Which business is this?

Take a guess before you read too far:

His last quarter’s results,
which were announced on Wednesday, revealed a loss of $2.4 billion. The
business is on track to lose a staggering $7 billion in 2009, on around
$68 billion in revenue. That’s practically General Motors territory.What
can he do to fix the situation? Surprisingly little. His employees have
clauses in their union contracts that forbid layoffs. Nor can he
renegotiate their gold-plated benefits, the way, say, the auto
companies did when their backs were against the wall. Political
pressure makes it nearly impossible to shut down any of his company’s
34,000 facilities, no matter how outmoded or little used. He can borrow
money, but under the law, he can add only $3 billion in debt a year…

Every year between now and 2016, he has to put aside over $5 billion to
finance health benefits for future employees. You read that right:
future employees. There isn’t another business in the country that
finances benefits for employees it hasn’t even hired yet.

…A few weeks ago, the Government Accountability Office added the Postal Service to its list of “high risk” federal agencies,
meaning that it is in such dire straits that it needs “to restructure
to address its current and long-term financial viability.” Indeed, if
something doesn’t change by the fall, the Postal Service will have to
renege on those health benefit prepayments – despite its legal
obligation to pay them – or start missing payroll.

That's from the NYT, not The Weekly Standard.  They are also talking of moving to mail delivery only five days of week, an idea which originated from the postal service itself.  Many private businesses, in contrast, prefer to respond to crisis by trying to sell more of their product.  In fairness, it should be noted that the institution had a better record in the 2001-2006 period.

Comments

Discussing the post office is almost like discussing the novel idea that costs and benefits should be included when discussing UN climate management- you can tell people that of the 50 pounds of mail you received last year, you got 3 birthday cards and two other pieces of personalized mail and they will just stare at you, that is, if they aren't thinking that you also eat babies. But, I've been thinking this way for so long, I can't even remember what I thought about people who talked like me before I became one.

"Every year between now and 2016, he has to put aside over $5 billion to finance health benefits for future employees. You read that right: future employees. There isn’t another business in the country that finances benefits for employees it hasn’t even hired yet."

Given the role that health costs has played in damaging businesses, perhaps more companies should consider this during flush times.

"Many private businesses, in contrast, prefer to respond to crisis by trying to sell more of their product"

Hmm. Not GM. They are trying to cut away as much as possible.

Privatize the post office, give them a massive subsidy to get cheap personal first class mail, and let them gouge the mass mailers to death?

Economists who express judgment pretty much reach a liberalizatioin conclusion.

See Geddes piece here.

Let's be a little fair here.

First point, how many PRIVATE businesses have been hurt during this recession? To say that during this recession a public business is doing badly and then to advocate privatization as a sort of panacea is somewhat disingenuous especially given what we have learnt about private business losses (read: our very privatized banking system)

Second, it really is not clear in an age of electronic communications how much better private postal services would have been in dealing with this paradigm shift.

Third, Tyler cites the public post office "talking of moving to mail delivery only five days of week" as a opposed to private businesses preferring to "sell more of their product." Come on. Moving mail delivery to five days a week is an example of CUTTING COSTS - something private businesses such as Insurance Companies do in a similar vein - while hoping that their customers continue to purchase their product. I have no idea where the comment about not wanting to sell more of their product came from. They will presumably still gladly accept your money on any day of the week.

Finally, I should say that I agree that the Union contracts are really obnoxious and that's the main problem with government institutions. The inability to restructure govt owned businesses when times and demand changes due to political pressures is the hallmark of a government organization. However, I do not think that this necessarily need be the case. I believe many government run organizations such as the BBC have provided good service, efficiently. I agree that examples are few and far between. However, one solution could be building awareness on the losses of public companies and electing honest, upright politicians (they used to exist, really) so as to make it politically feasible for politicians to allow companies to be run efficiently, providing a valuable service. Indeed, I believe that Medicare is one such example where many citizens are happy with their coverage and many seem to be better off once they move from private to public insurance at the age of 65.

You wrote: "...put aside over $5 billion to finance health benefits for future employees."

This is one area that the post office could save money. As a non-postal federal employee I pay $151.23 every two weeks for health insurance (Utah Altius High Family). The government share is $353.56. As a postal employee I would pay $97.37 with the government share being $406.42. Source: http://www.opm.gov/insure/health/rates/index.asp

The postal rates could be aligned with the federal rates, perhaps phased in over five years. Also, I have no objection to the post office reducing the days they deliver mail.

Of course the government could do the greatest good by balancing the budget.

There was a great essay around advocating that the post office should drop 'standard mail'--code word for junk mail. The post office fervently believes that 'standard mail' subsidizes its operations but the heavy discounts and infrastructure requirements of 'standard mail' support a different conclusion.

Yes, eliminating 'standard mail' would cause significant cut-backs in staff and sorting facilities, but the result would be solvency.

I find it continually hilarious that Dr. Krugman holds the USPS up as an example of how well government businesses can be run.

Andrew,

Fifty pounds a year? I receive almost fifty pounds every month or two. I have seriously considered taking my mailbox down, but I suspect I would be breaking the law if I did so.

Harkins,

Was his name Newman?

While I think about, here's another argument: environmental protection. I would be interested to see how much gas the USPS consumes on suboptimal routes. Private companies only delivering one day a week would cut substantial amounts of gas, more than 80% with more optimal routes.

The Cato Institute points out that a number of countries have already partially or fully privatized their postal systems:

http://www.cato-at-liberty.org/2009/06/23/privatize-the-post-office/

Polemarch,

Did the iKrugman actually defend the Post Office? Where?

Even if someone believed that the USPS provides a good service... they should realize that culturally the USPS is the cliche of crappy government service. If you are trying to successfully communicate your pro-government-health-care position, and you use the USPS as an example of what a successful government health care may be like, you have critically failed.

Please folks, this is why people hire public relations firms!

Paul Krugman should feel like an idiot after reading that; I'm sure that instead he has some smug reason about why this story actually proves his point.

I spent summers working in the post office. Its anecdotal, but the average mail carrier where I worked spent 3-4 hours of their daily shift sitting in a restaurant.

Another post child for government operation, huh?

PS, The Post Office IS constitutionally required, however.

USPS's problems are not really because of the recession. They lost 5 billion in 2007, and were predicting a 2 billion loss for 2008 even before the recession started. The law that was passed in 2006 made it inevitable they would lose billions. They can not raise prices by more than the rate of inflation, yet their two biggest expenses, unionized labor and fossil fuels, have been soaring. They have been desperately trying to change their corporate culture but that is proving next to impossible. They wanted the law changed and it bit them in the backside.

Comments for this post are closed