The USMS
March 10, 2009
Once again, the government must decide the fate of GM and Chrysler. Either the automakers declare bankruptcy or the government will provide a bailout. The government’s previous bailout funds, $17.4 billion in December, are gone.
Now GM and Chrysler are seeking $30 billion more.
GM’s market capitalization is now under $1 billion and Chrysler’s is a fraction of that (since Chrysler is private, its exact market capitalization is unknown). If the government chooses another bailout, the $30 billion investment – 30 times the value of these companies – should bring with it significant control over the companies’ operations, to ensure the taxpayers’ interests are protected.
For the investment itself to be wise, we must assume that the government can turn around these behemoths, make them profitable, and realize a gain on its investment once they are returned to private ownership. A clear example allows us to assess the likelihood of success: the U.S. Postal Service.
Since 1971, the USPS has operated as an independent arm of the executive branch of the government. Its revenues come from postal fees, bond issuance, and government subsidies. The subsidies are meant to offset the cost of carrying certain government mandated categories of reduced-rate mail.
Like the automakers, the USPS is heavily unionized, with approximately 330,000 workers represented by the American Postal Workers Union. That is about twice the size of the automakers’ unionized labor force.
The USPS and its workers deserve a lot of credit. They deliver mail to every person in the country, regardless of where they live, with a virtually non-existent error rate. Theirs is a thankless job, and they face undeserved ridicule.
As a business model, though, the USPS is not so admirable: it lost $5.2 billion in 2007 and $2.8 billion in ’08.
Running the post office at a profit should be fairly easy. Its business is recession-proof, as mail volume grows consistently through economic cycles (with no decline in the last decade despite the growth of email). Government protection insulates the USPS from competition, ensuring a perpetual monopoly for non-express services. The basic postal service has not changed since its introduction 200 years ago – mail is picked up, sorted, and delivered. Technology improvements, like machines that can sort 30,000 pieces of mail per minute, should drive costs down consistently over time.Display article as PDF for printing.
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