Essay/Term paper: U.s postal service as a monopoly

Essay, term paper, research paper:  Political Science

U.S Postal Service As a Monopoly


In the United States economy most markets can be classified into four
different markets structures. But, each and every market in the United States
is completely unique from the others. Generally the best type of market
structure for the general public is per-fect competition because it creates the
lowest possible price for the public. There are some exceptions were perfect
competition 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 is
a monopoly, it is its own market. This paper will discuss the budget dilemmas
that the postal service has faced for the past twenty years and if it is in the
best interest of the economy for the United States Postal Service to continue as
a monopoly.
The first time there was talk of privatizing the Postal Service was
in1979 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 to
subsidize the service in order for it to continue in operation. In 1979 the
United States Postal Service had a cash flow of $22.5 Billion and was
additionally receiving $176 million from investing(#1, Intro). Even with this
added 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 and
introduce competition because of the extreme losses that the service was
experiencing. A positive argument for privatizing the Postal Service was with
numerous competitors in the market there would be more efficiency and the public
would 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 its
receipts from consumer purchases that were submitted the next day after the
transaction (#1, i). If the receipts were submitted earlier the postal service
would receive more money because they could invest that money sooner (#1, i).
Another way the Postal Service could increased profits was by competitively
selecting 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 Postal
Service is to improve the bookkeeping poli-cies and banking techniques (#1, ii).
Not only did the Post Service propose to increase profits but they also
proposed to cut costs in a number of ways. There were three methods that were
proposed in 1946 for the protection of salaries that no longer exists (#2,
Intro). These have to do with the rural mail carriers. Under this antiquated
method of delivering mail the Postal Service was los-ing money to any mail that
went to "rural" areas (#2, i) There are 48,000 mail carriers that deliver mail
to millions of families that are considered to be living in rural settings; this
costs the postal Service 858 million dollars a year (#2, i). This is a fairly
easy problem to fix considering how much money is being lost. It was proposed
that money loss could be significantly cut down if the Postal Service corrected
the following problems. The rural mail carriers were assigned a certain amount
of time to deliver to a specific rural area, this method was out of date and
because 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 the
route covered, so the carriers were getting paid by the mile (#2, iii). With
this 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 promoted
inefficient service (#2, iii). A stop to this could have saved the Postal
Service $255,000 a year (#2, iii). From the num-bers mentioned above, it can be
seen why the United States Postal Service was losing so much money.
These problems did indeed eventually did get solved over the past
fifteen years and now the Postal Service is making record breaking profits. Now
in the first quarter of the fiscal year 1996 the Postal Service already has a
net income of $1.2 billion (#3, 1). Now not only is the Postal Service just
breaking even, but they are also making a profit. On top of that, the 1.2
billion dollar figure is 115 billion dollars better then the quarterly forecast
predicted (#3,1). It is incredible that they are not only making a reasonable
profit but it is increasing over the years. The Postal Service is also now
reducing debts. An example of this is when the Postal Service redeemed a 1.5
billion dollar loan two years in advance which will save them 22 million dollars
of interest in the next two years (#3,1).
The Postal Service isn't stopping with the revenue that it is receiving
now. 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 year
2005 (#5, 1). The Postal Service is continually working to "streamline" their
operations for the future that they are now run-ning. The Postal Service is
continualy looking to cut back on borrowing money. All of the recent financial
borrowing has been through the Federal Financing Bank, but the Postal Service
now 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 of
the great prof-its it is experiencing. The Postal Service is now making a major
impact on the United States Economy (#6, 1). Business are pointing out that in
1995 the Postal Service had records of $1.8 billion in net income and a 1.7
billion dollar debt reduction (#6, 1). The $54 billion revenue that the Postal
Service is bringing in would put them in 12th place on the Fortune 500 list and
33rd on the Fortune Global 500, with the worlds largest corpora-tions (#6,1). A
recent study showed that domestic direct mail sales were at $333 billion in the
year 1994 (#6,1). This figure is expected to reach over $500 billion by the
year 2000 (#6,1)
It can be seen throughout this paper how the United States Postal
Service 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. But
there are still two arguments for and against the Postal Service continuing to
remain a monopoly. On one side compe-tition is thought to make industries in
the market more efficient and practice more innova-tive (#4, 1). But on the
other hand the competition is also thought to lead to "a wide-spread cream
skimming, 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 United
States Postal Service does keep increasing its profits over the years, maybe it
will be privatized.

Bibliography

1) United States. "General Accounting Office, Changes in the U.S. Postal
Service's cash management practices could increase income and reduce cost":
report / by the U.S. General Accounting Office, Washington: General Accounting
Office,","1979

2) United States. General Accounting Office, "Changes needed in the United
States Postal Service's rural carrier pay systems": report / by the U.S. General
Account-ing Office, Washington: General Accounting Office, 1978

3) http://www.usps.gov/news/press/96/96002new.htm

4) http://nutcweb.tpc.nwu.edu/research/abstracts/i.2.html

5) http://www.usps.gov/news/press/95/95090new.htm

6) http://www.usps.gov/news/press/95/95095new.htm