Given the news that the U.S. Postal Service could be privatized, it’s a good time to explore why privatizing mail delivery and opening it up to market competition is a wise idea.
To start, it’s helpful to consider cases where privatization might be unwise and why mail delivery is different. In particular, many economists and political philosophers are skeptical about privatizing public goods—that is, goods that are characterized by nonexcludability and nonrivalrous consumption. National defense is a classic example: when a military protects a nation from attack say, via nuclear deterrence, all individual citizens enjoy that protection (nonexcludability) and one person’s protection doesn’t diminish the protection enjoyed by others (nonrivalrous consumption).
Yet because individuals cannot be excluded from national defense once it’s provided, they have little incentive to pay for it; instead, they prefer to free ride on the contributions made by others. Since everyone (or nearly everyone) prefers to free ride, the good won’t get provided by voluntarily market transactions. So there’s a case to be made that national defense should be provided by the state.

Notice, though, that this argument doesn’t speak against the privatization of the post office. Mail delivery isn’t a public good. Critically, mail delivery is excludable—delivery companies can restrict their service to paying customers. If you don’t buy a DoorDash subscription, DoorDash won’t deliver your food. If you don’t pay FedEx to deliver your parcel, it won’t deliver your parcel. Indeed, if you don’t put a stamp on your letter, the United States Postal Service won’t deliver it.
From here, the positive case for privatizing mail delivery is straightforward. Competing private delivery providers have a strong incentive to supply fast, cheap, and reliable service. After all, if their service is slow, expensive, or unreliable, customers can simply vote with their dollars and give their business to a competitor that does a better job. This option is not available when the delivery provider is a government-run monopoly and thus the monopoly has a much weaker incentive to provide good service.
Why, then, do so many people resist the idea of privatizing mail delivery given that it’s a private good that can be efficiently provided by a free market like other delivery services such as DoorDash? Robert Reich, for instance, says that privatizing the USPS is “a terrible idea that would sacrifice the public interest to private profits.” Here’s one possibility: status quo bias. We often irrationally prefer the status quo, not because it is better than a change, but simply because it’s the status quo. So perhaps people are uncomfortable with postal service privatization simply because it disrupts the current state of affairs even though a disruption would be better.
To guard against status quo bias, we can use the reversal test. That is, imagine that the status quo were reversed such that private, competing mail delivery companies were the norm. We’d have DoorDash for mail, Uber Mail, and so on. Would we want to switch this arrangement back to the actual status quo of a government-run, monopolistic mail delivery service? Surely not. Think of it this way: if you wouldn’t support nationalizing DoorDash and banning Uber Eats, Grubhub, and the rest of its competition in the food delivery business, why would you support a similar model for mail delivery?
Now, you might worry that, just as Uber Eats won’t deliver buffalo wings to a customer when it’s unprofitable for them to do so, Uber Mail wouldn’t deliver mail to a customer when it’s unprofitable for them to do so. As the American Postal Workers Union notes, unlike private delivery companies, “The USPS can’t walk away from unprofitable neighborhoods.”
But the claim that everyone is entitled to mail delivery regardless of its profitability doesn’t justify the nationalization of mail delivery. Consider that the most effective way to ensure that everyone has access to groceries is not to nationalize grocery stores, but rather to provide those in poverty with SNAP benefits to shop at the grocery store of their choice. Similarly, the state could issue mail vouchers to those in poverty or living in particularly hard-to-reach areas. This system would maintain the advantages that result from market competition as well as ensure universal access to mail delivery.
Christopher Freiman is a Professor of General Business in the John Chambers College of Business and Economics at West Virginia University.
READER COMMENTS
steve
Jan 23 2025 at 11:08am
The best part about privatization would be that Congress wouldn’t be directly involved in management. At present Congress limits what can be charged and delivery everywhere, including costly areas, is required. We actually dont know how well USPS could function or costs if it was allowed to function like a private entity. Given that Congress is unlikely to change privatization is a good option. However, if we are going to privatize let’s actually privatize. No subsidies or aid for those living in the areas where it costs more to deliver stuff. Let the new companies figure that out and let those living in those areas figure out how to balance their costs. Privatizing and then continuing to subsidize seems like it could be the worst of both worlds.
Steve
Jon Murphy
Jan 23 2025 at 12:00pm
Agreed. If you’re going to do it, do it right.
robc
Jan 23 2025 at 2:03pm
We know a bit about what might happen. The last time the USPS had serious competition on mail delivery, they had to lower stamp prices.
Hence Lysander Spooner being the father of the 5 cent stamp.
robc
Jan 23 2025 at 2:04pm
Mistake on my part: Father of the 3 cent stamp.
TMC
Jan 23 2025 at 11:37am
One man’s “status quo bias” is another’s Chesterton’s fence.
I’m not arguing to not privatize, but just understand the other sides hesitancy. The USPS is having problems with maintaining staff, so limit delivery to 3 days a week. If that goes well some of the opponents of privatization might feel more comfortable.
Craig
Jan 23 2025 at 1:16pm
Looming fiscal crisis, privatizing USPS is low hanging fruit. Turn a tax consuming industry into a tax producing industry. Swing effect, they won’t do it.
R R Schoettker
Jan 23 2025 at 4:32pm
I’m still waiting for a valid example of the undesirability of privatizing so-called ‘public’ goods; The provision by the military of National Defense Offense via the threat of nuclear weapons use is most assuredly NOT such an example. The imperial military does NOT defend nor are its aggressions to the rest of the world a ‘good’ to the public but instead a danger and a harm.
Mr. Reich’s objections to a postal service privatization is equally based on specious grounds. His assertion that this is “…a terrible idea that would sacrifice the public interest to private profits.” falsely implies that the current USPS where multiple billions of dollars annually of tax payer’s money is consumed in spite of the ever increasing prices paid for its services while they simultaneously decline in quality, can in any way be regarded as in the public’s interest. Like every other service provided in the market place, it is competition for private profit that in fact actually serves the public interest.
Matthias
Jan 24 2025 at 12:41am
No need to remain purely speculative: just have a look at eg Germany and a bunch of other countries who privatised their government snail mail.
Ayn R Key
Jan 24 2025 at 8:26am
Unfortunately there is court precedent against private first class mail delivery. That was when the U.S. Government shut down Lysander Spooner’s American Letter Company.
Andrew_FL
Jan 24 2025 at 3:37pm
It’s true that under the law as it stands, Congress has given USPS a statutory monopoly on first class mail. However, Congress may also revoke that monopoly privilege, and legalize competing private first class mail services.
There seems to be a lot of confusion over the nature of the laws and precedents around the USPS and its monopoly. Nothing in the Constitution *requires* the USPS to exist, nor for the USPS to have a monopoly. The Postal Power only authorizes that Congress may establish Post Offices and Postal routes. Everything else about the Postal Service is a creature of ordinary legislation, which can be repealed or amended at the discretion of the current Congress at any time.
Thomas L Hutcheson
Jan 24 2025 at 9:11am
Personally, I’m quite satisfied with my USPS service, except their pricing structure incentivizes too much junk mail, but I doubt if a private service woud be much better. If it ain’t broke, don’t fix it.
And I have seen what happened when service was privatized/discontinued an another country. Mail for letters, receiving and paying bills disappeared.
And the reverse test does not prove enough. I would not favor nationalizing the private carrier becasue I might fear the alternative would be much worse than the way USPS is now.
Jon Murphy
Jan 24 2025 at 12:27pm
Well, it is broke. Both in the literal sense that they have no money and the economic sense that they do not accomplish their goal in an efficient manner.
David Seltzer
Jan 24 2025 at 4:59pm
If it ain’t broke, fix it till it is. LOL!
Craig
Jan 24 2025 at 2:34pm
The income statements are not good:
https://about.usps.com/newsroom/national-releases/2023/1114-usps-reports-fiscal-year-2023-results.htm
They have way too mamy hubs in their hub and spoke system and they should close many and let 3rd party providers like Dollar General, Walmart, CVS, Walgreens act as point of sale retailers/drop off locations.
“incentivizes too much junk mail”
By volume that’s a significant percentage of the mail now. Ultikately its a system where small volume shippers/senders are subsidizing large volume shippers/senders. I see it quite clearly now when I return to FL or TN and I rifle through the mail and its 96% garbage.
We’re literally subsidizing the production of garbage.
Craig
Jan 24 2025 at 2:42pm
USPS alsonutilizes subsidized financing from the federal financing bank so the FFB loans them signifocant amounts at below market rates, indeed below the rate of treasuries and that makes the USPS bottom line look lessnworse than it is because that’s a line item on some other agency.
Knut P. Heen
Jan 27 2025 at 12:55pm
National defense is always the defense of the rulers, but not necessarily the defense of the ruled. What is the North Korean national defense doing in Ukraine?
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