Expect the same for postage rates and with reduced service.
So I envision two basic ways to privatize the postal service:
- 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 likely result in much higher prices. The first strategy sees the acquirer adding a profit markup, which USPS currently doesn’t price for. 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 acquirer’s profit markup.
Now whichever strategy is chosen, there are two hidden plums in all this. First, USPS has the largest union in the U.S. For an investor, part of the return on this deal would come from busting the union, lowering wages, and shifting that profit into investors’ hands, something Cato already supports highly.
Second, and perhaps sweeter, that well-funded USPS retirement account might be opened for raiding. An acquirer could invest in higher-return securities and adjust their return assumptions (not even unfairly), freeing tens of billions that could then be returned to investors. For context, FedEx and UPS have a combined market cap of $110 billion against nearly $330 billion in USPS retirement assets.
Foolish bottom line
If capitalism is about delivering the best goods and services at the cheapest prices — and not about plutocrats wringing profits from the rest of us — then why is the USPS being forced to slowly kill itself?
The privatization of public assets is something we’ve seen over and over and it rarely, if ever, works for the public. The example of Chicago parking meters is just repeated time and again. 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.
Congress created the post office as a cabinet-level office in 1792 under specific Constitutional authority. In the past, its expansion into other services was seen as desirable, for instance in banking, when Congress formed the Postal Savings System. From 1911 to 1967, citizens deposited money at the post office and received interest. In 1970, the post office became the quasi-independent U.S. Postal Service. This move was significant, since USPS became a legal monopoly and forced it to operate without subsidies (good!), which were 25% of the 1971 budget. It also allowed the USPS to act more business-like, to borrow and invest.
But now especially, Congress, 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 — yes, including modest price increases — 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 that it doesn’t have to be this way.
The article How the Postal Service Is Being Gutted originally appeared on Fool.com and is written by James Royal.
James Royal has no position in any stocks mentioned. The Motley Fool recommends FedEx and UPS, and owns shares of Lockheed Martin and Raytheon Company.
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