Privatization Of The Postal Service example essay topic

Introduction 1 In microeconomics, we study the four different market models that exist today, and the various affects each of these markets has on the United States economy as a whole, as well as individual types of business. The four market models are Pure Competition, Monopolistic Competition, Oligopoly, and Pure Monopoly. Generally, Pure Competition, also called Perfect Competition, is in the best interest of the public. In a Perfect Competition Market, there are a large number of firms present that produce a variety of products.

These firms are competing with each other, each trying to win over the money of millions of consumers. This is an incentive for the firms to operate in the most time and cost efficient ways, and keep the prices of their goods at a level high enough to produce a profit, but low enough to entice consumers to buy their product as opposed to a similar product of another firm. A Pure Monopoly is the exact opposite of Perfect Competition. In a Pure Monopolistic Market system, there is one firm that has complete control over the market of a particular product. In this scenario, this one firm is the only producer and seller of a particular good or service, allowing the firm to directly control the price of the good. A monopoly is not the ideal market system for the average consumer.

One of the most common examples of a monopoly would be local utility companies. A recently event in the news is the controversy looming over The Microsoft Corporation, and whether or not it has violated the Sherman Anti-Trust Act by controlling over 90% of the market for computer software systems. But beside local utility companies and The Microsoft Corporation, there is a market monopoly in the United States that is overlooked by many. That is the United States Postal Service. Background 2 The United States Postal Service is a monopoly that controls the market of mail carrying for the entire United States. Although there are more companies that carry and deliver mail, such as the United Parcel Service and Federal Express, the United States Postal Service carries the majority of more than 90% of residential mail, making it a legal monopoly.

Over the years, there have been many problems faced by the U.S. Postal Service, and equally as many proposed solutions. Twenty years ago, the Postal Service was having a considerable problem with its budget and losing a significant amount of money. In 1979, the Postal Service had a cash flow of $22.5 billion, and was receiving an additional $176 million from outside investment. But even that was not sufficient enough for it to be profitable.

That is when privatization was first mentioned, in order to aid in the financing of the under funded Postal Service and eliminate the extreme losses it was experiencing. This would introduce competition into the market. However, it was not put into affect. Instead, the government decided to subsidize the Postal Service to provide for the continuance of its operation.

At that time, the Postal Service also began to cut its costs in a number of ways. This was done by doing away with various out dated policies. These antiquated methods primarily dealt with mail carriers in rural areas, because it was discovered that the Postal Service was losing the most money in these areas. There were 48,000 mail carriers delivering mail to millions of residences that were considered to be rural, costing the Postal Service $858 million a year. This loss was dealt with by correcting the following problems: 1. The rural mail carriers were assigned a certain amount of time to deliver to 3 a specific area.

These time slots were evidently too large because many of the carriers had free time at which they were being paid for. 2. In other rural areas, mail carriers were being paid by the mile. Many of these areas contained houses that were far apart and the carriers were being paid more than those in urban areas. When examined, the Postal Service was able to re-configure the routes of the carriers more efficiently, saving $26.8 million a year. 3.

An hourly rate was in effect that indirectly promoted inefficient service by enticing the carriers to purposely taking more time to finish their routes. By doing away with this, the postal Service was able to cut costs by $255,000 a year. With these new procedures in effect, as well as some others, the Postal Service has been able to increase profits. Over the past fifteen years, it has been making record-breaking profits. In the first quarter of the fiscal year of 1996, the Postal Service had a net income of $1.2 billion, $115 billion larger than the predicted forecast, and the profit has continued to increase over the years. Objectives 4 The question at hand is, in relation to the budget dilemmas and fluctuating profits it has experienced over the past twenty years, is it in the best interest of the Postal Service, as well as the United States economy, to remain a monopoly or to create competition by privatization?

There are many factors the government must consider in making this decision, and many positive and negative affects of each. Privatization has many advantages. If the Postal Service is made private, more private companies that provide the service of delivering residential mail will arise, creating a competitive market. With numerous competitors in the market, each private company will run more efficiently, cutting costs and resulting in lower prices for services provided to the general public.

Another benefit to privatization is that it will allow the small problems that are often overlooked by the government to be corrected. For example, book-keeping policies would be improved, as well as banking techniques by alluring the companies to select banks that provide them with the lowest interest rates on loans and the highest interest rates on their accounts. A second example of a problem that will be corrected by privatization is the problem of receipts from consumer purchases being submitted sometimes days after the transaction date. Therefore, the money made on these transactions remains out of circulation for a few days at a time. Talk of privatization includes the mention of improving this method so that the receipts are submitted the same day as the transaction, enabling the money to be utilized and invested more efficiently and quickly. 5 On the other side of this issue, privatization of the Postal Service will have its downside.

For example, more resources will have to be put to use if more private firms are in existence, including employees, mail trucks, and airplanes. Over the years, the Postal Service has been experiencing a large profit that may be disrupted by a sudden change in the market. Analysis 6 Based upon the information I have reviewed, my analysis is that the general public will benefit from the privatization of the Postal Service. Just by studying the benefits of a competitive market versus a monopolistic market, it is evident that competition provides the public with more of a say in how their money is being spent when purchasing goods and services.

It also provides lower costs for these goods and services being purchased. Although I do think that privatization of the Postal Service would decrease the cost of services provided to the public, I do not see this happening in the near future. When studying the financial history of the Postal Service, we can see that it was not always a profitable market. However, we can also see that over the years it has become one of the most profitable businesses in the United States. By correcting some of its most prominent problems and cutting back its costs, the Postal Service has increased its profits significantly. And it plans to increase its revenue by $1.2 billion by the year 2005.

The United States government is really reaping the benefits of these profits. Had the Postal Service continued its downfall that was present twenty years ago, I think privatization would have already occurred. However, with the dramatic increase in revenue and the current profitable status of the Postal Service, I don't believe it would be in the best interest of the government to allow it to become private. Summary 7 In summary, the debate over the privatization of the United States Postal Service has been ongoing over the past twenty years. However, it is not an issue known to many in the general public. There are both pros and cons involved with both sides of this issue, both in respect to the public and the government.

Because the Postal Service is now one of the most profitable businesses in the country, it is an asset to the United States government to have control over its operation and profits. The $60 billion+ revenue that the Postal Service is currently bringing in puts them in 12th place on the Fortune 500 list and 33rd on the Fortune Global 500. A recent study in 2000 showed that domestic direct mail sales were at an all time high of over $500 billion. It is speculated that, since the United States Postal Service is currently doing so well, it may be in the best interest of everyone to keep it as a monopoly and avoid privatization. You know what they say, "if it's not broken, then don't fix it".

Bibliography

1. United States. "General Accounting Office, Changes in the U.S. Postal Service's cash management practices": report by U.S. General Accounting Office, Washington, 2000 2.
United States. "General Accounting Office, Changes needed in the U.S. Postal Service's rural carrier pay systems": report by the U.S. General Accounting Office, Washington, 2000 3.