WHY I OPPOSE THE PUBLIC OPTION (I’VE HEARD THIS SONG BEFORE)
In the October 21, Wall Street Journal, there was an article entitled “Japan Post Goes in New Direction.” Reporters Atsuko Fukase and Allison Tudor reported on a change in leadership and the potential reversal of the government’s commitment to privatization. As they described the unfolding situation, they cite a statement from the chairman of the Japanese Bankers Association, who stated that he believed that private banks would face unfair competition from a government-owned Japan Post that offers banking services.
If this sounds like the concern expressed about the “public option” U.S. health insurance reform proposal, there is a good reason: the issues are remarkably similar. In the U.S., the U.S. Postal Service has largely avoided competition with the private sector, except in the area of package delivery, in which it competes with UPS and FedEx, express mail, in which it also competes with these same companies, and international mail, in which it competes with DHL, and, more recently, Pitney Bowes.
However, outside the United States, postal services actively compete in retailing banking with private companies. In fact, in some countries, particularly in Europe, postal services also providing printing, mailroom management, and copying services in competition with companies like Xerox, Pitney Bowes, RR Donnelley, and Oce.
What has been the experience of the “public option” in postal service competition? First, in the U.S., despite repeated efforts since 1970 to have elected officials let the U.S. Postal Service operate independently of political interference, the temptation has been too great for politicians to intervene politically quite often. Elected officials have consistently stopped the U.S. Postal Service from closing facilities, even when they have gotten management and union buy-in for operational reasons to close a facility or relocate work. This has been the case all over the world, not just in the United States. Therefore, my first observation is that any “public option” health plan would not be able to operate as an independent insurance program; it would be subject to significant political interference.
Second, although postal services, including the U.S. Postal Service, are actually supposed to operate outside the federal budgets of the countries in which they are incorporated, and are supposed to have transparent financial reporting, politicians regularly help postal services when they are in trouble, and raid them like a cookie jar when the federal government is in trouble. There is no financial transparency of the kind private companies must observe. The best example of this is what happened with the 2006 U.S. postal reform legislation. The U.S. Postal Service was forced to prefund its entire retiree medical program over 10 years, not because it is a good accounting or business practice, but because a front-loaded retiree medical pre-funding helped the Congressional Budget Office determine that the postal reform legislation was “cost-neutral.” Many people believe that the U.S. Postal Service financial deficits indicate that it is being badly run; that is not the case. It is simply being saddled with artificially front-loaded expenses to reduce the federal government deficit, since the Postal Service operates outside the federal government budget.
Third, despite repeated claims by elected officials that postal services would not necessarily compete unfairly against private sector companies, they have repeatedly violated competition laws, especially in Europe, where the national governments have permitted postal services to expand their businesses most liberally. In fact, not only have postal services been given freedom to engage in largely unpunished predatory behavior, but they have used their political clout to get laws passed to make it extremely difficult for new competition to emerge. In Germany, at the end of 2007, Deutsche Post lobbied successfully for a minimum wage law that only applied to postal employees, and that was set artificially high to correspond with Deutsche Post’s average wage. One of Deutsche Post’s leading competitors went out of business almost immediately.
Fourth, the most expansive postal services with the broadest charters to expand into new businesses generally did not operate cost-effectively or deliver high-quality service. The U.S. Postal Service runs a better operation than any other major postal service, in all likelihood, because it has the most focused charter and the least ability to expand. There are good reasons to allow some degree of additional operating freedom for the U.S. Postal Service, but even a modest expansion would not make it anywhere near a Deutsche Post or a Japan Post in the scope of its businesses.
In Germany, a first-class letter costs .50 Euros, which is over $.70, even though the country is smaller and the service obligations for the same geographic footprint are no greater than they are in the United States. What has happened in every country in which postal services have competed with more aggressively with the private sector is that their service levels have not been very good, they have not innovated in their core businesses as much, and they have become captive to other stakeholders, like unions, special interests in the legislative districts represented by powerful politicians, and non-governmental organizations. Their customers have tended to suffer most.
I am very concerned that a broad-based public option for health insurance will have all of these pathologies. It is too tempting for elected officials to twist and bend a public agency to their special needs in order to have a pot of money for their re-election campaigns. The Japanese started down the privatization road because the Japan Post bank, like its counterpart in China Post, started making bad loans to fund infrastructure projects in the districts represented by powerful elected officials. It is bad enough that banks and other financial services institutions were motivated by greed to make a number of bad lending decisions all over the world. It was worse when postal services made bad lending decisions out of fear of offending those who regulate them.
It would be even worse if we changed our health care system to make capital investment and operating decisions subject to the whims of whatever elected officials had the most oversight responsibility or power over a yet-to-be-created public health insurance plan.
