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U.S. Postal Service should move toward European model

The contrast between the two headlines couldn't have been more stark. On the same day the U.S. Postal Service proposed a price increase that its chairman described as a "last resort," Britain's Royal Mail was preparing to raise as much as $5.3 billion in an initial public offering of stock.

Both venerable institutions are coping with lower mail volume. Email and online bill paying are just as popular across the pond as they are here, but Royal Mail turned a $650 million profit last year while the Postal Service was racking up a $15.9 billion loss.

The difference is more political than economic. Congress has responded to the decline of the mail by sticking its head in the sand, while British governments have forced Royal Mail to adjust to market realities.

They created a corporate structure in 2001, ended the agency's monopoly on first-class mail in 2006, and passed a privatization law in 2011. That led to the recent announcement of an IPO, which reportedly was oversubscribed within hours.

Can you imagine investors lining up to buy shares in our U.S. Postal Service as if it were the latest social media sensation?

"Right now, they're not even terribly close to being ready to be privatized," said Richard Geddes, director of Cornell University's infrastructure policy program.

That's a shame, and it's Congress' fault. Any discussion of the service's future gets hung up on issues such as pensions, rural post offices and Saturday delivery. The Postal Service effectively has a 535-member board of directors, which is a guarantee of inefficiency.

The first step to solving the Postal Service's problems, Geddes said, is to turn it into a business. It can remain a state-owned company for now, but it needs an independent board and it needs control over its pricing and services.

It also needs to lose its monopoly on first-class mail, Geddes said. Forced to compete, a postal corporation would quickly figure out what it can do well and what it should contract out to other companies. In many places, a postal counter inside a convenience store could replace a stand-alone post office.

Evidence does suggest that the old model of a government-run mail service is disappearing. Twenty-five of the European Union's 27 nations have repealed their postal monopolies and set up corporate entities to deliver the mail. Private investors own 100 percent of the Netherlands' post office and substantial stakes in its German, Belgian and Austrian counterparts.

The U.S. must make some tough decisions before it can join that crowd. The British government, for instance, assumed Royal Mail's pension liabilities before moving toward privatization. At least it now has a viable company that's designed for the 21st century rather than the 19th.

We Americans like to contrast our brand of free-market capitalism with the more socialistic European model. In the postal business, the Europeans are way ahead of us in embracing a capitalist solution.

U.S. Postal Service should move toward European model 10/03/13 [Last modified: Thursday, October 3, 2013 7:26pm]
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