Creative Destruction: The Growing Obsolescence of Postal Service

The US Postal Service is a great example of how vertical hierarchical organizations or political institutions are headed the way of the dinosaurs.

From the New York Times, (bold emphasis mine)

The United States Postal Service has long lived on the financial edge, but it has never been as close to the precipice as it is today: the agency is so low on cash that it will not be able to make a $5.5 billion payment due this month and may have to shut down entirely this winter unless Congress takes emergency action to stabilize its finances.

“Our situation is extremely serious,” the postmaster general, Patrick R. Donahoe, said in an interview. “If Congress doesn’t act, we will default.”

In recent weeks, Mr. Donahoe has been pushing a series of painful cost-cutting measures to erase the agency’s deficit, which will reach $9.2 billion this fiscal year. They include eliminating Saturday mail delivery, closing up to 3,700 postal locations and laying off 120,000 workers — nearly one-fifth of the agency’s work force — despite a no-layoffs clause in the unions’ contracts.

The post office’s problems stem from one hard reality: it is being squeezed on both revenue and costs.

As any computer user knows, the Internet revolution has led to people and businesses sending far less conventional mail.

At the same time, decades of contractual promises made to unionized workers, including no-layoff clauses, are increasing the post office’s costs. Labor represents 80 percent of the agency’s expenses, compared with 53 percent at United Parcel Service and 32 percent at FedEx, its two biggest private competitors. Postal workers also receive more generous health benefits than most other federal employees.

The postal office model represents an artifact of the industrial age. The deepening of the information age or the internet revolution has been rendering such model obsolete. This is creative destruction at work.

This is also a magnificent example of how the internet has been reconfiguring social activities.

Because the postal office is a political institution, organizational inefficiencies have exacerbated its financial woes. This can be seen by the labor heavy share of the agency’s expenses relative to the private sector counterparts. Its existence has palpably been designed to generate votes than to serve the public.

Under current conditions, the agency’s survival entirely depends on taxpayer funding. With the welfare state apparently crumbling from the self-inflicted borrow-tax-spend ways, any imperative to balance the fiscal budget extrapolates to the agency’s prospective extinction or privatization.

The fate of the US postal service and its growing obsolescence will apply around the world.