By Danny Huizinga
This week, Britain announced that it would soon be privatizing its postal service, the Royal Mail. Estimated to be worth nearly 3 billion pounds ($4.8 billion dollars), the Royal Mail will begin selling shares of stock to potential investors sometime in the next few weeks.
While it remains to be seen whether or not this is a smart move for Britain, the United States should think twice before following its lead.
There is no doubt that the Royal Mail has problems. True, it does appear profitable on paper.
Royal Mail’s operating profit tripled in the last year, to just over $600 million.
But this can be misleading — the Mail would not be turning a profit if the government had not paid off the $6.9 billion deficit in the Mail’s pension fund last March.
The United States Postal Service is having an even harder time.
Last year, the Postal Service reported a record loss at $15.9 billion.
Most of this is because of a congressional requirement to pre-fund future health and retiree benefits for postal workers.
Although delivering mail may not turn a profit, it’s still a valuable public service.
The Postal Service delivers 40 percent of the world’s cards and letters, according to the Center for American Progress.
Sending letters, though less common today, is far from obsolete.
Spending a small amount of tax money to keep the postal service afloat is not automatically a bad idea.
However, the biggest financial problem the postal service faces has nothing to do with six-day delivery or the competition of e-mail.
According to Business Insider, the postal service spends 80 percent of its annual budget on employee salaries and benefits.
By comparison, UPS and Fedex spend 61 percent and 43 percent, respectively. Cutting mail delivery will only hasten the postal service’s demise.
Instead, fundamental reforms must be undertaken. However, postal service reform has often met strong opposition in the United States.
Numerous congressional attempts to limit retirement benefits have been defeated.
If the United States were to privatize the postal service like Britain has done, the government would first have to invest billions of dollars into making the postal service appear as a viable, competitive business.
This would likely be unpopular with both parties.
R. Richard Geddes of the American Enterprise Institute thinks there are some easy steps we can take without privatizing the postal service.
By eliminating monopolies on postal boxes, for example, the Postal Service could encourage competition in the letter-delivery business to motivate increases in efficiency.
“The United States now lags behind most other developed countries in all such reforms. All 27 members of the European Union have eliminated their postal monopolies,” he said.
The Postal Service doesn’t receive any direct federal subsidies, but Congress still controls many of its major decisions.
Economists argue deregulating USPS would allow it to branch out and become more competitive.
The Postal Service is extremely popular among American citizens, and any cuts perceived as overly drastic will not go over well.
Public opinion in Britain is vehemently against Royal Mail’s privatization, at the same time accusing Moya Greene, chief executive of Royal Mail, of exorbitant compensation.
Still, Greene argued “employees will have a meaningful stake in the company and its future success” and that “the public will have the opportunity to invest in a great British institution,” according to the New York Times.
Royal Mail’s privatization will be a model worth watching, but the United States shouldn’t get any ideas too soon.
Danny Huizinga is a junior Business Fellow from Chicago. He is a guest columnist for the Lariat. Follow him @HuizingaDanny on Twitter.