Collapse of the postal monopoly

NOT more than a decade or two ago, an announcement of an increase in the cost of a first-class stamp was sufficient cause for policymakers to unleash scathing attacks on the United States Postal Service. Such increases are still bothersome, but they no longer result in anything approaching an intense public outcry. The recent increase in the price of a first-class stamp from 22 cents to 25 cents (coupled with a reduction in service in many areas) is a case in point. Few politicians or commentators have risen to object.

There are two reasons for the acceptance of the price increase.

First, the price of a first-class stamp in real (1988) dollar terms rose irregularly through 1975, but has fallen by 9 percent since then, from a peak of 28 cents in 1975 to a current 25 cents. Furthermore, first class now includes airmail, and the price of sending letters by air peaked in 1968 at 33 cents, falling by 24 percent since then to the current 25 cents. The recent price increase in stamps, in short, appears to be nothing more than a temporary setback on a very gradual long-run downward trend in postal rates.

Second, during the past two decades the US Postal Service has lost much of its monopoly on mail services. Consumers can now rely on a host of new communication services, not the least of which is the telephone. Long-distance phone calls have been made cheaper, especially thanks to deregulation of the long-distance telephone industry, the breakup of the AT&T monopoly, and the resulting growth in competition among other long-distance services.

In addition, people can now use a number of parcel post and overnight-mail delivery services. United Parcel Service (UPS) handles 90 percent of all packages sent across town or across the US. UPS, Federal Express, and Purolator Courier are three of many overnight delivery systems that have sprung up since 1979, when Congress permitted ``urgent mail'' service companies to compete with the Postal Service. Also, businesses are making growing use of messenger services.

More important, the advent of personal computers and facsimile machines has effectively introduced private mail service at a speed the post office can not possibly match.

Nor is the federal government the only provider of post office boxes. The Mail Box, a retail franchise that provides postal mailboxes and services, now has 600 outlets around the country and expects to be the future ``McDonald's'' of postal service.

MCI, AT&T, and Western Union also lease electronic mailboxes, to which letters, manuscripts, and data can be sent via the 30 million personal computers in the country's offices and homes. These services often have a minimum monthly charge, but the marginal cost of sending a letter electronically is now as low as 18 cents - 28 percent below the cost of a first-class stamp.

Obviously, the Postal Service will be around for a long time. Federal subsidies will ensure its continuing survival. At the same time, it is not unreasonable to expect that in the future the concept of a ``post office'' and ``post office box'' will change dramatically. The post office of the future will, to a growing extent, be a personal computer or a fax machine.

The first-class postal monopoly then will not be a materially important public-policy issue. It will for all practical purposes be ``de-monopolized.'' The Postal Service will then have to watch very carefully - as any other competitor would - its pricing and service policies. Employment at the local post office will not be as attractive as it is now. Postal clerks will have to accept market-clearing (which will probably mean lower real wages) and be willing to work as hard as the people at, for example, Federal Express or UPS, who will also be challenged by electronic delivery systems.

The Postal Service worries about any movement in Congress or the administration to ``privatize'' its services. It fears that private mail services will ``skim the cream'' from mail delivery, leaving the public postal system with the most costly and unprofitable work to do. In case the post office hasn't noticed, the cream is already being skimmed, but there is not much the federal government can do about it, except carry the unprofitable business via subsidies.

Like it or not, the US Postal Service is no longer the ``only game in town.'' Postal service is in the process of being privatized - gradually but relentlessly by technology. If the Postal Service persists in raising rates and reducing service, it can only hasten the erosion of its market share. Few will pay first-class rates for what may then be second-class service.

Richard McKenzie is a professor of economics at Clemson University and adjunct fellow at the Center for the Study of American Business at Washington University in St. Louis.

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