In the United States economy most markets can be classified into fourdifferent markets structures. But, each and every market in the United Statesis completely unique from the others.
Generally the best type of marketstructure for the general public is per-fect competition because it creates thelowest possible price for the public. There are some exceptions were perfectcompetition isn’t the best choice for the public on account of various reasons. The United States Postal Service is one of them and since the Postal Service isa monopoly, it is its own market. This paper will discuss the budget dilemmasthat the postal service has faced for the past twenty years and if it is in thebest interest of the economy for the United States Postal Service to continue asa monopoly. The first time there was talk of privatizing the Postal Service wasin1979 when the Postal Service was losing vast amounts of money in the long run. But since the Postal Service is a necessity for America, the government had tosubsidize the service in order for it to continue in operation.
In 1979 theUnited States Postal Service had a cash flow of $22. 5 Billion and wasadditionally receiving $176 million from investing(#1, Intro). Even with thisadded revenue the Postal Service was still greatly under funded on its own (#1,Intro). During this time it was discussed to privatize the postal service andintroduce competition because of the extreme losses that the service wasexperiencing.
A positive argument for privatizing the Postal Service was withnumerous competitors in the market there would be more efficiency and the publicwould receive lower prices. But this would also increase the usage of resources,for example airplanes and cars. One of the problems the Post Office had was itsreceipts from consumer purchases that were submitted the next day after thetransaction (#1, i). If the receipts were submitted earlier the postal servicewould receive more money because they could invest that money sooner (#1, i). Another way the Postal Service could increased profits was by competitivelyselecting banks that would give them higher interest rates and such (#1, ii).
Probably the most relevant and final way to improve the budget of the PostalService is to improve the bookkeeping poli-cies and banking techniques (#1, ii). Not only did the Post Service propose to increase profits but they alsoproposed to cut costs in a number of ways. There were three methods that wereproposed in 1946 for the protection of salaries that no longer exists (#2,Intro). These have to do with the rural mail carriers. Under this antiquatedmethod of delivering mail the Postal Service was los-ing money to any mail thatwent to “rural” areas (#2, i) There are 48,000 mail carriers that deliver mailto millions of families that are considered to be living in rural settings; thiscosts the postal Service 858 million dollars a year (#2, i). This is a fairlyeasy problem to fix considering how much money is being lost.
It was proposedthat money loss could be significantly cut down if the Postal Service correctedthe following problems. The rural mail carriers were assigned a certain amountof time to deliver to a specific rural area, this method was out of date andbecause of this the carriers have free time for which they got paid for (#2, ii). The next problem was that other mail routes based pay on how many miles theroute covered, so the carriers were getting paid by the mile (#2, iii). Withthis problem fixed the Postal Service could saved 26. 8 million a year (#2, iii). There was also an hourly rate that was in effect which indirectly promotedinefficient service (#2, iii).
A stop to this could have saved the PostalService $255,000 a year (#2, iii). From the num-bers mentioned above, it can beseen why the United States Postal Service was losing so much money. These problems did indeed eventually did get solved over the pastfifteen years and now the Postal Service is making record breaking profits. Nowin the first quarter of the fiscal year 1996 the Postal Service already has anet income of $1. 2 billion (#3, 1). Now not only is the Postal Service justbreaking even, but they are also making a profit.
On top of that, the 1. 2billion dollar figure is 115 billion dollars better then the quarterly forecastpredicted (#3,1). It is incredible that they are not only making a reasonableprofit but it is increasing over the years. The Postal Service is also nowreducing debts. An example of this is when the Postal Service redeemed a 1.
5billion dollar loan two years in advance which will save them 22 million dollarsof interest in the next two years (#3,1). The Postal Service isn’t stopping with the revenue that it is receivingnow. The Postal Service is planning to increase its international revenues of$1. 2 billion by twice the amount in the next five years and ten-fold by the year2005 (#5, 1). The Postal Service is continually working to “streamline” theiroperations for the future that they are now run-ning. The Postal Service iscontinualy looking to cut back on borrowing money.
All of the recent financialborrowing has been through the Federal Financing Bank, but the Postal Servicenow is looking into outside sources, such as bonds in the public markets (#5, 2). Business are starting to get jealous of the Postal Service because ofthe great prof-its it is experiencing. The Postal Service is now making a majorimpact on the United States Economy (#6, 1). Business are pointing out that in1995 the Postal Service had records of $1.
8 billion in net income and a 1. 7billion dollar debt reduction (#6, 1). The $54 billion revenue that the PostalService is bringing in would put them in 12th place on the Fortune 500 list and33rd on the Fortune Global 500, with the worlds largest corpora-tions (#6,1). Arecent study showed that domestic direct mail sales were at $333 billion in theyear 1994 (#6,1). This figure is expected to reach over $500 billion by theyear 2000 (#6,1)It can be seen throughout this paper how the United States PostalService in-creased profits and does not have to borrow as much money as before.
It seems that the Postal Service is doing just fine while it is a monopoly. Butthere are still two arguments for and against the Postal Service continuing toremain a monopoly. On one side compe-tition is thought to make industries inthe market more efficient and practice more innova-tive (#4, 1). But on theother hand the competition is also thought to lead to “a wide-spread creamskimming, with the postal service left only the high-cost, unprofitable mar-kets(#4, 1). ” So who is to know which market would be better for the American econ-omy as far as the Postal Service goes.
But it is speculated if the UnitedStates Postal Service does keep increasing its profits over the years, maybe itwill be privatized. Bibliography1) United States. “General Accounting Office, Changes in the U. S. PostalService’s cash management practices could increase income and reduce cost”:report / by the U. S.
General Accounting Office, Washington: General AccountingOffice,”,”19792) United States. General Accounting Office, “Changes needed in the UnitedStates Postal Service’s rural carrier pay systems”: report / by the U. S. GeneralAccount-ing Office, Washington: General Accounting Office, 19783) http://www.usps.gov/news/press/96/96002new.htm4) http://nutcweb.tpc.nwu.edu/research/abstracts/i.2.html5) http://www.usps.gov/news/press/95/95090new.htm6) http://www.usps.gov/news/press/95/95095new.htmCategory: History
