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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 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 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
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
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