Photo: William Thomas Cain/Getty Images

Photo: William Thomas Cain/Getty Images

Unquestionably, the U.S. Postal Service must start acting like a business—and, as such, its decision to refuse to partner with start-up Outbox was a smart business call.

It is common knowledge the Postal Service must transform itself or die. With the Internet remaking how we communicate, the old business model based on physical delivery of messages written on pieces of paper called letters needs to change. And, despite its Paleozoic reputation, even USPS knows change is necessary—that’s what $45 billion in losses will do to you.

Sensing an opportunity, in 2011, two Capitol Hill staffers-turned-entrepreneurs Evan Baehr and William Davis decided they could help USPS transform its business by helping the mail go digital. The idea was simple: Scan incoming mail, for a fee, and let customers browse through their mail online. It looked a no-brainer—the USPS would save money – they claimed – and consumers could avoid having to open all that junk mail.

But the whole plan depended on USPS’ cooperation, giving Outbox access to its customers’ mail at convenient locations.

USPS said no. Outbox gamely tried to make the service work anyway, hiring what it called “unpostmen” to retrieve mail from customers’ mail boxes to be scanned and e-mailed back. But this failed, and the firm closed earlier this year.

With a flurry of media last week, Baehr and Davis blamed their failure on the Postal Service’s management. In one widely cited report, Postmaster General Thomas Donahoe was quoted as saying to the two: “You mentioned making the service better for our customers. But the American citizens aren’t our customers—about 400 junk mailers are our customers.  Your service hurts our ability to serve those customers.”

So, the story goes, USPS used its “coercive monopoly powers” to shut down the fledgling operation.

But is this truly what happened?

Although the Postal Service is no paragon of free-market virtue, it’s not the villain here. The statement about big mailers, if accurate, shows only that the postmaster general is no politician. But that is something conservatives should celebrate, not scorn. USPS should be run as a business, not a government agency. And from a business perspective, Donahoe’s call made sense.

First, Outbox’s plan, while innovative, had serious question marks. How would it ensure security and privacy for its customers?  How long would it take to scan each document? If only the outside is scanned would potential customers find it worthwhile?

Moreover, USPS used no “coercive powers” against Outbox. Its government-enforced monopolies on letter mail and on mailboxes was not used or threatened. Rather, the Postal Service merely declined Outbox’s request that it open its facilities and processes to integrate Outbox into its operations.

It was an extraordinary request and one that any private business would have rejected under the circumstances. Like it or not, “junk mail”—or “standard mail” as it is known—is a huge element of USPS’ business strategy. It has been an island of stability for USPS. Although standard mail represents only about a quarter of postal revenue, it is one of the few areas where business is not shrinking (much). Outbox’s plan would be a virtual declaration of war USPS on its most important customers.

Asking the postal service to help undercut these customers would be like asking television broadcasters to help their viewers skip commercials more easily. It just wasn’t going to happen. And if it had, postal  losses would increase—along with the potential liability of U.S. taxpayers.

None of this means postal business models can’t be changed or that little guys can’t successfully challenge USPS. Finances and the continued growth of the Internet ensure flux for some time to come. But it also does not mean every new business idea is a good one, nor that every start-up will be successful. That’s as it should be.

The good news is that, so far, there have been no moves in Congress to force USPS to treat start-ups such as Outbox differently. In fact, there seems to be a growing consensus among policymakers that USPS should be allowed more freedom to act like a business and be subject to fewer political constraints, while rolling back the special advantages it enjoys as a government enterprise.

This won’t be as headline-grabbing as a start-up taking on the world, but it is a free-market reform that conservatives—and all Americans—should cheer.

James Gattuso is a Senior Research Fellow in Regulatory Policy at The Heritage Foundation. His monthly column appears every second Thursday on The Foundry.