to impose higher rates on one class of customers in order to subsidize services to an other group. Market forces will always move quickly to end such arrangements if suppliers 288 THE FREEMAN. AUGUST 1987 have access to the market. Postal services need some cream-skimming "good guys" who can help clean up this unfairness!

Improving the Present System From time to time, there's been hope that a change in management might bring new life and efficiency to the Post Office. This was the o case during the Eisenhower Administration when Arthur E. Summerfield, a successful businessman, was appointed Postmaster Gen eral. With considerable publicity, Mr. Sum merfield assailed some of the "horse-and buggy" practices of the U.S. mails and sought to make Post Office practices more businesslike and up-to-date.5 He was horrified, for example, to discover that postal clerks in Denver had to sort mail on the street because of cramped building space. While Summerfield probably made some im provements in the Post Office, he ran into the problems that confront every business execu tive who moves into government. There is a vast difference, the executive learns, between managing for profit and managing in a bureau cratic, politicized environment. Mr. Summer field also came into conflict with the postal unions and faced the usual resistance of an en trenched bureaucracy. His proposed changes made barely a ripple in the existing structure.

A seemingly more promising effort to re vamp the system grew out of a 1968 report by the President's Commission on Postal Reorga nization, headed by Frederick R. Kappel, a former chairman of AT&T. The report recom mended that Congress charter a government owned corporation to operate the postal ser vice. Mr. Kappel's great prestige undoubtedly was a factor in Congress's decision to create the new postal corporation launched on July 1, 1971. Far from solving the postal problems, the re organization appeared to make them worse. Within a few years, problems had intensified to such a point that Robert J. Myers, publisher of The New Republic, wrote a scathing attack on the new corporation.6 Coming from a source that usually favors government involvement in the economy, Myers' book must have seemed a most unkind cut. Some of his criticisms included the charge that postal corporation man agers had become a self-serving elite, while postal unions had been able to wring fatter con tracts from the new corporation than they had been able to get from the old bureaucracy. Mal investment was rampant in the new organiza tion, service was rapidly deteriorating, costs were spiraling in all directions, and attempts to mechanize often had proven unsatisfactory.

Although Myers did not understand the basic problems inherent in government management, his book brought attention to the inefficiencies of government corporations. The executives of the new postal corporation had no mandate to make a profit or to heed the other disciplines of the market. They performed as well as might be expected under the circumstances. Nader's Proposed Rescue Another way to save the Post Office has been proposed by Ralph Nader. Writing in 1982, Nader put forth a plan he called a Post Office Consumer Action Group (POCAG). Under this arrangement, a law would be passed requiring the Postmaster General to send a letter twice a year to all household patrons inviting them to join POCAG with a small annual dues pay ment. "Those consumers who so volunteer can shape the group's policies and work with its staff to reconstruct an American postal system, from its local roots to the national arena, that would make Franklin proud," Nader promised in The Postal Precipice. "A POCAG with a million or more members would be the repre sentative constituency needed to reverse the de cline and possible fall of the Postal Service in the coming generation."

It's hardly necessary for a free-market dev otee to comment on Nader's plan, which simply would create a group with a government mandate to hassle and bludgeon postal offi cials. No single organization could possibly represent the divergent needs and interests of various mail users, and his POCAG probably would serve as nothing more than a platform for Nader's views. If government ownership and operation of the Postal Service is unsatis factory, that is not likely to be corrected by a private group of gadflies. At the same time, however, Nader has helped by publishing a reFREE-MARKET MAIL IS ON THE HORIZON 289 Federal Express's "Superhub" sorting facility in Memphis Tennessee. The company, founded in 1973, now handles 730,000 shipments daily. port which details the continuing problems of the Post Office. What do we want from our postal services? The fact is, no two people have exactly the same expectations. At various times and in many places, the Postal Service has been un able to perform in a satisfactory manner. Retail business people, for example, are wary of using the Postal Service for deliveries that have time value. A number of important business messages are now sent through express over night courier service-private firms operating outside the government-owned system.

Recent advances in electronic telecommuni cations appear ready to make even more changes. Efficient electronic "facsimile" systems already are transmitting documents be tween business offices, and it's not hard to pre dict that low-cost units may soon become avail able on the consumer market. The postal mo nopoly already has been weakened to such an extent that little objection is raised to electronic ,'facsimile" systems, electronic mail, and overnight express mail. The main pressure for these changes has come from business organizations, which need fast communications and already have substantial investments in electronic systems. While the USPS currently is providing express mail, its foray into electronic mail was a flop and was discontinued in 1984 following two years of operation and losses of about $50 million. Of course, not all private ventures into elec tronic mail will succeed. But electronic mail and facsimile transfers offer new opportunities which cannot be ignored. It's not inconceivable that the bulk of printed mail could be conveyed electronically in the early part of the next cen tury.

The Private Express Statutes The idea of postal service as a government monopoly apparently was something the Amer ican colonies inherited from Great Britain. A government postal service was even included in the U.S. Constitution. But many private ex press companies flourished in the United States during the early 19th century. They were effec tively outlawed by the 1845 Private Express Statutes which Congress passed at the urging of the Postmaster General. Even then, the cream skimming argument had surfaced; the private carriers were operating on the most profitable 290 THE FREEMAN. AUGUST 1987 routes and leaving the rest for the Post Office! As with any law, the Private Express Statutes have been tested and interpreted over the years. It has been necessary to define what constitutes a letter, what is a postal route, and what limits should be placed on those who as sist in the transfer of mail. Although there's been some slippage, the federal government has been largely successful in maintaining its monopoly over first-class mail.

But private firms have made inroads into the third-class mail market, and the success of UPS in the parcel business has been one of the Post Office's great embarrassments. The latest pri vate breakthrough has been "time-sensitive" mail, a market now being served profitably by Federal Express, Airborne, and a number of other private firms specializing in overnight service. As new companies spring up to meet various communications needs, the pressures are bound to grow for easing or repealing the Private Express Statutes. The Miller Proposal The idea of repealing the Private Express Statutes received a recent boost from James C. Miller III, who was chairman of the Federal Trade Commission before becoming director of the Office of Management and Budget. "The postal system is a particularly good source (in the event that one is needed) for evidence that private enterprise performs better than govern ment enterprise and that competitive markets perform better than monopolies," Miller wrote. "The costs of the Postal Service are sig nificantly higher than they should be because the incentive to hold down costs-most no tably, labor costs-is limited. Postal workers are paid far more than is necessary to retain their services. Because entry into postal markets is restricted, the Postal Service is able to pass those higher costs along to its cus tomers. " After discussing what might be ex pected to result from an end to the postal mo nopoly, he concluded that "All the available evidence suggests that competition in the market for first-class letter delivery would create substantial benefits." And he added, "Private enterprise will get the mail delivered -just as it did in the Old West. "7 The idea of making mail delivery private never had high-level support like this back in 1962 when my article was prepared for The Freeman. But times and attitudes have changed, and we even have Congressmen who support repeal of the Private Express Statutes.

The only question is when and how this might be managed. The most likely future, even without repeal, is that the USPS will continue to be prodded by new ventures which threaten its legal mo nopoly. This will weaken the hold of the USPS over first-class mail. New electronic ventures also will give mail users new alternatives to first-class mail. What would be the impact, for example, of a low-cost (say $500) facsimile machine which any person could use at home? How will new technologies like fiber optics change communications? And who is to say what might happen even in services such as home deliveries? How soon will we have a free market al lowing anybody to carry mail? There's wide spread approval of the idea already. Since the most powerful supporters of the status quo are the postal unions, the political problems of re pealing the Private Express Statutes are formi dable. But with enough competition from elec tronic messaging and other delivery services, the Private Express Statutes could simply be come irrelevant.

It's time something like this happened. Mail is far too important to leave in the hands of a government monopoly. Let anybody carry it, and let the market decide who does it best. That seemed like a radical proposal in 1962. With the help of free-market advocates, technical ad vances, and the failings of the United States Postal Service, it is becoming a reality. D 1 "Could AT&T Run the Post Office?" The Freeman, October 1962. One point of the article was that AT&T's need for profits had helped make it more efficient than the Post Office. AT&T's regu lated status, however, has not been without problems. 2 Published by The Center for Study of Responsive Law, Box 19367, Washington, D.C. 20036, 1983, 515 pages. 3 Leonard E. Read, Anything That's Peaceful (Irvington, N.Y.: Foundation for Economic Education, 1964), pp. 171-179. 4 Postal Monopoly: An Assessment of the Private Express Statutes (Washington, D.C.: American Enterprise Institute, 1974), p. 35.

5 Arthur E. Summerfield, U.S. Mail (New York: Holt, Rinehart and Winston, 1960). 6 Robert J. Myers, The Coming Collapse of the Post Office (Engle wood Cliffs, N.J.: Prentice-Hall, Inc.), 1975. 7 James C. Miller III, "End the Postal Monopoly," The Cato Journal, Vol. 5, No.1, Spring/Summer 1985.