Executive Summary

Even before the mailed anthrax terrorist attacks, the outlook for the United States Postal Service (USPS) was grim. The massive organization was billions of dollars in debt, projecting billions more in losses in the coming years, facing future declines in mail volume, strapped for cash to pay for retirement obligations and capital improvements, proposing rate increases that outpace inflation, and mired in some of the worst morale and labor relations problems in the nation. Postmaster General Jack Potter's request for a multi-billion dollar taxpayer bailout to pay for increased security and lost revenue in the wake of the terrorist attacks merely highlighted a long-standing fact: America's postal system faces a serious crisis.

Thirty years ago, in the midst of a similar crisis, Congress reorganized the Post Office Department into USPS, a quasi-governmental entity with a delivery monopoly, a universal service obligation, and a mandate to break even. Since then, the U.S. economy has undergone a revolution, transformed by technology that created a productivity miracle. Unfortunately, that revolution has not taken hold at the Postal Service. USPS productivity since reorganization has grown only one-fifth as much as American business as a whole, despite billions invested in new equipment. The primary management trends in American business -- to innovate, become more dynamic, more flexible, less bureaucratic, and more productive -- have largely bypassed USPS.

Substantial and fundamental reform is needed to bring USPS into the Information Age. The objectives of any postal reform effort are relatively straightforward: cut costs by bringing the benefits of competition to the postal system to the greatest extent possible, while maintaining service and preserving universal delivery. The Progressive Policy Institute believes that this cannot be achieved either by small changes to the status quo or by completely privatizing USPS. Instead, we offer several proposals to reform the postal system, including:

• encouraging greater competition and efficiency by letting mailers keep the savings created when they use private entities to accept, process, and transport mail while retaining the USPS monopoly on mail delivery as well as its universal service obligation;
• creating a Postal Regulatory Commission to foster and protect the competitive environment; the new commission should combine the rate setting functions of the Postal Rate Commission, greater oversight responsibility, and the rulemaking authority that now resides with USPS;
• allowing for reasonable cost-reducing cuts in service, such as closing local post offices, that are currently barred by statute and by congressional intervention;
• developing performance incentives for postal workers and managers that reward boosts in efficiency and outstanding financial performance;
• requiring USPS to stick to delivering physical mail and refrain from engaging in competitive lines of business unrelated to the postal function; and
• ensuring that new measures to improve the security of the mail from further terrorist attacks are appropriate to the risks and costs involved.

These proposals will change the postal system to such an extent that it may no longer be recognizable. Competition may well force USPS out of every part of the postal system aside from the last mile. If that happens, so be it. The important goal is improving overall efficiency and quality in the postal system (public and private) and improving service for customers, not preserving the USPS as we know it. Greater opportunity for competition and stricter control on the activities of USPS will provide Americans with a higher quality and more efficient postal system.