The United States Postal Service receives $18 billion in annual federal subsidies, but that is still not enough to offset the $20 billion in lost productivity that results from its monopoly status.
A study released Wednesday by Robert Shapiro, founder of the economic advisory firm Sonecon, finds that in addition to billions in direct subsidies like reduced-rate loans and tax exemptions, the USPS receives “special privileges” worth at least $15 billion thanks to its government-mandated monopoly.
To assist with its mandate of providing universal service, for instance, the USPS “is supported by a range of subsidies, including appropriations, exclusive access to residential and business mailboxes, borrowing subsidies, and favorable tax treatment,” which together serve to insulate the Postal Service from competitive pressure and create significant economies of scale.
The Postal Regulatory Commission estimates that the USPS receives about $4.9 billion in direct and indirect subsidies each year, slightly more than its average annual deficit of $4.2 billion, but also claims that legal and regulatory requirements mandated by Congress—such as six-day delivery and discounted mail rates—cost the USPS about $4.5 billion per year.
Shapiro, though, counters that, “the PRC’s estimates substantially understate the value of USPS’s subsidies,” which he claims are actually worth nearly $18 billion per year. (RELATED: How a Concept Called an ‘NSA’ May End the USPS)
For instance, the PRC places the value of monopoly access to residential and businesses mailboxes at $810 million, and the USPS itself “has said that ending the current bar on private delivery companies accessing mailboxes would cost the USPS $1.5 billion to $2.6 billion per year,” but those estimates do not account for the cost of delivering to each customer’s door, as private delivery services must do.
“Based on USPS data on the volume of mail delivered to curbside mailboxes and centralized mailrooms, and the costs of doing so compared to delivery to each customer’s door,” Shapiro claims, “the mailbox monopoly saved USPS $14.9 billion in FY 2013, compared to the burdens of private delivery companies.” (RELATED: USPS Expands Into Yet Another Private Market)
Similarly, he asserts that the PRC’s claim that, “the USPS monopoly on first-class and standard mail delivery was worth $3.1 billion in FY2013″ relies on unrealistic assumptions—such as that private competitors would only deliver letters three days per week—and says full competition would likely have a much greater impact.
“At the same time, the monopoly is the main reason the Postal Service needs subsidies,” Shapiro said Wednesday at a forum hosted by the Brookings Institution, explaining that, “in the absence of a monopoly, the Postal Service would face competitive pressures to match the productivity of private companies.”
According to the Bureau of Labor Statistics, USPS productivity grew at an average annual rate of 0.7 percent from 1987 to 2012, a fraction of the 2.5 percent annual productivity gain by private firms over the same period. (RELATED: Penniless Postal Service Promotes Discounted Rates for Chinese Merchants)
“If the Postal Service had not enjoyed its monopoly position over this 25-year period, it would have been forced to match private sector productivity growth,” Shapiro explained, saying the cumulative effect “would be to reduce its costs by $20 billion by 2014.”
Shapiro concedes in his study that some form of national postal service is a necessary public good, but argues that the success of private competitors raises serious questions about where “monopolies should end and competition should begin, and the terms on which private firms should compete with their public postal systems.”
“This is not a criticism of the Postal Service,” Shapiro told the audience at the Brookings forum. “This is the way any subsidized monopoly responds, and it is grounds for a serious discussion of how the Postal Service operates.”
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