International Postal Reform Update

The year 2004 ended disappointingly for postal reform in the United States. Despite an enormous effort by Congress, the White House, and many interested parties, House and Senate bills designed to overhaul the USPS never passed.

Elsewhere the outlook is decidedly brighter for the coming months. Across the industrialized world, postal services that were once public sector behemoths are downsizing, privatizing, and opening up to competition. And citizens are seeing the results in lower prices and better service. Countries as disparate as New Zealand, South Africa, the Philippines and Jordan have recently taken steps to liberalize, eager to reap the economic benefits of a healthy and competitive postal sector.

Right now, the most significant developments are taking place in Japan and Europe.

In Japan, market-liberalizing Prime Minister Junichiro Koizumi has made postal privatization a key part of his platform. He proposed to split up Japan Post into four units when it privatizes in 2007.

In Japan, the postal service doesn’t just deliver mail, it also sells life insurance and acts as a savings bank. Splitting the privatized entity into separate units — covering mail delivery, postal savings, insurance and counter services –would be beneficial to the Japanese economy by promoting greater efficiency. Private sector banks rightly feared that a privatized but still-unified Japan Post, with its 24,000 branches and ability to cross-subsidize one business unit with another, would enter the market with a major unfair advantage.

Koizumi’s proposal is controversial, in part because splitting up gigantic Japan Post, with its 280,000 staff, will be a logistical challenge. The plan still has to pass parliament. But the Prime Minister won cabinet support for his proposal in September — a huge step toward sensible privatization.

Meanwhile in Europe, so often viewed in the United States as a land of big governments with even bigger budgets, postal privatization is moving ahead at a rapid clip. Sweden has fully opened its postal market to competition. In Great Britain, Royal Mail’s monopoly over letters and other light mail will end and the market will be open to competitors by April 2006.

In December a major development emerged in Germany, with the press reporting that the government would not extend Deutsche Post’s monopoly beyond 2007. This is a positive sign, as privatization efforts had somewhat stalled in Germany. Partially-privatized Deutsche Post is still 56 percent owned by the German government, and the company retains a protected monopoly on about 70 percent of Germany’s letter-delivery market, worth $9.2 billion.

This prospective end to the monopoly is potentially very good news for German consumers, who will soon be allowed to choose among competing companies in the letter-delivery market. It will be crucial for mail users, though, that this liberalization not be permitted to result in subsidizing competitive products that distort the market.

In general, it looks like it’s just the tip of the iceberg in Europe, where the European Commission — the executive body of the European Union — is prodding all of its 25 members toward greater postal liberalization.

An EU law passed in 2002 opened up parts of the postal market to competition, while allowing governments to reserve certain sections of the letter markets for national postal monopolies.

In a European Commission report analyzing the two-year-old law, it noted an improvement in delivery times, and praised progress made in the Netherlands, Germany, and the United Kingdom, as well as new member state Estonia.

Other EU members are still dragging their feet, in part because of worries about employment: A full 1.8 million people are employed by postal services in the 25 member states, or 2 percent of the entire workforce. As postal services consolidate, some downsizing will likely be inevitable. But Charlie McCreevy, the EU’s Commissioner for the Internal Market, has said that despite protests from some member states, he intends to stick to the 2009 target for full postal liberalization.

For some, postal reform in Europe isn’t moving fast enough. The European Commission report expressed disappointment that France had not yet fully separated La Poste, the government-run postal service, from its regulator, which was a stipulation of the 2002 EU law.

And Philippe Bodson, the former Belgian Senator who heads the Free and Fair Post Initiative, wrote earlier this year that “the current limited levels of market opening are failing to have a real impact on the European economy. Unfortunately, we believe, the much-needed innovation and investment is being stifled in the postal sector due to maintained protection of monopolies.”

But clearly, change is in the air. In November, La Poste chairman Jean-Paul Bailly, apparently feeling the heat from the European Union and anticipating future competition with other European postal services, sketched out a radical postal reform plan for his senior staff. It included such measures as allowing the 300,000-strong French postal workforce to shrink through retirement attrition, and transferring the operations of some branches to private local vendors. He also proposed expanding La Poste’s banking business and investing in new machinery to improve efficiency.

It’s not clear yet whether his proposals will truly take hold, or whether they are even enough to bring about meaningful change. But his Paris speech indicated that La Poste is suddenly taking real reform seriously.

That’s more than can be said about the U.S. Postal Service. The United States leads the world in many industries. This is one area, though, where taking a page from the Japanese or European playbook for liberalization and privatization, while also taking adequate steps to guard against the perils of cross-subsidy, would be a boon for American consumers.

Former Congressman Jim Courter chairs the U.S. Consumer Postal Council ( ).

Jim Courter