There is no such thing as a neutral view of the U.S. Postal Service. Controversy surrounds every discussion of the way it works or, as its critics charge, fails to work. Opportunities to argue about the USPS and its practices can spring up anywhere—even in the dispassionate discourse of economic analysis.
Bones of contention are to be found in abundance in “The Basis and Extent of the Monopoly Rights and Subsidies Claimed by the United States Postal Service,” a study published last month by the Sonecon economic advisory firm. Its author, Robert J. Shapiro, contends that the USPS significantly understates the value of the economic advantages that accrue to it as a government-mandated monopoly—advantages it can and does leverage in the markets where it competes with private services.
Shapiro, a Harvard-trained economist who was a director of economic policy for the Clinton administration, also surveys the history of the USPS and the laws and regulations that have shaped it since Congress granted the fledgling postal service the first exclusive right to carry and deliver letters in 1782. Today, notes Shapiro, the USPS is the nation’s second-largest civilian employer (after Walmart) with revenues of $67.8 billion in 2014.
He begins his critique by noting that USPS subsidies have to be seen in the light of additional costs imposed on the postal service by Congress. These include the costs of six-days-per-week delivery; discounted mail rates for various types of organizations; and the special mailing rate for periodicals. Congress also restricts the USPS’s ability to close inefficient post offices.
But, says Shapiro, the USPS also enjoys monopoly privileges and rights that result in substantial subsidies for its operations. The best known of these is its sole right to use residential and business mailboxes, which remain off limits to private delivery services.
Among other subsidy-producing advantages for the USPS are its exemptions from state and local real estate taxes and zoning regulations; and the highly preferential rates at which it can borrow money directly from the U.S. Treasury. In general, says Shapiro, “the economies of scale and scope” that the USPS derives from meeting its obligation to provide universal mail service give it an economic advantage that private deliverers can’t match.
The dollar-denominated size of the advantage is where Shapiro sets himself at odds with the USPS.
He says that the Postal Regulatory Commission, the oversight agency of the USPS, puts the postal service’s total cost of meeting its legal and regulatory requirements at about $4.5 billion per year. This is about the same amount as its average annual deficit over the last 10 years ($4.2 billion). It also is close to the PRC’s estimate of the total subsidy value of the USPS’s special privileges ($4.9 billion). It is on the basis of these numbers, Shapiro says, that the USPS claims to be economically self-sufficient.
But, his reckoning of the value of the subsidies is markedly different: “We estimate that USPS monopolies and related special treatment produce effective subsidies worth nearly $18 billion per year,” three and a half times the amount stated by the USPS. Then, one by one, he proceeds to challenge the official calculations of the benefits.
For example, the PRC estimates that the monopoly on access to residential and businesses mailboxes was worth $810 million to the USPS in 2013. But the advantage of exclusive access is so large, Shapiro argues, that the mailbox monopoly actually saved the USPS $14.9 billion in 2013 compared to the burdens of private delivery companies.
By substituting fair market property values for the historical values used by the USPS, he raises the value of USPS real estate tax exemptions from $370 million in 2014 to $1.53 billion. He also notes the existence of a revolving-fund arrangement that let the USPS recover almost $850 million in federal income taxes in 2014.
Shapiro takes exception not to the size of the gap between his numbers and those of the USPS, but to what the postal service is doing (or should be doing, but isn’t) with the extra money. He thinks the windfall ought to be plowed back into the system’s monopoly businesses, where it could be used to contain costs. Instead, he says, it is being leveraged to make the USPS more competitive in package and express-mail delivery, lines where its private-sector rivals include UPS and FedEx.
Shapiro aired these views in person as a member of a panel on “The future of the U.S. Postal Service” sponsored by The Brookings Institution in Washington, D.C. last month. (His remarks in this video of the program begin at 14:03.) He observed that the mailbox monopoly “is the main reason the Postal Service needs subsidies” because in the absence of such a monopoly, the USPS would have been obliged to make the same cost-saving gains in productivity as FedEx et. al. have made over the last 25 years. Those savings, according to Shapiro, would have amounted to $20 billion in 2012—even higher than his recalculation of the value of the subsidies.
Having the subsidies thus “reinforced the need to not to compete,” Shapiro said. He added that “this is the way any subsidized monopoly responds” to the protected status it enjoys.
Needless to say, the USPS isn’t pleased with Shapiro’s analysis. Asked for a response, its communications office sent the following statement:
“Dr. Shapiro’s one-sided paper fails to present an accurate picture of the differences between the Postal Service and private sector delivery firms like UPS and ignores substantial burdens imposed on the Postal Service. His paper overstates the Postal Service’s so-called “subsidies,” which are in fact policy decisions by the Congress about how to enable the Postal Service to fulfill its obligation to provide universal service to the American people, an obligation that is not imposed on private delivery firms.
“His study is contradicted by the independent findings of the Federal Trade Commission, which in a prior study found that the Postal Service’s legal disadvantages outweigh our legal advantages. His statements about productivity also fail to appreciate the legal environment under which the Postal Service operates and other fundamental differences. For instance, the Postal Service’s delivery network, in which our carriers go to nearly every address six-days-a- week, is very different from private sector delivery firms, which only have to go to addresses receiving a parcel, and can use the Postal Service to deliver to areas in which it would be inefficient to go.”
The USPS also calls attention to a footnote in which Shapiro acknowledges United Parcel Service, Inc., for supporting the research that went into the study.
Printers, including those offering mailing services, may be inclined to throw up their hands at debates over how the USPS manages its finances. After all, there’s no meaningful connection between the size of USPS subsidies and the economics of getting a print job out the door.
But there’s a nexus, and an uncomfortable one, in what the study says about the postal service’s failure to keep pace with private-sector deliverers in terms of productivity.
Shapiro cites Bureau of Labor Statistics data indicating that from 1987 to 2012, USPS productivity increased at an average annual rate of 0.7 percent while private firms grew theirs by 2.5 percent annually. As he stated in the Brookings panel, the disparity is part of the explanation for the postal service’s operating deficits and other financial problems it faces.
Therein lies the troublesome linkage for printers. It’s been estimated that up to half of everything that gets printed enters the mailstream. That volume—like its producers—can’t avoid becoming associated with the inefficiencies of the system that delivers it.
The resulting negative perceptions may be baseless and unfair, but they exist. The irony is a bitter one for an industry that uses automation and digital controls to fight material waste, production bottlenecks, and excess cost every day, only to see the some of the value of that achievement squandered in a troubled distribution channel that printers have no means of making better.
This isn’t intended as an indictment of the U.S. Postal Service, and neither is Shapiro’s report. As he says, the law requires the USPS to operate on the model of a private business, but with cost structures no private business would accept. The law also recognizes universal mail service as a public good, and the ability of the USPS to provide this benefit has to be underwritten.
But, the costs of doing so must be accurately assessed, and so must the ROI. Shapiro’s analysis and the U.S. Postal Service’s objection to it are disheartening reminders of how difficult to obtain the full picture continues to be.