Neither Sleet, Nor…(Forget It)
Should the government deliver the mail? To begin to answer this question, it seems best to pose a series of additional queries. Should the government deliver automobiles? Surely, no other economic commodity is more crucial to the continued health of an industrial economy. Unless, of course, one considers the value of steel and petroleum but, then, maybe the government should deliver these, too. One would have a difficult time convincing a mother that milk and clean diapers are any less valuable than steel ingots.
Should the government, therefore, deliver milk and baby diapers? My newsboy would be sad, indeed, without his bicycle. Should the state deliver bikes? Anyone for ice cream?
All goods or services sold to consumers or firms have, at one time or another, been "delivered." Milk, eggs, leather, lead, plastic and corn flakes are delivered to home, shop and store as a matter of routine. They are delivered because delivery is a service for which people will pay—and pay or revenue together with efficient operations, is a source of profit.
The same principle holds for the delivery of Japanese radios, Middle-Eastern petroleum, Hong Kong ashtrays, Florida oranges and Maine potatoes. Although the particular good or service might be heavy, difficult to handle, spoilable, breakable or dangerous, its successful delivery at a competitive price is standard procedure in the business world. In almost all instances, the production and delivery of these particular items is accomplished by a group of privately owned, competitive firms, which have obtained patronage because they offer the most attractive service at the most competitive price, and earn a profit in the process.
And so it is with almost every form of delivered goods or service, except mail delivery. At present, the transportation of written messages is the sole responsibility of the Post Office Department; open competition between private firms in this specific area is strictly prohibited by law.
Other forms of mail (newspapers, magazines, some direct-mail advertisement) may seek alternative modes of transportation. In fact, however, postal restrictions on the private use of mail boxes, and taxpayer-financed subsidies in the form of below-cost postal rates to these particular users effectively tie them to postal delivery.
For all practical purposes, therefore, the governmentally owned and operated Post Office Department is a monopoly.
A governmentally owned monopoly differs in essential respects from a private firm on a free, competitive market. Every private business enterprise that is free of governmental interference operates in an atmosphere of competition against all other firms for the limited dollars of consumers. To compete successfully against rival enterprises, private firms are required to improve their products or services, keep their prices relatively low and curb their costs. Profits indicate efficient management and consumer satisfaction, and allow for continued long-run operation. Firms which do not maintain efficient operations and fail to satisfy consumer demand are punished with losses and, eventually, forced to leave the market. Thus, the uncoerced choices of consumers and the profit and loss mechanism of the competitive market generally insures that currently producing firms are efficient, in the process of becoming efficient, or about to be pruned from the ranks of producers by more efficient competitors.
The Post Office Department is not subject to any such competitive pressure. First, and most important, its continued existence is not a function of its economic performance. The Post Office, unlike any private firm, need not return a long-run profit to remain in "business"; deficits can and will be financed out of general tax revenue. Thus, the existence of the Post Office depends on the involuntary "ability to pay" of the American taxpayer, and not on the efficient satisfaction of consumer demand.
Second, effective private competition with postal services is either impossible due to subsidies or illegal due to legislative prohibition. Thus, both competition and "profit-loss," the essence of the market mechanism which attempts to insure efficiency and consumer satisfaction in a free market, are virtually absent in mail delivery. In effect, we must take and pay for whatever the postal authorities choose to offer.
What does the Post Office Department choose to offer at our expense? The Post Office, with its 681,000 employees and 35,000 post offices, is an inefficient, bureaucratic, quasi-political institution, ruled and dominated by Congressional patronage, vocal pressure groups and nine strong unions. It is, in short, not a "business" enterprise at all, but an elaborate political organization designed for the dispensation of jobs, favors and political plums. (These figures are out of date.—Ed.) For example: qualifications for postmaster (including the Postmaster General) and some mail carriers typically run in terms of political affiliation and party loyalty rather than in terms of technical proficiency. Even erecting new post offices and scrapping old ones is more a game of political spoils than serious economic calculation. Postmaster Generals, like the recent Mr. Day (929 days in office), who refuse to actively participate or extend the labyrinth of political manipulations, frequently resign.
Although "politics" seeps into almost every aspect of postal operations, nowhere is it more obvious than in the determination of the rates of postage. First-class mail users, politically the least organized, are charged the most, even though their mail is the cheapest by weight to deliver. Second class mail users, the newspapers and magazines, typically pay about one-fourth of the cost of their postal delivery. Third class mailers pay about 60%-70% of the cost. Taxpayers are called upon to make up the difference. Special fourth-class "educational" material travels even cheaper and mostly at public expense.
There can be little doubt that the rates of postage are influenced more by political pressure within Congress than by the economics of mail delivery.
The postal operations themselves are archaic and inefficient. For example, most of the large city post offices–built during the 1930's—were built to move most of the U.S. mail by rail. Unfortunately, the number of train runs has declined drastically, leaving the Post Office Department holding the delayed mail bags.
Proposals to remedy the situation of slow mail delivery by combining first-class and air-mail into a single category have consistently met opposition from entrenched vested interests. In addition, the boom in business mail (80% of the 40 billion first-class letters), direct mail advertising, and the changing patterns of population growth have caught the Department by surprise. The 80 billion pieces of mail delivered in 1966 arrived a full decade earlier than Post Office expectations. Most of the deluge was sorted and sacked by hand at a snail's pace of about 35 letters a minute; each individual letter was handled an average of 10 times before it finally reached its destination. Some of it reached its destination at speeds comparable to the Pony Express days of nearly 100 years ago.
The necessary consequences of the "politics," bureaucracy and inefficiency are, Of course, continuous postal deficit. With amazing regularity, the Post Office has shown a deficit in parcel post, postal insurance, special delivery mail, second, third and fourth-class mail delivery, Money orders, registered mail and C.O.D. services. In spite of a total first-class mail monopoly and other special privileges such as complete tax exemption, the postal deficit in fiscal 1966 will exceed one billion dollars.
Yet should any of these sad facts be unexpected? Is it really surprising to discover rising costs, poor service, little technological change and gross inefficiency in an essentially political organization, isolated by subsidy and law from the discipline of the competitive market? On the contrary, as careful observers we should have expected little else.
The real question, therefore, is not "why is postal service so bad" but, rather, "why is the government in the mail delivery business in the first place."
Why do we entrust the production and delivery of almost every other commodity to the market place (even so-called public utilities are privately owned and run at a profit), yet refuse to allow private firms the opportunity to compete for the potentially lucrative business of delivering 80 billion pieces of mail? It is to this question that we now turn.
To comprehend the present governmental involvement with mail delivery, it is necessary to understand the historical role of government in the transmission of written messages. The first recorded organized postal service was established twenty-five hundred years ago by King Cyrus the Great of Persia. His royal messengers operated on scheduled routes over "post" roads and delivered royal edicts and reports to governors throughout the Persian Empire. Grecian and Roman states also used a governmental post to communicate official information to the extremities of their territories; at the same time, they generally forbade the use of the post to the transportation of private letters.
The early history of mail delivery displays abundant evidence that the State assumed to itself the responsibility for control and transmission of the written word. Although private message delivery was by no means absent in these early days, it more than likely operated in the shadow of quasi-legality, if not outright state hostility.
British and Colonial American history reveals the same trend in mail delivery development. Henry VIII, who established the first formal postal system in England, apparently deemed the service to be the exclusive prerogative of the Crown. The first Colonial post in America was, consequently, a monopoly patent, granted by the British Crown to one Thomas Neale in 1692, with full authority to erect post offices for the receiving and dispatching of written communications. Shortly afterward in 1693, New York and New Hampshire made it illegal for anyone other than the official postmaster to collect, carry, or dispatch mail. In 1700, the British Government formally authorized Colonel John Hamilton of New Jersey to set up a continental postal system, and by 1711, weekly mail runs between Boston, New York and a New York to Williamsburg, Virginia route was established on a bi-weekly basis between 1711 and 1717.
After the American Revolution, the Continental Congress, in the British Tradition, restated the familiar idea that the postal system was a legitimate and necessary governmental function. Article Nine of the Articles of Confederation granted the Congress "the sole and exclusive right and power…of establishing and regulating post offices from one state to another throughout all the United States…"
The Constitution, Article One, Section Eight, extended the tradition by granting Congress the power to establish post offices and post roads. The enforcement of an "Ordinance for Regulating the Post Office of the United States," dated October 18, 1782, was the first formal attempt to prohibit private competition with the governmental post. Finally, in a series of declarations, all with legitimate Congressional authority, succeeding Postmaster Generals declared first city roads, then country roads, and then waterways, Canals, railroads and eventually even the airways to be "post roads," thus making potential criminals of all who sought to communicate mail for private fee or profit.
From 1860 to the present day, the monopoly position of the postal service has not been effectively challenged.
The assumption that mail delivery should be a governmental responsibility can be challenged by posing two questions: first, what are the historical or present-day justifications for governmental mail delivery; second, are these justifications valid or not.
In broad political terms, it seems difficult to justify mail delivery as a legitimate governmental function. Typically, governments have been characterized as organizations created to protect man's inalienable rights. Since rights are violated by physical force, legitimate governmental activities have attempted to secure rights or bring to justice those men who have violated the rights of others. Traditionally, therefore, the legitimate functions have included the duty to maintain public law and order, provide defense against foreign nations, and establish an effective system of courts. More recently, these minimal functions have been extended to cover a variety of governmental interventions in the market place, such as providing for a sound and stable currency and a minimum standard of living.
Without even questioning the soundness of this extended list of functions, it soon becomes obvious that the inclusion of mail delivery within this list would be inappropriate. Governmental communication of written messages has nothing to do with the securing of man's rights, defense or justice (though it has much to do with violations of man's rights), nor can any unique significance be given its economic value to the economy. If mail is a governmental function, then so is, with the same logic, the delivery of practically everything else. The fact remains that there is nothing inherent in the nature of delivering private paper envelopes that necessitates that it be a governmental function. On the contrary, the private and completely personal nature of written communications inherently dictates that they be free of governmental involvement and trusted only to the free market.
In early mail history, it is maintained that a government postal monopoly was required to dispatch official rules and decrees to distant parts of empires. Unfortunately, this explanation does not explain why a monopoly in such services was necessary. There is, however, good reason to believe that early rulers sought and obtained a monopoly in this service because they feared the ready communication of "anxiety" and popular discontent about their political regimes. Thus, to suspend "the legal traffic in private letters" was a useful political device—common to all dictatorships—to suppress the circulation of political ferment.
Surely, this justification for government mail monopoly can not easily be defended. To control mail delivery in an effort to suppress the circulation of political criticism, must clearly be offensive to anyone seriously committed to the principles of a free society. Aside from the questionable issues of total wartime circumstances, censorship, regulation of content, mail "supervision" and the outright prohibition of the transportation of private messages are unjustifiable abuses and violations of the freedom of speech and peaceful action. Anyone steeped in the liberal tradition of the "rights of man" must seriously doubt the government's right to establish and maintain a mail monopoly.
Another suggested reason for governmental involvement in the transportation of letters is the obvious financial gain involved when the "monopoly privilege" was exercised by the state, or let out to patentees at a handsome fee. Once revenue became the important consideration, a government monopoly in the service was mandatory; private competition would only compete away potential governmental revenue.
It is extremely doubtful whether anyone today would suggest that we use a postal monopoly to raise tax revenue for the national government. Wholly apart for the obvious questions of inequities, the fact remains that the Post Office has, historically, been a serious drain on the public treasury. Although it is conceivable that the Post Office could be used as a source of tax revenue, it is extremely doubtful that it would be used as such.
A third possible historical justification for federal mail delivery is the argument that the mail became a governmental function because private enterprise could not or would not do the job itself. Unfortunately, the facts of the period tell a different story entirely. Throughout the history of mail delivery, when private competition was not specifically outlawed, or when the fines for violating the law were small or unenforced, there is ample evidence to suggest that private mail transportation was a vigorously growing enterprise. In the Colonial period, for instance, private mail transportation continued despite governmental prohibition. In fact, the official British Postal System inadvertently encouraged private delivery since its rates were typically higher than private postage. As the country grew, so did the business of private messengers and the willingness of traveling business men and personal friends to transport letters to distant locations.
By the middle of the 1830's, a number of "expresses" or dispatch companies were functioning, offering direct competition to the usually less efficient and more costly governmental service. While government mail could only be received and posted at inconvenient post offices, the private dispatch companies maintained pick up and collection boxes in hotels and other easily accessible locations. By 1843, at least twenty private mail delivery firms were soliciting for business in the Boston area alone. In both 1845 and 1851, the private expresses undercut the tax supported postal system prices enough to force reductions in the rates of "legal" mail. Finally, in 1860, the revenue being siphoned off the lucrative routes by "bootleg" mail delivery was sufficient to cause Postmaster General Holt to enforce the prohibition against private delivery of mail along "post roads." Thus, the development of the "delivery" industry was nipped in the bud by legal prohibition. Private mail delivery firms were outlawed because their economic activities interfered with the maintenance of a government monopoly. The rationalization, therefore, that public enterprise simply did what private enterprise would or could not do is false.
A fourth historical justification for governmental involvement with the delivery of private messages is the less than satisfactory rationalization that mail delivery was traditionally a function of the state, had not performed that badly, and could probably—without much difficulty—be kept on as a governmental function. Both Adam Smith and the "Founding Fathers", especially Madison, seemed to have little fear or anxiety concerning the activities of a government post office. Smith was even of the opinion that the government post office could return enough of a profit to finance new capital facilities. Unfortunately, "tradition" is no guarantee of feasibility or desirability, and the experience of the past 200 years has surely not born out such optimism. To retain a governmental mail system simply because it is traditional, is pure foolishness.
In summation, therefore, it appears that there is little historical justification for governmental mail delivery or monopoly.
lf there is little historical justification for government mail delivery, there is even less convincing contemporary argument. For example, some economists conclude that the government should undertake the production of goods and services which are uniquely "social" or "public" in nature, that is, those which presumably must be consumed in equal parts by all members of the community to be enjoyed at all. National defense is usually cited as the most obvious example. It is further maintained that some goods render benefits not retrievable through private markets, and that the production of these goods must also be undertaken or at least subsidized by the state. Without debating the validity of these questionable theories, it is enough to note that mail delivery clearly fails to meet these qualifications.
Mail delivery is not an "indivisible" good; it can be enjoyed individually, directly and completely by anyone in any amount. Further, its "benefits" can be excluded from the rest of the population by their failure to consume. Thus, mail delivery is a marketable good like "dry cleaning delivery" is a marketable good, and can not be hidden behind the dubious facade of being designated a "social" good. There is no economic reason why its production could not be provided by competitive firms on the free market.
A supposedly more sophisticated economic argument for government mail monopoly speculates that when production of a commodity takes place under conditions of decreasing long-run average costs, a large firm, facing the entire market demand, would be better able to experience low costs and offer low prices than a series of competitive firms, all smaller than optimum (least cost) size. Since mail delivery supposedly takes place under conditions of decreasing costs, it is suggested that a mail monopoly is best since it could produce the service cheaper and charge a lower price.
There are strong objections to this line of reasoning. In the first place, there is no way on earth to compare the cost curve of a government mail monopoly with the cost curves of nonexistent private, competitive enterprises. Theoretically, the government monopoly should be able to operate on a lower portion of its decreasing average cost curve, and charge lower prices to its consumers. In fact, however, it seems more than likely that the entire structure of costs for private firms would be below the government monopoly's curve due to the efficiencies induced by inter-firm competition. If the spectacular increases in efficiency that have occurred in other modes of delivery where private enterprise has been predominant are any rough guide, this would seem to be a safe assumption. Surely, the history of the last 200 years of government mail monopoly does not lead us to the necessary conclusion that we are getting optimal economic performance from the Post Office.
Further, all arguments for monopoly (public or private) neglect the fact that costs and prices are only one aspect of the total "package" with which consumers are concerned. Many consumers, for instance, would appreciate the opportunity for alternative choices presented by a competitive mail system. Unfortunately, the value of alternative choices is brushed aside by advocates of government monopoly.
The final argument to be considered for government mail monopoly is the charge that government monopoly is necessary to service the rural routes which would be unprofitable and, therefore, neglected under a system of private mail delivery. This charge, however, has serious practical and theoretical difficulties. In the first place, the charge has never been proven. Second, if rural recipients or letter-senders into rural areas are willing to pay the price of rural delivery, then they shall have it. There is absolutely no reason to assume that rural mail delivery could not be accomplished at some price sufficient enough to generate profits for competitive firms. Whether the price would be higher or lower than the present price is a question that only the market and competitive conditions could answer. What advocates of government monopoly are objecting to when they claim that private enterprise could not profitably deliver mail, is really the fact that in a private system, the rural mail dweller or rural mail sender would no longer be able to involuntarily tax the city dweller to subsidize the more expensive rural delivery. In this contention, at least, the advocates of government mail monopoly are absolutely correct.
In conclusion, there is absolutely no sound economic or political reason why the delivery of mail need necessarily be a governmental function of a governmental monopoly. On the contrary, there are very sound economic and political reasons why it should not be either of these. In a society founded (implicitly, at least) on the principle of free-enterprise, a government postal monopoly is both inexpedient and improper. We could, in all likelihood, achieve a faster, cheaper, more efficient and more diversified mail delivery system by entrusting this potentially lucrative activity to the discipline of the free market. We would also, at the same time, achieve a delivery system more in keeping with the political economy of a free society. Have we the political courage and the moral integrity to try?
Dr. D.T. Armentano is an assistant professor of economics at the University of Hartford. He is currently working on a book on antitrust.