Big Picture

At what price profit? The battle for the soul of the Postal Service

January 14, 2013


The new year has begun, and the country is still waiting for Congress to address the problems facing the Postal Service.  In the meantime, the Postmaster General blames the crisis on congressional inaction and the diversion of first class mail to the Internet.  His solution is to cut services to the public, eliminate jobs, and dismantle the infrastructure he is charged with preserving.  

On January 3, Postmaster General Donahoe released a statement entitled “Congressional Inaction Heightens Postal Service Financial Crisis; More Aggressive Cost Cutting and Revenue Generating Measures Will Be Considered.”   Bemoaning the fact that the 112th Congress failed to act, Mr. Donahoe suggests that “legislation could quickly restore the Postal Service to profitability and put the organization on a stable long term financial footing.”

Mr. Donahoe goes on to point out the Postal Service had to default on payments to the retiree health benefit fund (RHBF), and he repeats the unsupported canard that the Postal Service is losing $25 million per day.  That bit of sophistry overlooks the fact that most of the losses can be attributed to accounting gimmicks forced on the Postal Service by Congress. 

The Postmaster General and Board of Governors can't control what Congress does, but they have added to the Postal Service's financial problems by engaging in a direct campaign to undermine the viability of first class mail through extreme service cutbacks and a constant drumbeat of panic and doom.  In his Jan. 3 statement, Mr. Donahoe actually celebrates the loss of 60,000 postal jobs, the degradation of a large part of the postal network, and reductions in service to many communities throughout the nation.

In his book At Any Cost: Jack Welch, General Electric, and the Pursuit of Profit, Thomas F. O'Boyle paints a picture of a corporate executive so committed to the soulless pursuit of profit that he would do anything to improve the bottom line and push up the value of GE stock.  In his closing chapter, O'Boyle poses a simple question that we would do well to ask of the Postal Service: “Do businesses need a soul to succeed  — a sense of purpose beyond just making money?”


The narrow field of debate

The discussion over the future of the Postal Service has been carried on over a fairly narrow field.  Postmaster General Donahoe and the Postal Board of Governors argue that the fiscal difficulties of the Postal Service arise from the regulatory structure imposed by Congress.  If the Postal Service is liberated from the shackles of regulation, if it’s free to compete, then it can succeed.  While Mr. Donahoe acknowledges that the RHBF mandate is a significant impediment to the financial viability of the Postal Service, his argument is much broader, contending that the Postal Service must be freed from regulatory restraints like the universal service obligation.

Many in the mailing community, particularly the component of the industry that focuses on advertising, appear to agree with a great deal of what Mr. Donahoe says.  They see the potential for cheap mailing rates if the Postal Service could shed much of its responsibility to rural America.  They also see the abrogation of labor relationships as a potential boon to their interests.  The mailing industry holds a view that is essentially that of American industry in general over the past thirty years — reduce costs, liquidate or outsource labor, and maximize profit at the expense of all other considerations.

Most of those who disagree with Mr. Donahoe’s vision do so on what amounts to a very limited basis.  The unions and other employee organizations disagree with Mr. Donahoe’s tactical approaches to defining the Postal Service’s future, but they generally agree that the Postal Service must compete, that success will be achieved by accepting some of the regulatory strictures imposed on the Postal Service while loosening others, presumably maintaining those things which benefit labor while permitting behaviors that will enhance and increase revenues.

The politicians line up on the issue according to their ideological predispositions.  So, many of the Republican politicians advocate for a Postal Service that moves more towards a privatized, lightly regulated model, one that more closely follows the model of the last thirty years of seeing value only in terms of maximized profits.  Most of the Democrats appear interested in protecting their traditional constituencies in labor, but they also use the word “compete” as if competition, or what is often termed competition but is actually something much different, i.e. deregulation, will magically provide answers to all questions.

The unfortunate fact of the matter is that the discussions over the future of the Postal Service represent a concrete example of how stilted and narrow our economic discussions have become generally.  We have become so enamored over theories of efficient markets and the value of unbridled competition that we have excised broader views on what makes for both a healthy economy and, more important, a healthy society.


The Postal Service Unrolls Its Five-Year Plan

February 19, 2012

The former Soviet Union was famous for five-year plans.  Between 1928 and 1991, it announced thirteen of them.  The plans were designed to increase economic production, achieve efficiencies through centralized planning, and redistribute the wealth along Marxist principles.  Each was announced with great fanfare and fantastic posters designed by progressive artists employing the latest propaganda techniques.  (The one at the left, done in 1930, says, "Fulfill the five-year plan not in five years, but in four.")

The Postal Service has just released a Five-Year Plan of its own.  Entitled “Plan to Profitability,” the new Business Plan is designed, like the Soviet plans, to take advantage of automation and improve efficiencies.  It too will redistribute the wealth, though the money will not be flowing in a direction Marx would have approved of.

The new Business Plan is basically a version of what the Postal Service floated this past summer in a couple of white papers on "workforce optimization" and the retiree benefit plans.  There may be a more thorough business plan sitting somewhere in postal headquarters, but the document released to the public is basically a Powerpoint presentation with a lot of groovy graphs and charts.  It's mostly PR, and the Postmaster General is doing the media circuit promoting the plan.  It's crunch time.  The moratorium on closing post offices and plants ends on May 15, and Congress needs a kick in the butt or else the Postal Service will have to execute its endgame, whatever that is.

The Soviet plans were mostly disasters — they caused famine, failed to reach goals, and led to a deteriorated standard of living — and the last of the plans, unrolled in 1991, didn't get past year one — the Soviet Union dissolved before it could be implemented.

We'll have to see how things go with the Postal Service's Five-Year Plan.  The headlines have all focused on the fifty-cent postage for a First-Class stamp, but there's a lot more in the plan worth noting, starting with who wrote it.


The Postal Service outsources its business plan

The Business Plan was produced with the help of Accenture and Boston Consulting Group, joined by the new member of the team, Evercore.  The Postal Service has hired the first two several times in the past to make projections and prepare action plans.  Their help does not come cheap.  Accenture received $125 million in 2011 in business from the Postal Service (it’s #7 on the list of biggest suppliers). 

Accenture is a global management consulting and technology outsourcing company that the Postal Service contracted to help produce the 2010 Action Plan and the background report for the USPS's 2008 "Report On Universal Postal Service and The Postal Monopoly," which argues the Postal Service needs "flexibility" in the way it defines the "universal service obligation."

The Boston Consulting Group is another of these global management consulting firms.  It “has played a major role in preparing companies for deregulation and privatization in post-Cold War Europe.”  BCG prepared a report projecting mail volumes through 2020 that the Postal Service frequently cites.

Evercore is the investment banking firm founded by Roger Altman, the “ultraconnected” Wall Street and DC insider who’s made millions parlaying his connections and giving out high-priced advice, like helping with the restructuring of General Motors.  The Postal Service hired Evercore a few months ago to provide the agency with advice on “restructuring.”  

(Update: The USPS press release about the Business Plan says that it "reflects prior business model analysis from McKinsey & Company."  McKinsey is another of these global management consulting firms.  According to Wikipedia,  it has an interesting track record: Enron CEO Jeffrey Skilling is an alum of McKinsey, Swissair entered bankruptcy after following recommendations from McKinsey, AT&T was told by McKinsey in 1980 that cellphones would only be a "niche market," and McKinsey has been named as a defendant in Hurricane Katrina litigation.  McKinsey was hired by Japan and India when their postal systems considered privatization, and the company website says, "We support our clients as they position themselves to meet regulatory requirements and accompany them on the road to successful privatization."  More here and here.) 

With consultants like these pitching in on the Business Plan, it’s not hard to guess what direction the Postal Service is heading.  

The synergy of losses: How much will downsizing really save?

January 31, 2012

Imagine it’s Wednesday and you want to mail something, and you’re used to seeing that mail delivered the next day.  But things have changed.  You can’t get to the post office until Thursday because yours has closed and the nearest one is too far away to make the trip today.  The next-day mail now takes two days because 250 mail processing plants have closed, so your mail won’t be delivered until Saturday.  But now there’s no delivery on Saturday, so your mail won’t be delivered until Monday (if it’s a holiday, make that Tuesday).

Scenarios like that one will cost the Postal Service some serious money.  A lot of mail is time-sensitive — bill payments, periodicals, advertisements about sales — so longer delivery times can cause big problems and drive away business.  Individuals, organizations, and corporations will be more inclined to use the Internet, or advertise in other venues, or have a private company deliver their periodicals.  Customers will simply take their business elsewhere, and that means lost revenue for the Postal Service.

The Postal Service has presented three plans for downsizing to address falling mail volumes and declining revenues: eliminating Saturday delivery, closing post offices, and consolidating mail processing plants.  It has prepared detailed reports on each plan for the Postal Regulatory Commission (PRC) for Advisory Opinions, and the PRC has issued its own reports on the first two plans and it's working on the third right now.   There's plenty of material to look at if you're wondering whether or not these plans might succeed in balancing the books of the Postal Service.  (Of course, re-amortizing payments to pre-fund healthcare benefits for future retirees would solve the problem with much less pain, but that’s another story.)

Each plan looks as if it could save some money. The cost savings from cutting jobs and downsizing the infrastructure are greater than the revenue losses each plan might cause.  But that’s looking at the plans in isolation.  The problem is synergy.  What happens when all three plans are implemented?

Normally, synergy is seen as a positive phenomenon: it refers, for example, to when people work together and produce a result greater than the sum of their individual efforts.  But synergy can also be negative, like when several economic problems interact with each other and cause a recession.      

If all three plans the Postal Service is pushing were implemented, the danger is that this negative synergy would kick in, and the total revenue loss would be greater than the sum of the revenue losses incurred by the plans considered in isolation.  The synergy effect could be so great, in fact, that the cumulative revenue loss would exceed the cost savings.  Implemented together, the three plans could actually lose money and increase the postal deficit.  Then what?  More cuts, and more revenue declines?  The Postal Service could soon find itself in a downward spiral that’s impossible to stop. 

In the Advisory Opinion process for the Network Rationalization plan to consolidate 250 processing plants, the issue of cumulative effects has come up on several occasions.  The Postal Service asked a market research firm to do a study about customer’s attitudes toward the various plans, and the study revealed that customers were very concerned about the change in delivery standards coupled with eliminating Saturday delivery and closing post offices. 

Several witnesses in the case have also been asked about cumulative effects, and how revenue losses might be impacted if all three plans were implemented.  The Postal Service has apparently not sponsored any quantitative research on the synergistic effect of implementing all three plans, so it’s hard to say exactly what those revenue losses might add up to.  But we can look at the numbers for each plan and get an idea of what could happen.


Eliminating Saturday delivery

In its case for eliminating Saturday delivery, the Postal Service contracted the services of Opinion Research Corporation (ORC), one of the oldest and most respected marketing research firms in the United States.  (You may have seen the name lately, since ORC partners with CNN to do election polling.)  The goal was to develop estimates of how much revenue might be lost if there were no mail delivery on Saturday.

Rebecca Elmore-Yalch, Senior Vice President at ORC, testified before the PRC about her firm’s research.  In her testimony she explained that ORC did two “parallel phases of research” — one qualitative and one quantitative.  The qualitative research, conducted September 1 to 24, 2009, involved “drawing out participants’ attitudes, feelings, beliefs, experiences, and reactions” through focus groups and in-depth interviews with a variety of mailers, big and small.  The quantitative research, completed in October 2009, developed forecasts of how the proposed changes would impact the volume of various types of USPS products.  

Using ORC’s estimates of lost revenue, combined with its own estimates of cost-savings, the Postal Service estimated it would save $3.1 billion by eliminating Saturday delivery.  As explained in its Advisory Opinion, the PRC questioned the numbers, did its own calculations, and concluded the savings would be more like $1.7 billion. 

Part of the discrepancy had to do with interpreting ORC’s market research.  The Postal Service estimated that it might lose $0.2 billion net revenue, but the PRC, looking at the same research, gave the numbers a different interpretation and said net losses would be more like $0.6 billion.  In its response to the Advisory Opinion, the Postal Service stuck by its original estimates.  

A post office worth preserving

January 18, 2012


[Mr. Jamison serves the town of Webster in the mountains of North Carolina as its postmaster.  He has written extensively on postal issues.  In keeping with the USPS Administrative Support Manual, Mr. Jamison does not "speak for or act on behalf of the Postal Service."  These are his thoughts on where things stand and where we ought to be headed.  Mr. Jamison can be reached at —Ed.]

FOR MANY MONTHS NOW, postal management and a chorus of pundits have delivered one message: Out-of-control deficits are dooming the Postal Service, and it will survive only if management is given the authority to radically downsize the system.  Half the country's post offices and processing plants must close, Saturday delivery must go, service must be reduced, and over two hundred thousand jobs must be cut.  

These steps, however, will not ensure the survival of the Postal Service.  This is not a vision for the future.  It's an invitation to a funeral.  

After Postmaster General Patrick Donahoe spoke at the National Press Club at the end of November, it should have been clear to anyone following the trials and tribulations of the USPS exactly what vision postal senior management had for the future of the institution.  Mr.  Donahoe stated that it was his goal to wring $20 billion of costs out of the system within the next few years.  He essentially demanded free rein from Congress to disassemble the postal network as we know it.

The vision expressed by Mr. Donahoe was one of declining mail volumes, an entity that had outlived its relevancy in a technological age, and the need for a business model which transformed an institution of national infrastructure into simply another player in the mailing and delivery business.  He spoke of a future that consigned the purpose and the past of a national treasure to the dustbin of failed business models, right next to the graveyard of buggy whip makers.

The plans advanced by senior postal management involve shedding much of the current retail network and well over half of the plant facility network.  In addition, the service standards that have made the Postal Service useful and reliable were to be revised downward in what appeared to be a relentless quest for mediocrity.

The plans also involved eliminating tens of thousands of good, middle-class jobs and replacing many more with low-wage casual workers, while also dismantling retirement and health benefit systems that have served generations of workers well.

What Mr. Donahoe offered was a vision that has become popular among a small segment of the American political class.   It is a vision of an impotent public sector, a downsized, out-sourced, minimum-wage work force, and it shows a complete disregard for infrastructure.   It is a view of globalization come full circle, America as a third-world country.

Not long after Mr. Donahoe’s speech, several members of Congress awoke from their slumber and began seeing the future Mr. Donahoe proposed.  As calls from their communities became more alarming, telling of closed post offices and shuttered plant facilities, and as it became apparent that the proposed changes were not merely a matter of rightsizing postal operations but dismantling them and denigrating service, Congress began showing heightened interest, eventually demanding a moratorium on some of the proposed changes.

Yet even after agreeing to a moratorium on plant and post office closings, the Postal Service continued with the procedures and steps needed to close facilities.  Even after the Postal Regulatory Commission (PRC) found in its Advisory Opinion on the Retail Access Optimization Initiative (RAOI) that the Postal Service’s plans to rationalize the network had very little foundation, the Postal Service continued with requests for vendors to take over the hub-and-spoke operations that would be eliminated by plant closings.

The fact is the PRC found, as many of us have been saying all along, that the Postal Service’s plans were less about finding a successful business model than they were about simply carving up the postal network into bite-size chunks.  The RAOI decision returned to many of the same points raised in previous decisions, like the exigent rate case and the five-day delivery case — primarily that the Postal Service’s plans lacked substance. 

The plans espoused by the management of the Postal Service appear less the articulation of a successful outcome, the re-envisioning of a successful business model, than they are the actions a vulture capital firm might undertake when dissolving a business by extracting whatever value might exist and leaving the rest to “creative destruction.”  No one from the Postal Service has yet offered a picture of what a successful outcome might be.  Actually that isn’t terribly astonishing since it would be awfully hard to describe success when your every action is built towards taking the enterprise apart.


AT THIS POINT, the story is clear in terms of what got the Postal Service in these straits.  We know the excessive extraction of funds from the Postal Service by the poorly conceived 2006 Postal Accountability and Enhancement Act (PAEA) has resulted in non-operational deficits.  We know too that various retirement accounts have been over subscribed and that other accounting devices, like accounting for workman’s compensation obligations, have been rigged to transfer funds from the Postal Service to the Treasury.

We know too that volumes have dropped, and while some of that may be due to changing technology, a good bit is due to the ongoing recession and some may even be due to the continual atmosphere of crisis that the postal management has ginned up.

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