Tuesday, October 13, 2020

The Irreconcilable Irrationality in Privatizing the Postal Service (Special Guest Blog with Jena Martin and Matt Titolo)

The United States Postal Service (USPS) has been in the news a lot more than usual lately. Amid controversies over the summer appointment of Louis DeJoy (a former corporate executive with no previous experience in the agency) as the Postmaster General, and more recent coverage of the Postal Service’s role in the upcoming election (and their ability to handle the uptick in mail-in voting) this widely-lauded government service has been the target of increasing calls for privatization.  Given President Trump’s open disdain for USPS, the results of the November election may well determine the future trajectory of this agency. Specifically, votes this November will likely determine whether USPS will remain within the ambit of its original intention: as a public trust for the citizens of the United States or become a privatized corporation where a profit making purpose is imposed on the new incarnation of the Postal Service in a way that will likely lead to disaster for all.  In a longer essay, (that will be published in the Texas Law Review Online) we provide an in-depth look into the Postal Service’s history and mission.  Here, we would like to take a moment to truly unpack the implications of placing a corporate veneer on a public service agency.

The privatization/profit making framework is another step along the continuum of increased corporate influence in traditionally social spaces.  Privatization is one side of that coin – with its outsourcing of public goods and utilities to a private entity. However, when a public good does transition from the public to the private sector, the other side of the coin comes into full display: the usurpation of social goods for corporate profit.  While for-profit businesses certainly have their place, the use of this model for public utilities will prioritize different values in a way that was never intended for USPS.

A few decades ago, privatization of public infrastructures and services was moved onto the policy agenda around state-owned enterprises. In the US, which does not have a tradition of state-owned enterprises, the conversation has focused on infrastructure and public services traditionally provided by government. Conservative think tanks had been arguing for privatization since the 1970s, but privatization became a serious policy issue in the Reagan era, when politicians were seeking to shrink the size of government.

Advocates of privatization tout a number of benefits of outsourcing government services to the private sector: increased competitiveness, lower costs, efficiency and a smaller government footprint. Where privatization does work, the services are often targeted and relatively small in geographic scope (e.g., trash collection). However, advocates for democratically owned and managed public infrastructures have pointed to the dangers of allowing for-profit firms to own or manage important public infrastructures and services. Critics cite potential for corruption, loss of control and increasing inequality when private companies are allowed to manage important public infrastructures. Although pro-privatization advocates claim that privatization is simply a neutral way of providing goods and services, critics explain that choosing a public or private provider is not a neutral choice. When private-sector firms take charge of a government service that can lead to feedback loops where the private firm seeks to influence the shape of the policies being administered. Also, outsourcing government functions may obtain cost savings by replacing good jobs with part-time or insecure employment. Others, such as Jody Freeman and Martha Minow, have been concerned about ensuring accountability in an era of  “government by contract.” In the 2000s, cities and states began to experiment with privatization of large infrastructures such as roads, with mixed success. Largescale privatization initiatives like those proposed for USPS remain controversial and are likely to remain so for the foreseeable future, as Americans worry about the effects of transferring public services to private providers whose interests in extracting maximum profits may not be aligned with the interests of Americans in universal and equitable public services (such as USPS’s Universal Service Obligation or “USO”).  In addition, the switch from public agency to for-profit entity will come with a seismic shift in the nature and purpose of our mail delivery services.

The profit-maximization effect is profound. When one is working under a model that must support the best interests of investors’ money, many of the decisions that are made by the corporation will be done from this perspective.  As one of us learned while working at the Securities and Exchange Commission, many a corporate fraud began because an executive felt pressure to meet analysts’ expectations regarding its value – which then led them to engage in accounting or other shenanigans to make sure those numbers fit.  

To wit: here are some of the things that businesses have done in the name of shareholder-profit: 

 

Now, imagine for a moment, if USPS was under an obligation to undertake these initiatives in the same way as for-profit corporations would do it.  Many of the services that we now take for granted, would likely be eradicated.  For instance, when Trump appointed DeJoy as Postmaster General, the former logistics executive immediately began what many believe to be a major overhaul and scaling back of USPS, dismantling hundreds of processing machines and instituting a policy designed to speed up deliveries at the cost of leaving packages behind in processing centers. Worse still, recent operational changes at the USPS made by Dejoy call into question the viability of mail-in voting this November, which President Trump has made no secret he opposes on partisan grounds. USPS is also being sued by a number of states who seek to prevent further changes to USPS before the November election. A federal judge recently issued a nationwide injunction against Dejoy’s restructuring efforts, which he called “an intentional effort on the part of the current Administration to disrupt and challenge the legitimacy of upcoming local, state, and federal elections.”  This is precisely the sort of corruption that critics of privatization are worried about.

President Trump’s Task Force on the United States Postal System issued a report in 2018 arguing that USPS is on an “unsustainable path” and recommending among other measures full or partial privatization of the USPS. When President Trump reiterated the postal privatization plan in 2018, he misleadingly stated that “many European nations” have switched to private postal services, when in reality only a handful have. Given its larger privatization agenda, unsurprisingly the Task Force Report does not mention the congressional pre-funding mandate as the source of the current troubles. The 2018 report called for putting the USPS on a “sustainable path.” The report states that the USPS is “less relevant to citizens and businesses due to the emergence of virtually free digital alternatives that deliver information instantly and more directly to the recipient” and proposes to fully or partially privatize the USPS. The Report also claims that mail delivery to “sparsely populated areas” have caused “the USPS’s financial instability,” which suggests that privatizers view the universal public nature of mail service as a problem in need of correction. The report proposes a scaling back of USPS package deliveries to allow private providers to move into that market while leaving the difficult and unprofitable services to the USPS.

However, it is simply not feasible for a private company to recreate the extensive delivery and service infrastructure of the Postal Service’s USO. Selling off USPS to a private company would mean cuts to services and deliveries, especially in rural regions, as the private company focused on smaller and more targeted service areas.  Moreover, it is unclear what benefit Americans would gain through privatization that doesn’t already exist with UPS, FedEx and other private logistics companies that deliver documents and packages. Although some smaller countries have moved to private models for mail delivery, the sheer geographical size of the United States makes such a model untenable here. Large retailers have come to rely on the USPS’s “last-mile” infrastructure which deliver packages from sorting centers to residences. Since the Report’s privatization plan would raise the prices on package delivery, it is no surprise that Amazon and other large retailers oppose the plan.

 

Imagine for a moment, if USPS was under an obligation to undertake its work in the same way as for-profit corporations would do it.  Among the things that would probably be changed is:

  • A cut in worker’s salary;
  • Massive layoffs;
  • Deleting all of the pure service-oriented services (like checking in on the elderly or calling in emergencies).

The universal obligation that is central to USPS’s mission would need to be seriously scaled back, because the truth of the matter is that universal delivery is not profitable, it’s essential, especially for people living in rural communities. We would suddenly have to justify all of the services that the USPS does as part of its job within the context of shareholder engagement.  So, universal service? How profitable is that? Get rid of it! That program that allows carriers to check on people who are home alone? What does that have to do with the bottom line? It’s gone! Suddenly, any community-initiated activity that USPS will have done must be viewed exclusively or primarily from the standpoint of making a profit.  Is that really what we want for our Postal Service?

https://lawprofessors.typepad.com/business_law/2020/10/the-irreconcilable-irrationality-in-privatizing-the-postal-service-special-guest-blog-with-jena-mart.html

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Comments

My recollection is that Marvin Runyon (“Marvelous Marvin”) was quite successful in turning around a US Postal Service with a “reputation for poor service” and lack of profitability. Does history repeat itself? Biographies do not reflect that Runyon had any “previous experience with the agency.”

As someone who, albeit during this exceptional year of 2020, experienced a number of “late delivered” payments to my creditors – there is no doubt there is a reliability problem that exists. As I discussed with my local postal manager – “I may be part of the last generation that relies upon the US Postal Service to traditionally transact business by the US mail. If unreliable service continues, we will all start using electronic means. Thereafter, you will have no other purpose than as a junk mail delivery service and to deliver Amazon packages.”

Customer service may be equated to that of visiting the “department of motor vehicles.” There is no urgency and certainly no expediency to meet the needs of its “customers.”

A policy call to maintain the “status quo” of the US Postal Service must be accompanied in a way that makes the Postal Service both profitable and customer service based. The fact is that operations under current conditions will simply result in abandonment of its services where the postal service’s necessity has been increasingly eroded by technology. The policy arguments presented are the same ones that have been made since “John Henry and the Steam Engine.” Under these arguments for the preservation of public institutions, I presume we would still have public horse stables, hitching posts, and profound number of un-needed farriers.

Posted by: Tom N. | Oct 13, 2020 8:55:02 AM

Hi Tom: Thanks for your note. While we agree that the Postal Service has undergone some issues recently with reliability, I don't necessarily place the blame for that on a lack of customer service orientation for the agency. Rather, I think that the Postal Service is simply overburdened in a way that it typically only is for a very short period during the holiday season. Things start to fray when we overtax resources in that way. As such, I don't think the solution is to privatize the agency. In our longer piece, Matt and I spend some time discussing how to support the Postal Service in a way that still keeps its public function.

I would also suggest that your focus on the use of the Postal Service instead of technology overlooks how central USPS is to rural communities that often don't have access to broadband or reliable service from private logistic companies. For those communities, the Postal Service is quite literally a lifeline, delivering needed medication and being used as a significant means of communication.

In the end, It really just depends on how you view the agency. We view it as an essential public utility - one that can certainly innovate, but with its central mission firmly in mind.

Posted by: Jena Martin | Oct 13, 2020 10:17:19 AM

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