Not surprisingly, the GOP with their ever-larger bag of dirty tricks, is the reason The United States Postal Service recently announced that it is cutting Saturday delivery starting in August, moving to a five-day schedule as part of a multiyear effort to reduce costs and remain viable.
And that’s not the only change coming down in 2013. The USPS will close half of its processing centers, close more than 3,000 local branches, and eliminate about one-third of its workforce — nearly 220,000 employees.
So it also won’t surprise you to learn that the delivery of first-class mail—like letters–will be slower by one to three days, making citizens less and dependent on the postal service and speeding up its demise.
Three Big Republican Lies
So why would the USPS take such drastic measures? Especially since the postal service is a basically sound business, though not without challenges like all businesses. If you look closely, you’ll see a concerted campaign to drive USPS out of business, despite the fact that it operates without government subsidies and, potentially, at a profit. It’s being subjected to a GOP- manufactured crisis in order to ram through drastic change. But without the USPS, citizens will face much higher costs without better service. Below, are three false impressions generated by the GOP propaganda machine:
Lie #1: The USPS’ losses show that it’s not a viable business.
In the last decade or so, the USPS has been dogged by two significant changes. The most obvious is the advent of email, which has hurt postal volumes, especially first-class mail. That’s a material change that’s never going away.
But the other change is the continued attempt by the GOP to privatize government services on behalf of the lobbyists who fund their campaigns (not to mention rid themselves of another of those “pesky” unions) as they impose un-needed, no, dibilitating stress on the USPS.
In 2006, the GOP-led Congress passed the Postal Accountability and Enhancement Act, forcing USPS to pre-fund the present value of 75 years of its pension and health-benefit fund in 10 years — about $5.5 billion annually for a business mandated to break even.
Like most people, if you listen only to the network headlines you might think the USPS is about to drop off the face of the earth. Yes, officially it sprayed red ink to the tune of $15.9 billion in 2012. But look below to see why. The reasons are not what you’ve been told.
Exactly $11.1 billion of that loss was due to the pre-funding mandate of the 2006 PAEA as shown above.
Indeed, the net losses look discouraging. But adjust them for pre-funding to see the actual operating situation instead of the deeply red figures hyped by most media outlets.
That 75-year pre-funding mandate adds significantly to the post office’s losses. This is a requirement that no other government agency, let alone a private company, must face. In short, the USPS is being forced to pay for people who aren’t even employees yet! Hell, some haven’t even been born yet!
In A League Of Their Own
On top of that, the USPS has been the model of responsible accounting. As of Feb. 2012, it had more than $326 billion in assets in its retirement fund, good for covering 91% of future pension and health-care liabilities. In fact, on its pensions, the USPS is more than 100% funded, compared to 42% at the government and 80% at the average Fortune 1000 company. In health-care pre-funding, the USPS stands at 49%, which doesn’t sound great until you understand that the government doesn’t pre-fund at all and that just 38% of Fortune 1000 companies do, at just a median 37% rate. The USPS does better than virtually every other big business in the country.
Pre-funding is a burden that no other government-linked firms have to face, most notably defense companies. Lockheed Martin’s pension was underfunded by $13.3 billion as of Aug. 2012 — nearly half of its market cap. Raytheon’s was underfunded by $6 billion, more than one-third of its market cap, and Boeing’s by $16.6 billion, almost 30%. They also have the luxury of profitability and plenty of time to fund their obligations.
Another significant advantage: Those other companies can invest in a wide range of securities, while the USPS is forced to invest in only government bonds–those bonds that, in some cases, pay less than 1% interest.
The cuts USPS is being forced to make are like making a millionaire eat leftovers thown out by fast food joints. The pre-funding mandate is completely ridiculous for a business that is mandated to break even. Where is the surplus cash going to come from, since it’s forbidden from making profits? In addition, this mandate forces USPS to cut investments in technology that would increase productivity and competitiveness, which would make USPS viable for longer. Even The GOP is not so stupid as not to see that its law creates an impossible conundrum.
They know full well what they are doing and to whom.
Lie # 2. Snail mail is dead, no way USPS can survive.
The USPS absolutely faces genuine business challenges. Revenue declined 3% from 2010 to last year, though USPS did hold the line on overall costs. And even though mail volume has declined with the rise of email, it’s still way more than 20 years ago, and certain segments, such as parcels, are actually growing.
Anecdotal evidence bears that out: Amazon.com, Zappos, eBay, are dead without efficient parcel delivery, but I now receive my bank statements via email.
One potential solution is to raise revenue. Currently, almost all revenue comes from the sale of postage. Why isn’t the USPS raising postal rates? Consumers already receive an extraordinary deal: Send a letter anywhere in the U.S. for a mere 46 cents. European rates are approximately $1 to deliver on the Continent.
The Fix? Easy, allow USPS to price correctly. We’ll pay out the wazoo for the newest smartphone but the USPS is a rip-off?
Proper pricing is important for any business mandated to deliver everywhere from the big cities to a farm out in the middle of nowhere for a fixed price– a burden not faced by private services. Of necessity, many locations, such as rural ones, lose money — that’s part of the price of having a national postal service. Private services can simply leave a location if it’s not profitable. In fact, UPS and FEDEX rely on USPS to deliver to unprofitable locations for them already.
So why are FedEx and UPS continuing to do so well?
The short answer is that they can price postage to be profitable and invest their profits in growth areas — both of which USPS is forbidden to do. And whenever USPS tries to enter a new arena, private competitors’ lobbyists run crying to Congress.
- Plans to develop an online payment system in 2000? Internet industry lobyists killed it.
- Public copy machines? Office supply stores lobbyists killed it.
- In-store sales of phone cards and money transfers? Wal-Mart, Western Union, hell, who didn’t send lobbyists?
- Selling postal meter cartridges? Pitney Bowes hired lobbyists to kill it.
- And, of course, the big kahuna–rivals such as UPS and FedEx lobbied and contributed to strategic GOP Congressmen, ultimately leading Congress in 2006 to restrict USPS to mail delivery…unless UPS or FedEx needed help of course.
Lie # 3. Privatized mail delivery would be cheaper and more effective.
This lie is classic GOP.
They always advocate privatizing no matter what the business. Anything to claim it’s unions that are strangling (your choice of service here). But USPS has continued to compete well as a business despite being constantly obstructed by a Republican Party backed by big money and determined to have its way, regardless of the harm to most of the public.
In particular, FedEx relies heavily on USPS, which delivered more than 30% of FedEx Ground shipments in 2011. To put it bluntly, the USPS provides service that is cheaper than what UPS and FedEx can provide for many locations. Hello!! That’s a subsidy!
As economist Dean Baker explains, “About a decade ago, the Postal Service had an extremely effective ad campaign highlighting the fact that its express mail service was just a fraction of the price charged for overnight delivery by UPS and FedEx. [They] went to court to try to stop the ad campaign. When the court told them to get lost, they went to Congress. Their friends in Congress then leaned on the Postal Service and got it to end the ads.”
So, if USPS is just government bloat, as The GOP would have you believe, then why would efficient free market players such as UPS and FedEx resort to the government? Shouldn’t they simply compete USPS out of that express business?
This paradox reveals in stark detail the delivery industry’s game plan and the GOPs complicity. Compete effectively where possible and then use political power to grab market share from USPS, with the ultimate goal of privatizing the postal system, or at least its profitable parts.
Only Two Possibilities For Where We’re Headed
- Full privatization — a private company swallows the whole enchilada and operates delivery under some kind of regulatory oversight.
- Partial privatization — a private company takes over the core infrastructure (a high-value, high-throughput distribution component), leaving less profitable and money-losing components such as labor-intensive physical delivery. This strategy is probably ideal since it privatizes the most profitable parts and sticks less desirable or money-losing bits to citizens.
Both strategies will likely result in much higher prices for less service. The first strategy means the acquirer adding a profit markup, which USPS currently cannot do under the law. The second strategy would not allow the USPS to offset less profitable areas with stronger areas, meaning government or citizens would be forced to cough up substantially more money to maintain service, and that’s on top of the buyer’s profit markup.
The privatization of public assets is something we’ve seen over and over and it rarely, if ever, works in favor of the public.With a strong profit motive, private companies are highly incentivized to cut service to the bone and raise revenues as fast as possible. That’s not in the interest of good public service, where the origins of the post office are.
Republicans, backed by big money sponsors, refuses to let the USPS act as a business. There’s no reason, apart from political will, that reasonable changes couldn’t sustain a public postal system even with its significant challenges.
So the next time you hear about the postal service losing billions of dollars or being unable to compete, remember how it got that way.