January 11, 2009

When conservatives don't like the free market

There's a segment of the conservative base in America that feels the government should not be involved in profit-making ventures. It's important to make a distinction - there is a difference between the government being in business in general and the government making a profit where it is required to be in business.

For example, for years the Post Office had been run as a government agency with some business-like attributes, but not the world's most efficient one.

In 1970, the Postal Reorganization Act established the USPS as a government agency that could be operated with tax support as a semi-independent federal monopoly. The postal service was also mandated to be revenue neutral, or
in other words, to be a not-for-profit organization.

In 1982, U.S. postage stamps were deemed a type of "postal product" rather
than a form of taxation. Since then, the primary cost of operating the postal
system has been paid for through the sale of "postal products" and services,
rather than tax revenues. Furthermore, the various classes of U.S. mail (for
example, first class, parcel post, etc.) are each expected to cover their own
costs with their own "postal product" sales. Effectively this means that each
class of mail is like a stand-alone entity that must, at the end of each year,
demonstrate a net profit of zero. This explains why, when postal increases are
levied, the percentage of change may not be uniform from one class to the next.
This is because the post office examines each class of mail by itself, and only
increases rates as much as is needed to maintain a net profit of zero.

Today, the U.S. Postal Service delivers to more than 141 million businesses
and homes each day. It is the only U.S. government sanctioned monopoly, and it
operates very efficiently in spite of having no competition. From its humble
origins in a Boston tavern in the 17th century, The United States Postal Service
has gone on to become the organization we all know and rely upon every day to
deliver our mail.

But despite turning occasional profits, that's not the mandate. The USPS however does compete in the private sector realm. In addition to FedEx, UPS and the like, there's also email to consider and telecom. So instead of treating it like a quasi-GSE, why not free it up to compete in the open marketplace?

Why is it that some conservatives, who normally have a fundamental connection to free market capitalism, don't see the advantages of letting the government compete in the free market? There are several reasons to consider the option.

If the entities (there are other options besides the post office) can compete;

1. they can reduce their inefficiencies by having to operate like a real company

2. turn a profit and reduce the tax burden associated with funding these government entities

3. reduce their contribution to the deficit

4. free up funding for other areas that the government wants to impose taxes on to fund.

On the other hand, if they fail to compete;

1. they go bankrupt and fail to be a tax burden on citizens.

2. they reduce economic inefficiencies by freeing up resources (e.g. labor) for more efficient organizations.

3. prove conservative views that the government should not be in business and hopefully help quell the rise of socialism in America.

Think of it as a type of surreptitious privatization. All the more reason to endorse the idea that government entities in some cases should be allowed to make a profit. Of course there are risks that would have to be mitigated. For example, Congress loves to meddle in things and if you give them the opportunity to meddle here it could prove disastrous. The primary reason to argue against the idea is that they would indeed meddle.

The reason it would be dangerous is that the government would have incentive to step in and alter regulations that would make it easier to compete for the government 'corporation' and provide unfavorable advantages to it. Continuing our USPS example in an extreme way, they could make it so that carriers had to ensure that a certain percentage of their business was domestic. This would effectively require FedEx and UPS to shut down some or all foreign operations permanently or at least temporarily - allowing the UPS a chance to catch up to its smarter, more efficient and more global competitors. That's an unfair advantage that the Congress might consider reasonable. So in tandem with the 'profitization' of government entities there would have to be strict restrictions put on the Congress that limit its ability to legislate in this area (restrictions on Congress are another plus for conservatives). We know what meddling did to Fannie Mae and Freddie Mac and the entire banking industry as a result. No one wants that to happen again.

It's not an idea that should be discarded out of hand. There are risks in it, including the possibility of it causing a backslide into socialism if the entities over perform (fairly or out of government meddling). But there's a lot of potential upside to it that we shouldn't reject simply because the idea of government being in business is anathema to conservatives. The fact is they are already in businesses. More importantly, we could borrow from the Democrats' playbook page on incremental progress and look at it as a small, first step towards finally privatizing the USPS entirely. And that, as a conservative is something that makes the most sense of all to me.


  1. Would also like to see the USPS monopoly released. They have kept competition at bay by threatening them with government action if they overstep some secret line established 200 years ago.

    Great article which I'll retweet


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