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- Postal Service As a Monopoly
-
- 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 isnÆt 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
- in1979 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 isnÆt 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 mar-kets
- (#4, 1)." So who is to know which market would be better for the
- American econ-omy 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
-
- 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
-