FREE ESSAY ON MONOPOLY OF THE POSTAL SERVICE

MONOPOLY OF THE POSTAL SERVICE

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 arket. 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.
Bibliography
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