Whither the Post Office?

The New York Times this weekend had a lengthy article about the woes of the Post Office, which are about to go critical thanks to a combination of recession and the internet:

Missing the $5.5 billion payment due on Sept. 30, intended to finance retirees' future health care, won't cause immediate disaster. But sometime early next year, the agency will run out of money to pay its employees and gas up its trucks, officials warn, forcing it to stop delivering the roughly three billion pieces of mail it handles weekly.

The causes of the crisis are well known and immensely difficult to overcome.

Mail volume has plummeted with the rise of e-mail, electronic bill-paying and a Web that makes everything from fashion catalogs to news instantly available. The system will handle an estimated 167 billion pieces of mail this fiscal year, down 22 percent from five years ago.

It's difficult to imagine that trend reversing, and pessimistic projections suggest that volume could plunge to 118 billion pieces by 2020. The law also prevents the post office from raising postage fees faster than inflation.

Meanwhile, the agency has had a tough time cutting its costs to match the revenue drop, with a history of labor contracts offering good health and pension benefits, underused post offices, and laws that restrict its ability to make basic business decisions, like reducing the frequency of deliveries.

Congress has given the Post Office two incompatible mandates.  It is to make money like a business . . . but it is not to have any of the freedom that businesses have to, say, close branch offices, cut its delivery area, or change delivery schedules.

This is, to put it mildly, lunatic.

It was kindasorta somewhat sustainable for a while, because Congress sweetened the deal with a very valuable monopoly over the delivery of first class mail--a fact over which conservatives used to complain bitterly.  But now that monopoly is an albatross.  The only people who really need the service are the people who it is incredibly expensive to serve: those in remote areas that are far from stores, and only spottily serviced by UPS, Fedex, and broadband.  So average cost is rising fast, while rates can't.

Congress has to decide whether universal mail service is valuable enough to subsidize, or whether it wants the post office to be set free to actually compete.  But it cannot survive much longer as neither fish, nor fowl, nor good red herring--while there's some hope of a temporary reprieve by reclaiming some past overpayments to pension funds, that extra money won't last long at this rate.

I tend to think that universal mail service isn't valuable enough to save as a government function--as Josh Barro says rather more pungently, I don't see much reason that the government should subsidize the decision to live in a remote rural area.  But that's going to be a hard sell: the post office has a special place in the American heart, being chartered in the constitution.  And it has a very special place in the hearts of a large number of Senators representing rural states.

On the other hand, what good is the Post Office as a business?  Felix Salmon has a few suggestions:

I see a lot of scope for bipartisan agreement here -- unshackle the Post Office so that it has a hope of serving the country indefinitely into the future. Republicans like deregulation, right?

The problem, I think, is that for all that Republicans like deregulation, they really hate the idea of a state-owned organization competing with the private sector. Of course, the Post Office does that already -- it competes with FedEx and UPS. But the USPS, as a government-subsidized organization with thousands of locations nationwide and a massive reserve of public trust, could be a formidable competitor in all manner of different markets and none of the incumbents in those markets would welcome the competition.

Over the long term, however, I suspect that the only way to save the Post Office will be to allow it to move into financial services. There's a lot of expertise in the rest of the world when it comes to the questions of how to set up and run a post bank. Meanwhile, banks in the U.S. are mistrusted and disliked and many people would love to be able to just bank at the Post Office instead.

It might be too late now to set up a post bank -- but I doubt it. (This is still a country, after all, where most people still use paper checks.) There's a window of opportunity here. Let's grab it, before it's too late.

Maybe I'm thick, but I don't really see what problem this solves.  Most of the Post Office workforce is people who sort, process, or deliver mail, which does not map very well onto what a bank workforce does; moving the physical pieces of paper is hardly the mainstay of their job.

It's not even clear to me how they make money: as Felix himself recently noted, it appears that there aren't huge economies of scale in retail banking, and the service itself is a thinly remunerated commodity.  The customers that the Post Office can expect to get are the ones who happen to live or work closer to a Post Office than any other bank . . . and again, many of those will be expensive-to-serve people in rural areas, where the post offices are already losing money.  They could probably do at least as well by entering the convenience store market in those areas.

But no matter what business they chose to enter, the Post Office would still be saddled with huge legacy costs from its very expensive workforce, and the experience of other legacy industries indicates that getting that workforce down to a reasonable size and compensation level would take decades of hard-fought battles.  People may love the Post Office (though mostly not here in DC, where lost mail and packages left outside in clear view of the street despite repeated requests not to do so seem to be the standard of service).  Do they love it enough to subsidize its enormous workforce with higher prices or lower quality?

This is not academic; the Big Three dealt with union pressure by downgrading the components they used in order to pay the union wage premium.  Ultimately, this trashed their brands and destroyed GM and Chrysler, and would have destroyed Ford, too, if they hadn't fortuitously borrowed every penny they could shortly before the crisis.  You can say that bad management and a moribund corporate culture also played a role, and you'd be right . . . but what evidence do we have that top-flight management talent has flocked to the dynamic environment of the current US Postal Service?  It would take the combined talents of Steve Jobs, George Washington, and Thomas Edison to lead the Post Office out of its current mess.

If we want universal mail service, we should pay for it.  And if we don't, we should cut the postal service loose.

Unfortunately, the evidence seems to indicate that we're going to do neither.  What we are going to do remains a complete mystery.