US Post Office–a Monopoly Essay, Research Paper
Monopoly of the Postal Service
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 in 1979 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 markets (#4, 1)." So who is to know which market would be
better for the American economy 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.