What Gov't Can't Do

Source: http://www.investors.com/NewsAndAnalysis/Article.aspx?id=530066

04/12/2010

Federal Failure: Auditors say the Postal Service's business model isn't viable, and a magazine reports that GM leads the league in producing the worst-made cars on the road. Big government breeds big incompetence.

The post office, which has a government-protected monopoly on first-class mail delivery, could lose at least $238 billion over the next decade.

This is a government agency — its claims of independence are not believable — that has no competitors, has raked in $27 billion in taxpayer's money since 1970, is exempt from most taxes and can borrow from the U.S. Treasury at rates below market value.

Yet, it cannot break even, much less make a profit. There's something deeply amiss with how the USPS does business.

Current conditions and outlook are similar at GM, which could now stand for Government Motors since Washington owns 60% of the automaker after last year's bailout and the Canadian government owns another 12%.

The proof is in the product. Four of the seven cars on Forbes Magazine's worst-made list are made by General Motors: the Cadillac Escalade in the luxury SUV category; the Chevrolet Aveo in the subcompact group; and the Chevrolet Colorado and GMC Canyon in the pickup truck category.

All have low ratings for reliability by Consumer Reports, and all have poor showings in J.D. Power's dependability rankings.

Yes, sales are up at GM. But we're not confident in the carmaker's future, despite what the public is being told about improvements in coming models, the fall introduction of its electric plug-in, the Volt, and an initial public offering later in the year.

The lanes ahead just aren't open for GM. Its majority stakeholder knows nothing about building cars, and it took over a company that has had falling sales every year since 2000. Nearly one-fifth of GM is owned by the autoworkers union, which knows something about building cars, but little about designing and engineering them.

The union knows even less about the American work ethic, which will be needed if the carmaker is to recover even a portion of its once-dominant market position.

And it is that same union that used a 67-day strike in 1970 to win concessions from GM that led decades later to a financial strain so heavy that Washington felt it had to bail out the shrinking giant.

The Postal Service is likewise weighed down by unionized labor that has far more control than it should.

The Government Accountability Office that issued the report calling the USPS business model into question suggests it outsource operations to keep down the size of its unionized work force, whose wages account for about half of the Postal Service's costs.

The GAO also suggested the post office: cut back on its contributions to employee benefits, which are 23% of its costs and are more lavish than those offered by other federal agencies; close unneeded facilities, which the unions oppose; and alter work rules set by collective bargaining agreements so that workers can be easily assigned to different jobs, boosting productivity.

Auditors at the GAO recommended, as well, that Congress pass legislation that requires the financial health of the USPS to be taken into account if union contract negotiations this year and the next don't go well and the parties end up in binding arbitration.

The implicit message is that the USPS and the taxpayers are not an endless font of money for postal workers' salaries.

Unions aren't the only reason that GM and the post office are struggling. Poor management at both has contributed to their declines. But union contracts handcuff businesses more than bad management. So do politics and the incompetence of government planners, who have ruined far more than just GM and the USPS.

General Motors and the post office will probably still be around this time next year, but their conditions are unlikely to be improved much as long as they are still captives of Washington.

The very existence of these venerable institutions will be questionable at best until they are operated entirely in the private sphere.