The Cult of Capitalism is a slavish belief that the profit motive can cure all ills. Plans by the U.S. Postal Service to cut costs by slowing down first-class mail delivery drew out this textbook example late last year from Boston Globe columnist Jeff Jacoby.
Yet with all its privileges, the Postal Service is struggling, while UPS and FedEx flourish. Why? Because they have something invaluable that the post office lacks: Competitors.
… What is killing the post office is the lack of genuine, head-to-head competition that forces vendors to compete for customers by pushing quality up and holding prices down. Only in a government-sheltered monopoly like the Postal Service would labor costs remain as bloated as they have, year in and year out.
Jacoby may be right in that it’s time to allow unfettered competition between the Post Office and its private-sector peers. But typical of the Cult of Capitalism, gross oversimplification of the issue brings him to the conclusion from the opposite direction.
The problem isn’t that the Postal Service doesn’t have competition; it does – and plenty of it. The problem is that the Postal Service is being forced to compete with its hands bound. But to untie its hands and let it really fight would bring members of the Cult to a shocking reality: the only thing that will allow overnight delivery of a first-class letter for 44 cents is a government subsidy. The free market won’t touch it.
The Cult of Capitalism will always trot out selected facts to defend its position, and Jacoby’s chosen fact is a comparison of labor costs:
In the 1960s, a stunning 83 percent of the agency’s total budget went to wages and benefits. Three decades later, after billions of dollars had been spent on automation, labor costs still accounted for 82 percent of the budget. And in 2011? “Decades of contractual promises made to unionized workers, including no-layoff clauses, are increasing the post office’s costs,’’ The New York Times recently reported . “Labor represents 80 percent of the agency’s expenses, compared with 53 percent at United Parcel Service and 32 percent at FedEx, its two biggest private competitors.’’
Perhaps the Postal Service has a cost-of-labor issue, but using FedEx and UPS as benchmarks is is not as straight-forward a comparison as he’d have us believe. That’s because FedEx and UPS do vastly different work, even if they look similar at a superficial level. In addition to express delivery, FedEx runs three other businesses – all of which require less labor than doorstep delivery: truckload freight, less-than-truckload freight, and supply chain services.
The Postal Service isn’t allowed to branch out into such work.
At UPS, domestic package service – most comparable to what the Post Office does – accounts for just 60% of annual revenue. The rest comes from other businesses that require fewer workers.
According to its own literature, UPS employs 400,000 people (that’s all employees – not just its unionized delivery personnel) and makes roughly 8.5 million stops a day. According to
a fact sheet from the Post Office, (where employment has been cut 13 percent in the last two years alone and nearly 50% in the last decade) it makes 150 million daily stops with 574,000 employees.
When you compare the two that way, the Postal Service doesn’t seem all that bloated: it makes 1,760% more deliveries with just 43% more workers. No-layoff clauses in a union contract may cost money the Post Office doesn’t have, but are these the heart of the problem?
Of course not. The real problem is that the world has changed and the Postal Service hasn’t been allowed to adjust by raising rates as needed, changing product mixes or entering new businesses. Though it has experienced a devastating drop in mail volume since the advent of e-mail, Jacoby won’t allow that has much to do with it.
Newspapers have had a similar experience,
losing half their income over the past six years to Craig’s List, Google Ad Words and other digital forms of marketing. So where is Jacoby’s column proclaiming the real issue is that journalists are paid too much and the Boston Globe‘s problems could be solved if only there were a couple more newspapers to go after the same local advertisers?
UPS’s U.S. delivery service brings in about $30 billion in annual revenue. If the Postal Service was paid dollar for dollar what UPS gets for its delivery services, its annual revenue should be in excess of $400 billion. But it’s not; in 2010 the Post Office brought in $67 billion.
All of a sudden, the Post Office is looking like a pretty good deal – even if you factor in the projected $5 billion shortfall that has prompted it to cut back on services.
Jacoby has a complaint about that too. He writes:
”In 1990, the Postal Service launched a nationwide plan to intentionally slow down mail delivery,’’ policy analyst James Bovard wrote in his 1994 book, “Lost Rights.’’ First-class letters were already taking 20 percent longer to reach their destination than they had in 1969, but Postmaster General Anthony Frank assured Congress that the reduction in delivery standards would “improve our ability to deliver local mail on time.’’ In the weird logic and language of the American postal system, the key to success was to give the public less for its money.
What’s weird is that anyone sees this as weird; reducing value is one of the most familiar levers that businesses pull to manage profitability. In the most recent recession and many before it, there has been no shortage of reporting on food companies’
stealthy reductions in package sizes to offset rising costs. In response to new regulation,
banks have been reducing the value they deliver too
by raising fees of all sorts. Let’s not even talk about
how the airlines are cutting back on perks (if you call luggage a perk) to compensate for high fuel costs. Customers never like it, which is why such changes tend to be disclosed only after everybody has already noticed.
The Postal Service doesn’t have that luxury. It must seek Congressional approval to act competitively, and when it does, the Cult gets apoplectic. Jacoby writes:
Most significant of all, it has a legal monopoly on the delivery of mail: The federal Private Express statutes make it a crime for any private carrier to deliver letters. The only exception is for “extremely urgent’’ letters, and even those may be delivered by a private company only if it’s willing to charge a much higher rate than the Postal Service would have charged.
This overlooks the minor point that FedEx and UPS do, in fact, deliver letters. Eight ounces or less in a flat envelope with “urgent” stamped on it; the sender defines what’s urgent, and nobody checks his or her reasoning.
Yes, those companies charge far more than 44 cents. But is that because they must?
The actual cost depends on how far the letter is traveling (wonder what Jacoby would say if the Postal Service floated that idea). But the base price for a letter from Chicago to Ada, Michigan – a journey of less than 200 miles – is $19.90 at UPS and $17.15 at FedEx. Then they both tack on roughly $7 in discretionary surcharges for fuel and rural/residential delivery. These surcharges aren’t required by law – just by the companies’ own policies. Final price: nearly $26.
So UPS and FedEx do, in fact, deliver the equivalent of first-class mail. And they do, in fact, charge more for it than required by law (which, by the way, I don’t begrudge). So why does anyone suppose these companies are itching to get their hands on more volume if it means dropping the price by 98.3%?
UPS is happy to deliver as fast as first-class mail – for $25.
There is no doubt the Postal Service is in crisis. The Cult of Capitalism’s cure is to allow FedEx and UPS to compete with it – ignoring the point that it already happens.
The Cult has it backwards. The Postal Service isn’t running a deficit because it lacks competitors, but because it’s not allowed to compete effectively. The Germans faced the same issue in the 1990s and privatized their own national mail service. It’s now called Deutsche Post, it owns DHL and, globally, it’s the toughest competitor for both UPS and FedEx.
FedEx and UPS have thrived by being flexible as the world changes; by charging a premium for overnight and Saturday delivery; and by charging extra for delivery at inconvenient locations – without asking anyone for permission.
Let the Post Office do these things. Or let it eliminate its $5 billion cost problem overnight – by raising the price of a first-class stamp by 15 cents. Congress wouldn’t allow it, and the Cult of Capitalism would be outraged. But it would still be a heckuva value.