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The Post Office and E-Commerce

Mises Daily: Friday, September 15, 2000 by

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The Pony Express riders of yore must have been unhappy when the railroads took their jobs. But just as the Iron Horse replaced the flesh and blood horse in the nineteenth century as the preferred method of mail delivery, today, email is supplanting regular mail. Yet instead of graciously riding off into the sunset, the Postal Service is fighting for its life, and at its customers' and competitors' expense.

This month, the Postal Service inaugurated a $12 million advertising campaign to market eBillPay, the first of many new electronic services the agency hopes will save its bacon as millions of Americans choose email over snail mail and online bill payment over old-fashioned checks and envelopes.

In fact, official estimates predict that the $17 billion the Postal Service collects annually for handling bills, return payments and financial statements - which represents about half of first class revenue - will likely be displaced by e-commerce this decade. "It's a tremendous threat to our business," said Stephen M. Kearney, the Postal Service's senior vice president for corporate and business development.

Indeed, from the Post Office's point of view, the eBillPay system, which will cost customers about 40-cents per bill, is a necessary move as its lucrative monopoly on first class mail begins to go the way of the telegraph, the steamship, and the famous horse and rider.

By any other standard, however, the Post Office's action is utterly unjustifiable. Economically, many experts will argue that it is appropriate for the government to provide a service when the private economy can't or won't. But myriad private firms already offer identical bill paying services, including Paytrust.com, Yahoo BillPay, Intuit's Quicken.com. And many banks offer similar services to their customers for free.

Legally, by the Post Office's own admission, eBillPay is on shaky ground. "We don't consider eBillPay a postal service," said Mr. Kearney, who must know that the Postal Reorganization Act of 1970 mandates that the Post Office's job, sensibly enough, is to provide "postal services." EbillPay also sets a dangerous precedent for government expansion. Ask yourself, should Amtrak branch off into air travel as railroads continue to decline? How about an FAA-operated airline? Or a Department of Transportation Auto Parts Center? Maybe an escort service run from the White House?

For the time being, electronic bill payment is a fresh and highly competitive industry. But the Postal Service is a huge enterprise, a force majeur that threatens to clear the market of competition. After all, it employs some 900,000 people - imagine the state of Rhode Island (pop. 990,000) filled with postal workers - and expects to realize revenues of $65 billion dollars this year, about equal to carmaker DaimlerChrysler's revenues last year. So we're not talking about some dot-com startup with even odds of survival.

These unfair size advantages are compounded by the fact that the Postal Service doesn't pay taxes to the government or dividends to shareholders, and when revenues fall short of expectations, it can shift losses to taxpayers. "When the Post Office loses money, everyone pays," says Tad Segal, a spokesman for United Parcel Service. Flint A. Lane, chairman, president and chief operating officer at Paytrust.com, put it equally succinctly: "I'm paying for advertising for a competitor of mine."

Abuse of power, long a part of the Post Office's repertoire, poses a real threat as well. For over a century, the Post Office has used its monopoly muscle ruthlessly to crush competition, insists Mr. Segal of UPS. It's the same story every time, he says: "They will enter a market, divert customers away from the private sector and then they will make huge mistakes in handling that business and they will lose money on it." True to form, the Postal Service lost $85 million on new products and services in 1999, according to official statistics.

On top of all this, the handling of online private financial transactions by a federal agency presents a mail truck-full of privacy concerns. "[The Postal Service] is obligated to share information with law enforcement and other agencies at a much lower legal threshold. There's more potential for abuse," said Edward Black, president of the Computer and Communications Industry Association.

In the last analysis, as citizens and as customers, the Postal Service exists to serve our needs, not the other way around. Therefore, if aspects of the Postal Service have outlived their usefulness, rather than vainly attempting to revive them, we should phase them out. It's called progress. Permitting the agency to become enveloped in new projects like eBillPay is simply beating a dead horse.