GovernmentExecutive.com

Few federal organizations take the hoary old chestnut that "government should run like a business" more seriously than the U.S. Postal Service. Setting aside government-sponsored enterprises like Fannie Mae and Freddie Mac, the Postal Service is the most businesslike of federal operations. It competes against several other delivery companies, must under law seek to break even financially, has branched out into retail operations and even sponsors Lance Armstrong's bicycle racing team.

But a recent U.S. Supreme Court case shows that even with the Postal Service, the line between a federal function and a business operation can get fuzzy. The case originated when the Postal Service terminated a contract with Illinois-based firm Flamingo Industries to produce mail sacks. Flamingo said the decision violated federal procurement regulations, and then went a step further: The company charged that in choosing a Mexican firm to produce the sacks, the Postal Service had acted to suppress competition and thus was in violation of the 1890 Sherman Antitrust Act.

In general, the federal government can't be sued on antitrust grounds. But some federally sponsored enterprises - such as the Tennessee Valley Authority - can. What about the Postal Service? The question is more than academic. Many agencies, from the CIA to the Interior Department's Minerals Management Service, have followed the Postal Service's lead and set up fee-for-service operations that are self-funding and depend on effective businesslike practices for their very existence.

In an interview late last year with Parcel Shipping and Distribution magazine, Harold Krent, dean of the Chicago-Kent School of Law, who argued Flamingo Industries' case before the Supreme Court, said, "You get a sense the government is being business-savvy and trying to enter the marketplace. So shouldn't it abide by the same rules as other businesses?"

Fair question. After all, the Postal Service has some substantial advantages when competing against private delivery firms. It doesn't have to pay federal, state or local taxes, for example, and it can borrow money at favorable rates from the Treasury.

But the Postal Service has even greater liabilities. It must provide universal mail service to all parts of the country. It can't close post offices unilaterally. Most important, as Justice Anthony Kennedy wrote in the Supreme Court's opinion in the Flamingo Industries case, the Postal Service "lacks the prototypical means of engaging in anticompetitive behavior: the power to set prices." (It can adjust its prices for mail service only with the approval of the independent Postal Rate Commission.)

The 1971 Postal Reorganization Act, which created the modern Postal Service, codifies the tension between the service's government and business roles. The act declares that the agency is an "independent establishment" of the executive branch. The Postal Service retains certain governmental powers, such as its monopoly on delivering letters, but also is endowed with business characteristics, such as the ability to be sued in civil court.

But Kennedy noted that "while Congress waived the immunity of the Postal Service [from lawsuits], it did not strip it of its governmental status." The Postal Reorganization Act, he wrote, "gives the Postal Service a high degree of independence from other offices of the government, but it remains part of the government." Congress, Kennedy pointed out, could have made the Postal Service a government corporation, but chose not to. Therefore, the court ruled, the Postal Service is more like a government agency than a private corporation that would be subject to antitrust provisions.

The court's decision is the latest twist in the story of the dramatic expansion in recent decades of the scope and variety of federal operations. More than ever, federal organizations are taking on businesslike characteristics. But the degree to which they can act like companies - and be treated like them in the courts - is still being sorted out and will vary according to each organization's circumstances, its legislative and administrative history, and the amount of competitive pressure it faces.

Much of the history of entrepreneurial government remains to be written - and much of it may be written by judges.