Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: TUESDAY, May 22, 1990 TAG: 9005220445
SECTION: EDITORIAL PAGE: A7 EDITION: METRO
SOURCE: R. RICHARD GEDDES
DATELINE: LENGTH: Medium
Heaven knows there's a need: A major newspaper recently reported survey results on "what irritates customers the most." The winner by far, the choice of 36 percent of respondents, was "waiting in line while other windows or registers are closed." I read this while waiting in a long line for well over a half-hour; only one painfully slow worker attended to customers. But this is business as usual at the United States Postal Service.
Also commonplace for the USPS is the frequent increase in rates on first-class mail. The latest proposal would increase the stamp from 25 to 30 cents. The 20 percent increase is puzzling, considering that inflation has been relatively low and that enterprises are supposed to become more productive with technological improvement. After all, the Postal Service is said to be much more efficient since its reorganization in 1971. So why the higher postage?
A few growth rates calculated from the "Statistical Abstract of the United States" shed light on this question. The Postal Reorganization Act of 1971 did, in fact, increase the productivity of the Postal Service. Pieces of mail handled per employee grew only 0.1 percent a year from 1960 to 1970, the decade before reorganization. Afterward, from 1970 to 1983, the figure was 3.3 percent a year. Meanwhile, costs were falling. From 1960 to 1970, costs per piece handled (adjusted for inflation) grew 1.2 percent a year, while after reorganization, costs per piece dropped 1 percent a year.
By these indicators, reorganization was a resounding success. Everyone, including customers, should be benefiting from higher productivity and lower unit costs, right? Unfortunately, nothing could be further from the truth. The growth in postage (again, adjusted for inflation) was 0.7 percent a year before 1971, but 1.1 percent a year afterward. Rather than benefiting from reorganization, customers paid more.
Where have all the cost savings gone? A look at the relative wages of postal employees gives the answer. Pre-reorganization, the average postal worker's wage, relative to the average U.S. manufacturing wage, rose 1.1 percent a year. From 1970 to 1983, however, the relative wage increased 2 percent a year. Thus, the economic gains - higher wages and other benefits - were grabbed by that vast political juggernaut - the Postal Workers Union.
Moreover, in those classes of mail where USPS must compete with private firms, it has consistently lost revenue share. The percentage of its revenues coming from fourth-class mail, where it competes directly with private parcel carriers, fell from 3 percent in 1978 to 1.7 percent in 1986. The percentage of its revenues from express mail, where it must compete directly with companies such as Federal Express, dropped from 0.7 percent in 1980 to 0.02 percent in 1984. As a result, the Postal Service has increasingly relied on first-class mail, where it has a government-protected monopoly, to support excessive compensation for its workers.
We may therefore safely conclude that the proposed rate increase has nothing to do with rising costs or changing demand, but instead reflects increasing political strength of postal workers. Of course, the Reorganization Act may have been intended all along to benefit the Postal Workers Union at the expense of first-class customers.
But this form of redistribution, from first-class users to postal workers, is costly since it requires a monopoly on first-class mail, which could be delivered more efficiently - and more cheaply - by private carriers. Several solutions present themselves. Since the problem arises from the highly organized nature of the Postal Union, the most direct solution would be to not let postal workers vote. As the Nobel Laureate James Buchanan suggests in "Budgets and Bureaucrats: The Sources of Government Growth," there is a conflict of interest when bureaucrats are allowed to vote in elections that are organized by the jurisdiction that employs them.
Fortunately for those who balk at such a limitation, there are other options. One is to take a hint from Hungary. Privatization would eliminate the monopoly power and therefore would also eliminate the inefficiency.
An even easier approach is to simply repeal the statutes that grant the USPS its monopoly over first-class mail. This would gradually reduce the Postal Union's ability to exploit users of first-class mail and force the service to price letter delivery competitively or risk losing the market.
Until customers get tired of being exploited and form an effective political coalition opposed to the union, such changes will be opposed by powerful political forces. And East Bloc countries that recognize the importance of competitive markets will surpass us in productivity, and eventually in economic achievement.
by CNB