Betrayal without remedy: The unwinding of the Postal Service


June 17, 2013

BY MARK JAMISON

The United States Postal Service is not a corporation in the traditional sense of the word, but that hasn’t stopped its leadership — the folks at L’Enfant Plaza and the men and women who sit on the Board of Governors — from viewing it primarily as a corporate entity.  The post office is in the Constitution, but that hasn’t stopped some members of Congress from trying to undermine the idea of postal services and the postal network as basic fundamental infrastructure.  The Postal Service is supposed to serve the entire country, but that certainly hasn’t stopped the companies and industries that see themselves as the primary stakeholders in the postal system from demanding a more corporatized structure and mission that will serve their narrow interests.

Since the beginning of the country’s postal system, there have been voices chattering for privatization.  The Postal Reorganization Act of 1971 represented a major step toward that goal, and the 2002 Transformation Plan was another leap forward.  It demonstrated that the leadership of the Postal Service clearly prefers something akin to a privatized corporate entity.  In recent months, several think tanks have jumped on board with white papers advocating privatization, including a study reviewed by NAPA and a recent paper by Robert Atkinson, “Postal Reform for the Digital Age.”  At this point, talk of privatization has become mainstream in a way unimaginable just a few years ago.

We are now witnessing a postal passion play brought to us courtesy of the national media.  It features constant reports of staggering financial losses (sometimes including a reference to the retiree healthcare payments mandated by the 2006 PAEA), Pat Donahoe’s “woe is me — disaster is just around the corner” spiel (usually followed by an announcement of some further cuts to the network or services), and recriminations directed at Congress for not getting out of management’s way (as if giving management more freedom would solve anything).  The main storyline has been that the Postal Service is an inefficient (albeit beloved) government entity that is saddled with a bad business plan and impossible future liabilities, but it’s not beyond repair, if only those who know better were given the power to fix it.

That’s not the real story, though, and it never has been.  The real story is just beginning to come into focus: The leadership of the Postal Service, using the laws already in place, is engaged in their version of that most American of economic phenomena — the leveraged buyout. 

While publicly everyone involved has seemed intent on “saving” some semblance of the United States Postal Service, its leadership, egged on by some in Congress and many in the private arena, has managed the situation like a private equity firm that’s focused on extracting value out of an entity and bringing it to bankruptcy as a means of escaping past promises and contracts.  The story is nothing less than a new twist on the piracy of corporate raiders — this time with serious implications with respect to the very fabric of the social contract that developed after the Great Depression.

The unions and employee groups have focused on efforts to staunch the bleeding, the various industries that are dependent on the postal network have lobbied for the maintenance of preferential rates, and politicians have focused on photo ops and tough talk about creating a sustainable business model.  They are all focused on their own interests and seem unable to see that the demise of a great national institution is at hand.

This demise has nothing to do with a failed business model or a changing landscape where digital surpasses outmoded technologies.  The fall of the Postal Service is about the coming triumph of a resurgent ideology, an ideology that has led to countless financial panics, the abuses and inequality of the Gilded Age, and the Great Depression.  What is happening to the Postal Service is one piece of a greater puzzle.

 

Whither postal reform?

A few weeks ago in a post entitled Reform or What, William Burrus, former president of the APWU, asked what Congressman Darryl Issa was waiting for in bringing postal reform legislation to the floor of the House.  I responded to Mr. Burrus, and we continued the discussion in a subsequent post, Right and Wrong.

This week, Congressman Issa finally unveiled his new, improved postal reform legislation.  Whether it will have any more success getting passed than his first attempt remains to be seen.  But despite protestations to the contrary, Congressman Issa and PMG Donahoe aren’t all that interested in postal reform legislation to begin with.  The current situation serves their interests quite well.  It gives Donahoe and the BOG plenty of opportunity to degrade the network further, to undermine the confidence of the American public in a cherished institution, to diminish service and expectations, and to break labor. 

The status quo affords Mr. Issa and Mr. Donahoe the perfect opportunity to bring the Postal Service to something approximating bankruptcy, to a situation so apparently dire that we get to a point where the damage is irrevocable.

Issa’s new proposal, like all the proposals that came out of the last legislative session (including Senate Bill 1789), will not save the Postal Service or right the ship.  Most of what has been proposed would simply stabilize a deteriorating situation until the next crisis came along or was helped along by postal management.

That’s because the leadership of the Postal Service, many of the so-called stakeholders, and a great number of the politicians involved don’t really want a United States Postal Service.  What they would like is something akin to the situation we currently have in the telecommunications industry: a privatized, largely deregulated network overseen by a regulatory agency that serves the interests of the industries it’s supposed to oversee.  They would like to see a repeat of financial service oversight, the renewal of a trend that has been increasing since the 1980’s — the neutering of government as a protector of the average citizen and consumer in favor of a form of corporate crony capitalism.

 

PAEA and the rate mess

In retrospect, it is clear that PAEA was not so much a moment of reform as a guarantee of future crisis.  The legislation mandated a financial regimen that would almost certainly lead to the sort of deterioration in the finances of the Postal Service that we have seen over the last few years.  What intervened to make the situation worse even quicker was the general financial collapse and the Great Recession. 

Under the theory of never letting a crisis go to waste, PMG Potter and then PMG Donahoe used that crisis as a means to accelerate their agenda of undermining the efficacy of the postal network.

As everyone knows by now, PAEA imposed the onerous and unnecessary payments to the Retiree Health Benefits Fund (RHBF), which are responsible for 80 percent of the $40 billion deficit.  PAEA also stacked the deck against the Postal Service in the way it treated payments to the Office of Workers Compensation Programs (OWCP), ensuring that further large transfers of postal assets to the Treasury would occur. 

But it did much more than that.  It also further legitimized the rate system mess.  This system virtually ensures that the only meaningful voices in postal discussions are representatives of the advertising mailing industry.  Instead of providing a logic and rationale for the public goods that are inherent and intrinsic parts of the postal network, it focuses on preferential rates for business mailers.  So the Postal Service offers preferential rates for non-profits, periodicals, and media mail, while receiving no real recompense for those costs.  The social value of the post office is not recognized anywhere in the system. 

The workshare discounts are little more than anti-labor exercises in arbitrage designed to shift value from labor to profiteers.  All this is buttressed by an elaborate and complex cost accounting which is supposedly designed to apportion costs across the system in an equitable way but in reality rests on assumptions that discount the value of a postal network as infrastructure and enhance the role of business advertising.

The RHBF payments, the handling of OWCP, the manner in which excess retirement contributions were addressed, a rate system and a regulatory system that is statutorily designed to limit the consumer protection aspects of the regulator while placing narrow influence and focus on the maintenance of a narrowly preferential rate system, all combined to ensure that the Postal Service would eventually face a tremendous financial crisis.  The initial volume losses that were directly attributable to the Great Recession simply made the inevitable happen sooner and more dramatically.  In that sense PAEA worked perfectly.

Over the last several years PMG Donahoe and the BOG have responded to the crisis with efforts that doubled down on policies that will ensure the postal network becomes less relevant.  Management could be looking at ways to use the postal network more effectively — creating a postal savings bank, or fitting postal vehicles to collect data, or using the postal network to increase broadband and internet access for rural customers and urban late adopters, or leveraging postal intellectual property and the physical network to add value to other federal, state, and local government bodies.  Instead, Donahoe and the BOG have focused with near tunnel vision on extracting more revenues out of customers and finding ways to become more incestuous with business mailers. 

 

Getting the most out of customers

Recently there was significant news coverage of the Postal Service’s rift with Bluewater Publishing, a media mailer in Gloucester, Virginia.  The company publishes books for the specialty market, specifically guides to various naval ships like the USS Enterprise.  For years the company mailed the books via media mail (they qualify in every respect for this service), but it was recently told that it could no longer use media mail.  The decision was apparently a local one made by the postmaster of the mailing office.  The publisher appealed the local decision and was left hanging by Washington for nearly a month.  Eventually the situation was resolved in the publisher’s favor but only after extensive news coverage and only after several retired postmasters intervened and pointed out the arbitrary and incorrect procedures applied by the local office.

Unfortunately, instances like this are not isolated.  One hears constantly of examples where media mail is misrepresented or not offered or where other affordable services like parcel post aren’t mentioned to customers.  Window clerks are mandated to extract the highest revenue possible, regardless of service or the customer’s needs, and the POS retail system is designed with that end in mind. 

In the Bluewater case, the publisher wasn’t offered alternatives like BPM or services based on volume (he was mailing sufficient volumes to qualify for other bulk services).  No, he was told that he could mail Priority Flat Rate, which increased his mailing costs by $7.00 per piece.

Priority Flat Rate, while a useful and convenient service, has been horribly abused by the Postal Service.  Many customers are not aware that there are alternatives to Priority Flat Rate mailings.  In many cases, based on weight and distance, a customer is ill served by going with the Flat Rate alternative.  But Priority Flat Rate has become the default choice, often leaving customers with the unfortunate impression that mailing has gotten egregiously expensive. 

As often happens, the leadership of the Postal Service has taken a good and useful product and marketed it in a deceptive way.  One might expect this sort of behavior from UPS or Verizon — corporations with allegiance only to profit and shareholders — but the United States Postal Service would seem to be based on a broader mission.

 

Bankruptcy changes everything

Besides the relentless attention to a corporate form of marketing that ignores the greater public value of the Postal Service and the postal network, Mr. Donahoe and the BOG have used the current crisis to fulfill long-held dreams of cutting labor costs, reducing the span of the network (processing plants and small town post offices), and redefining service downward.  In its persistent chase to become a corporate entity, the Postal Service has worked tirelessly to redefine and narrow its obligations to the American people.  The ongoing crisis has served that end in ways the authors of PAEA could never have imagined.

So what do Mr. Donahoe, Mr. Issa, and their fellow travelers in industry and Congress want?  The answer is easy.  They want a disastrous bankruptcy.  They want to do what any good private equity firm does: strip a company of assets, load it with debt, and use the façade of “crisis” to abrogate contracts with workers while eliminating legacy benefit costs.  They also want to use this tactic to redefine the relationship of the Postal Service with the American public.

“Debtors are in bankruptcy and bankruptcy changes everything.”  Those words from Kathy Surratt-States, a federal bankruptcy court judge, should send a chill through anyone employed by corporate America.  They came as part of an opinion in a case involving Patriot Coal Corporation and the United Mine Workers.

Patriot Coal was a spin-off of Peabody Energy, a large and very profitable energy conglomerate. Peabody put many of its union contracts under the aegis of Patriot, including contracts that covered thousands of retired miners who never worked a day for Patriot Coal.  Then Peabody loaded Patriot full of debt and drove it into bankruptcy as a means of abrogating those union contracts and promises to retirees, who will be left with virtually nothing from their years of hard work.

In his new book Debtors’ Prison: The Politics of Austerity Versus Possibility, Robert Kuttner describes how private equity firms strip companies of assets and escape obligations to employees.  The technique is called “betrayal without remedy.”  Those who are impacted have few or no remedies to overcome bankruptcy laws that favor the wealthy and place the interests of working folks second to the interests of capital.

 

What privatization might mean

Regardless of whether or not Congress passes legislation to “save” or stabilize the Postal Service, the sad fact of the matter is that the course chosen by Donahoe and the BOG — and essentially endorsed by many in the industry and certainly by many politicians — is designed to take the Postal Service to a place where it will be irreparable.  The goal is, and has been, to destroy the public value of this national infrastructure and place the postal network in private hands.  What might that mean?

First off, there’s over $320 billion in postal retirement accounts, and it is not inconceivable that many of the players have wolfish designs on that money.  Mr. Donahoe’s obsession with removing postal employees from well functioning benefit systems certainly lends credence to the idea that those accounts could be in danger. Also, removing postal employees from those systems would likely weaken those systems both in a practical sense in terms of the rationale behind their creation - killing two birds with one stone for those aligned against public employees.

Then there’s the issue of jobs.  The white papers and think tanks that call for the privatization of the postal network make it seem like a wonderful example of the free market at work, but eliminating and degrading hundreds of thousands of good jobs hurts families, communities, and the whole country. 

Public accountability would also be at risk if the postal network were in private hands.  Say what you want about the recent scandals involving government intrusiveness and spying, at least with public entities there is a path to accountability and transparency.  A privatized postal system could threaten the sanctity of the mail and the unique integrity of the postal network.  As this recent article in Slate discusses, the U.S. mail is a lot more private than email.

In private hands there is also far more potential for abuse.  The postal network has been a secure means of transfer for commerce and communication.  Millions still rely on the post office to pay bills and do other essential transactions.  Place that network in private hands and the opportunities for fee extraction increase dangerously. 

With the consolidation of mail processing plants now underway, standards for first-class mail have already being degraded.  With privatization, first-class mail would be further diminished.  Business mailers and advertisers have little interest in maintaining first-class standards, particularly if it sets up a situation where people can be charged fees for paying their bills.  It’s not hard to imagine a scenario where payday lenders take over the money order and payment transfer aspects of the system and use that to extract fees.

What would happen to package mailing costs if UPS and FedEx were to have a virtual monopoly on package services?  In the past the Postal Service has given people an affordable, low-cost alternative to ship and receive small items.  We’ve already seen changes in that system as the Postal Service has focused on revenue to the detriment of basic service.  With monopoly providers, it isn’t hard to envision a system with a significant amount of extortion embedded in it.  There have been complaints about some of the foreign mail services that have privatized in this regard.  People have been charged fees in order to simply receive packages. 

Then there’s the simple privilege of having a mailbox and regular mail delivery.  Would private carriers eventually design a system around a pay-to-receive model?  Curb and house delivery may go away in favor of remote cluster box delivery.  More efficient?  Possibly, but there are other repercussions involved, and the possibility for abuse is clear

Another potential casualty of a privatized postal system would be reduced rates for socially beneficial types of mail.  Newspapers, for example, are being challenged by the Internet, but they aren’t going away, and they remain an essential mode of communication.  The idea of preferential rates for the dissemination of information and opinion furthers basic bedrock principles of democracy.  Reduced rates for print media as well as special rates for non-profits are under threat under the current system, but in a privatized model they are likely to disappear entirely.

 

The austerity myth

Over the last thirty years, the social compact that arose out of the pain of the Depression has been challenged by those who believe that unfettered free markets are a natural imperative.  The value of social safety nets and of public goods generally has been questioned and demeaned.  Yet the two generations following the implementation of that basic social contract were the most productive in the history of the human race.  Productivity gains were shared across the economy, and living standards rose across social strata. 

The feeding frenzy of greed that gave us the Great Recession has produced levels of economic inequality that have not been seen in a hundred years or more.  The benefits of economic growth are reserved for an increasingly smaller slice of the population.

We are told that the Postal Service, Social Security, Medicare and other elements of government are unaffordable anachronisms.  We are presented with mountains of data supposedly proving beyond a shadow of a doubt that the liabilities embedded in our public institutions are unsustainable.  We are told that the only way forward is austerity.

But austerity causes unnecessary pain, and those who suffer most are the most vulnerable.  The argument for austerity is based on self-serving fictions designed to advance an ideological agenda and to benefit those who helped create the economic turmoil in the first place.  Nowhere is that clearer than in the accounting fictions that have supposedly led the Postal Service to the brink of destruction.

Much of the thinking coming from elite America seems specifically designed to destroy labor.  Certainly we can see that process occurring during this manufactured postal crisis, which has been nothing short of a means to eliminate good postal jobs while transferring national infrastructure into private hands for purely private gains.

 

Living in denial

The response to all of this has been pitifully half-hearted.  The various postal unions and employee organizations appear to be in denial.  They have treated the crisis as some sort of incremental deterioration rather than the all-out assault on postal jobs that it is. 

The unions and employee organizations lobby in the same ways, and they contribute to the same politicians they always have, even though their contributions are usually dwarfed by those made by the mail industry.  They continue to negotiate on their own, often trying to carve out a slight advantage over their fellow employees while pretending that they have stemmed the tide. 

The APWU, for example, has settled for a contract that surrenders years of gains and impacts every postal employee without resorting to arbitration.  NALC has turned to a Wall Street wheeler-dealer as a chief advisor — as if the folks who provoked the situation have any interest in solving it on terms that are not wholly advantageous to them.  The postmaster organizations have abandoned not only their members but also the public by agreeing to silence their voices at the PRC.  It’s clear that the leaders of these organizations are in complete denial over the severity of this crisis.  They can’t begin to see what is at stake.

Industry groups like the NNA and non-profit mailers stand by while the network that sustains their businesses is dismantled.  They only seem to be interested in carving out a little preference here, a little advantage there.  Can’t they understand that the rates they enjoy are based on a concept of social and public goods? Can’t they understand that by attacking labor they are sealing their own fate?

And where are the other groups that should be interested in the fate of our public institutions?  AARP and consumer groups have sat on the sidelines, quietly ignoring the situation, while the groundwork is laid for a damaging monopoly presence.  Where are those groups that stand for progressive ideas, that supposedly understand the value of the social compact? They argue on the edges, accepting the narrative spun by the postal media machine, while a great public institution is needlessly but intentionally destroyed.

 

The unwinding of America

While the health care prepayments mandated by PAEA are a problem, what is happening to the United States Postal Service is not the result of unintended consequences arising from a poorly thought-out law.  We are watching the conscious and intentional destruction of an institution that is essential to our democracy, that is a valuable part of our common heritage, and that has gainfully employed hundreds of thousands, including veterans, the under-privileged, and people of color. 

This isn’t a story about a bad business model or bailouts or a failure to respond to changing technology.  Rather, it’s part of a bigger story, the story of Social Security and Medicare under siege, public education demeaned, college tuition piling debt onto our youth.

What we are seeing, to borrow a title from George Packer, is the unwinding of America — the conscious transfer of opportunity, services, and the benefits of progress to an increasingly small slice of the population. 

Ronald Reagan’s cynical aphorism claiming that “government isn’t the solution, it’s the problem” was a shot across the bow of the American ship of state.  It was a way of dividing rather uniting, a way to sow doubt and dissatisfaction.  If the government is truly “We the People,” then Mr. Reagan was basically saying that the problem is us.  But “we” are not the problem. 

The problem is that corporate profits are higher than ever and corporate taxes are lower than ever, wealth is reserved for the few while those who work for a living have a harder and harder time getting by.  And the parts of the government that serve the most people are being attacked as unaffordable and unsustainable.

The destruction of the United States Postal Service is nothing less than an all-out assault on workers and consumers.  It is part of a greater assault on the American soul, an assault that would turn back the clock to a time when the promise of the American Dream was limited to an elite few. 

Those who wish to ignore what is happening, those who deny the dire circumstances, those who let self-interest stand in the way of joining in common cause, will find that we are heading to the incremental destruction of this country’s fundamental promise.  The destruction of the United States Postal Service, if we let it happen, is a betrayal without remedy.  It won’t be the only one.


[Mr. Jamison is a retired postmaster and a regular contributor to Save the Post Office; his articles are archived here.  He can be reached at  Mij455@gmail.com.]

(Image credits: Tom Tomorrow's Invasion of the Austerians)

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