Political Entrepreneurs

The Economic Engine of Political Change

A Proposal to Reform the U.S. Postal Service

January 4th, 2013 by Wayne Leighton

Critics of government inefficiency often point to the U.S. Postal Service as an example of an agency that delivers poor service at high costs. And yet, proposals for reform of the USPS are seldom seen. Today’s Washington Post highlights a study that may offer a serious reform proposal in the future.

The review by the nonprofit National Academy of Public Administration will analyze the benefits of restoring the agency’s financial health by using a “hybrid” model, which would farm out to the private sector postal operations other than the last delivery mile. A letter carrier would still drive or walk that last part, dropping letters and packages in mailboxes.

There is a very simple idea at work here. For those who wish to deregulate an industry that has lacked competition for years, a good place to start is by opening that part of the supply chain where there clearly is no “natural monopoly” of any sort.  For example, the delivery of first class mail between Los Angeles and New York has none of the characteristics of a natural monopoly. The delivery of mail to a farmer along a rural route in an isolated part of Iowa has very different characteristics. Those political decisionmakers who genuinely wish to reform mail service in the United States would do well to consider these different scenarios, limiting subsidies and regulations to these least-competitive markets.

Of course, even in markets with little competition, subsidies and regulation can cause harm, but that is a separate discussion. The focus here is on reforms that could generate substantial benefits in a straightforward manner.

For relevant case studies, policymakers could look to the (highly imperfect) deregulation of the electricity and telecommunications industries. Those reforms could have been done better, but they also draw out a key lesson: In parts of the industry where competitive forces could emerge right away, they should be free to do so.

The amount of money at stake — the potential savings to taxpayers and gains to consumers — is substantial. And as expected, there are forces for and against any such reform.

The study is likely to bring more attention to a public-private model as a viable — and controversial— substitute for the Postal Service’s existing structure, which relies on a unionized workforce of more than 650,000 employees to sort, package, transport and deliver the mail. With first-class mail volume plummeting as Americans conduct more business and communications through the Internet, the Postal Service lost $16 billion in fiscal 2012.

The idea of taking postal operations private is popular in conservative circles but will be a non-starter in others. It is staunchly opposed by congressional Democrats and postal unions, which stand to lose tens of thousands of members.

Will this new idea overcome established interests? Will reform happen in U.S. mail service? Time will tell.

From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.189, ch.7)

The most successful entrepreneurs know what they do well, they know the market and the opportunities within it, and they choose those activities that create the most value. This is true in economic as well as political markets.

From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.178, ch.7)

[W]hen the right elements come together at the right time and place and overwhelm the status quo, it is because special people make it happen. We call them political entrepreneurs.

From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.176. ch.7)

While we started this book with Danny Biasone saving basketball, we end it with Norman Borlaug saving a billion lives. These stories are not that different. Both faced vested interests, which were reinforced by popular beliefs that things should be a certain way—that is, until a better idea came along.

From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.174, ch.6)

Because there was a general belief that homeownership was a good thing, politicians found the public with open arms.... Everybody was winning—except Alfred Marshall, whose supply and demand curves were difficult to see through the haze of excitement at the time, and except Friedrich Hayek, whose competition as a discovery procedure was befuddled... In short, once politicians started getting credit for homeownership rates, the housing market was doomed.

From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.166, ch.6)

Everyone responded rationally to the incentives before them. In short, the rules that guided homeownership changed over time, which in turn changed the incentives of these actors. And bad things happened.

From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.153, ch.6)

They understood the economics. The ideas had already won in ... the regulatory agency itself. All that remained to be overcome were some vested interests and a handful of madmen in authority.

From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.146, ch.6)

If the idea for auctions of spectrum use rights had been part of the public debate since at least 1959, why didn’t the relevant institutions change sooner? What interests stood in the way?

From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.121, ch.5)

When an academic scribbler comes up with a new idea, it has to resonate well with widely shared beliefs, which in turn must overcome the vested interests at the table. Many forces come together to explain political change, even though it may seem like coincidence of time and place.

From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.120, ch.5)

It’s the rules of the political game that deserve our focus, not politicians’ personalities or party affiliations.

From the Pages of Madmen, Intellectuals, and Academic Scribblers (p.119, ch.5)

In short, ideas are a type of higher-order capital in society. Like a society that is poor in capital and therefore produces little consumer value, a society that is poor in ideas and institutions will have bad incentives and therefore few of the desirable outcomes that people want.

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