Friday, September 16, 2011

What to do about the United States Postal Service? It's almost bankrupt, you know.

Several years ago, on this blog ("Adam Smith, Profitability, and Efficiency") and in a scholarly publication (“On the Economic Efficiency of Organizations: Toward a Solution of the Efficient Government Enterprise Paradox,” Essays in Economic and Business History 25 (April 2007), 143-54.), I argued that the public-private distinction had been empirically bashed enough times that a new paradigm was necessary. In other words, not all private organizations are efficient and not all government ones are inefficient. Rather, I suggested, what matters much more than its ownership structure per se is an organization's internal incentives and the type of market (competitive to monopolistic) that it operates in. So the problem with the United States Postal Service (USPS) is not that the government owns it but rather that it has a monopoly on certain types of package delivery and that the remuneration of its employees is based largely on their seniority rather than their productivity. Open any organization to competition and reward employees for achieving goals aligned with the organization's purpose and it will thrive, even if it remains a government entity. It might be easier to privatize the USPS than to change its current culture but the privatization must be done correctly, i.e., without monopoly privileges of any kind and to companies that know how to properly incentivize workers, supervisors, and executives.

While discussing this issue with my son, Alexander Hamilton Was Wright, it dawned on me that physical delivery of letters over long distances could easily be eliminated even if a recipient or sender does not have email. Imagine a system of local letter delivery companies that zap mail back and forth to each other electronically, scanning paper documents when the sender doesn't have email and printing them when the recipient doesn't. No need for expensive, complex, international hub and spoke systems with airplanes, 18 wheelers, etc., just printers, scanners, and local delivery persons. Such a service would be cheap (the distance wouldn't affect the price but the quality of the desired output would), especially if competition was encouraged, and of course it would be faster than "snail" mail. So I'm not much alarmed at the prospect, however dim given our bailout-happy government, of the USPS shutting down. Everybody who wants will still get physical mail, maybe twice or thrice a day (from competing delivery companies).

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