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


January 14, 2013

BY MARK JAMISON

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.

 

Muddling the mission

Under the circumstances, it may be just as well that the 112th Congress failed to provide “reform” legislation.  In the absence of legislation, Mr. Donahoe has continued to execute his plan, which is little more than liquidation disguised as consolidation.  All of the currently proposed legislation would codify and legitimize that process.  The Postal Service would be damaged beyond repair.

The proposed legislation perpetuates a failed structure that lacks basic qualities of oversight, transparency, and accountability.  Any successful legislation must change the fundamental structure of the Postal Service — its management, its oversight, and its regulation.  The new structure must have a clearly defined purpose, supported by a reasonable and sustainable rationale.  It must provide reasonable means for the Postal Service to accomplish its defined mission in a fiscally responsible way; and that mission should be determined not simply by a limited view of profit and loss but by the value the mail network adds to both the national economy and society in general.

The current entity known as the USPS has a muddled mission.  On the one hand, it is tasked to “bind the nation together,” while on the other hand, it is expected to act more “businesslike.”  In this context, businesslike does not necessarily seem to mean more efficient but merely more profitable.

To be efficient is a goal characteristic of almost all infrastructures, whether they be public or private, profit or non-profit, but simply to become more profitable is a goal only of a profit-seeking enterprise.  As currently defined and executed, the expectations for the Postal Service are incoherent at best and mutually exclusive at worst.  The reality is something wholly unintended: a supposedly regulated and directed government monopoly that is, in actuality, engaged in the transfer of a popular and common infrastructure network into the hands of private, for-profit hands that effectively possess monopoly powers.

Our current state demonstrates both a failure of vision and a failure of execution.  The result is likely to be a repeat of the failures we have witnessed in other forms of national infrastructure — failures that limit our potential for economic growth while leaving consumers with poorer service and higher prices.

 

The failed promise of deregulation

Bad Connections,” a recent piece in the New York Times authored by David Cay Johnston, details the state of our telecommunications industry.  When the industry was deregulated, we were promised “innovation, better service and lower prices.”  Instead we are saddled with a cellular and broadband network that is poor in service and high in price.  Our internet speeds rank 26th in the world, we pay the sixth highest median price for internet data, and our coverage model is poor.  The deregulated marketplace has resulted not in more competition but in consolidation, which essentially gives two companies monopoly powers over the market.

Telecommunications is a basic and fundamental infrastructure, but as with many of our infrastructures, we have been seduced by promises of private sector competition and the wonders of the market; the result has been poor service, higher cost, and less competition.

Instead of returning to the ethic that built this country — broad private investment in internal improvements — we are facing legislation that prohibits local municipalities from building fiber broadband networks, arrangements that have led to some of the best service areas in the country.

We have seen the same problems with other infrastructures.  Designed to facilitate commerce and competition, they have become prisoners of consolidated industries that wield monopoly power.  Our electrical grid is decades behind the curve, and improvements continue to lag, yet it appears we have learned nothing since the days of deregulation and Enron.

All across the country, public investment in infrastructure is shunned.  Worse, we keep trying to find ways to transfer infrastructure into private hands, as Indiana has done by leasing its toll road to a private company.  The result of most of these deals is often short-term gain and long-term deterioration of the asset.  Ultimately we all suffer from our inability to understand the value of public infrastructure.  The fact that it is necessary as a means of facilitating markets and competition seems to escape us.

 

A lack of accountability

The Postal Service is fundamental national infrastructure, and reforms should not only recognize this fact but also build upon and improve the value of the postal network.  Instead, we are provided with weak arguments for legislation that shrinks the postal network while supposedly giving the Postal Service incentives to compete. 

We’ve tried that and it isn’t working.  Workshare discounts haven’t paid for themselves, and the ongoing push to move postal products into competitive categories has resulted in less transparency and little gain.

The current structure of the Postal Service arose out of the 1971 Postal Reorganization Act (PRA) and the 2006 Postal Accountability and Enhancement Act (PAEA).  The result is a semi-autonomous government agency organized much as a corporation and chartered with the idea of providing universal service while acting like a for-profit enterprise.

Like a corporation, the Postal Service has a board, in this case a Board of Governors, charged with oversight of postal management.  Unlike a corporation, however, the Postal Service does not have stockholders, nor is its value determined by investors in the stock market.  This critical missing link means that for all intents and purposes the Board of Governors, the Postal Service’s corporate board, isn’t really accountable to anyone.  The law placed oversight for much of the Postal Service’s activities with the Postal Regulatory Commission, but the commission’s powers and purview are limited.  Congress also retained the right to direct the activities of the organization through legislative modifications, some would say interference.

The finances of the Postal Service have been left a convoluted mess, with some aspects being left on the unified federal budget and some activity taking place outside the budget. This resulted, as we have seen with the RHBF mandate, in the use of various accounting gimmicks to make Congress’ books look better at the expense of the Postal Service. 

The worst part of the arrangement was the mixed mission and incentives at the heart of the Postal Service’s reason for being.  Ostensibly the idea of the postal network as infrastructure was recognized in the mandate for universal service, which seemed to acknowledge the importance of a broad, penetrating network that was neutral, accessible, and universal in its utility, a system and network designed to facilitate not only commerce but communication in general.

 

The stakeholders’ sense of entitlement

The Founders understood the value of a robust postal system as necessary for the free flow of information.  They valued a postal network for its commercial potential, but they also understood the intangible social value of a broad governmental service presence in even the smallest and most remote communities.  Early on, they saw the value in giving preferential treatment to certain kinds of mail like newspapers. 

This understanding of the postal network as a facilitating presence for both commercial and public goods fit in with their basic conception that government had a role in providing a strong foundation and backbone that enhanced commerce, widespread economic opportunity, and fundamental democratic values.

Unfortunately, while the PRA and subsequently the PAEA recognized the importance of universal service, the Act also endorsed the idea that the Postal Service ought to be self-sustaining.  This was done to make the Postal Service more businesslike, even profit oriented, and it has had the effect of undermining the single most important reason for building a strong postal network.  Now, instead of the Postal Service being the property of the American people as a whole, much like our national highway system or our national parks, it has become a creature beholden to postal ratepayers.

Ratepayers come in all shapes and sizes, from the fellow who mails off a couple of bills a month and the granny who sends the occasional card or birthday present, to the large advertising mailers who send billions of pieces of mail.  It isn’t surprising that, like much of the rest of our society, the largest players in the mailing industry have the most say in what the focus of the Postal Service ought to be.

Making the Postal Service “self-sustaining” might seem, on face, to be a reasonable approach, but it is really a calculated way of replacing the non-existent stockholders, who would normally be the last word on a corporation’s accountability, with stakeholders who come to the table with a heightened sense of entitlement.  The arrangement is a means of converting the Postal Service and the postal network from a piece of national infrastructure into a government-sponsored poodle designed to serve the whims of its largest stakeholders.

Even if this were a reasonable arrangement, the current construction would be decidedly defective because the Postal Service has been saddled with various accounting gimmicks, from the way retirements are handled, to the way rates are accounted for, to various mandates to provide reduced services for non-profits and second class mailers like newspapers and magazines.  The arrangement requires the provision of essential and important public goods, but it doesn’t make even the slightest attempt to pay for them.  Worse, it makes the public interest secondary to the interest of private stakeholders, actually giving them an expanding sense of entitlement.

 

The argument for efficiency

Some might argue that the requirement to be self-sustaining creates incentives for the Postal Service to be efficient.  It’s a weak argument that hasn’t been proven in practice. The fact is that the current construction of the Postal Service has led the BOG and management to abandon the primary mission of universal service in favor of a false god of competition that the construction can never satisfy.

There is no question that any government agency or infrastructure ought to be efficient.  Those charged with managing public resources — whether those resources are in the form of money, natural resources, or an infrastructure — ought to make the efficient use and management of those resource their highest priority.  But efficiency and profit are two different things, and they do not translate equally across the public and private sectors.

We have a national crisis with respect to infrastructure, and the source of that crisis lies almost entirely with our failure to understand the value and necessity of public goods and with our narcissistic denial of the fact that for the private sector to flourish there must be a vibrant, solid, and well developed public sector.  Public goods, from the rule of law to infrastructure, exist to facilitate the private sector, and we deny that at the peril of basic societal order.

PAEA is a failure, not because of the RHBF payments, but because it seeks to undermine the basic premise of a national post.  The response to the failures of PAEA has been to offer more of the same, to offer to make the Postal Service more beholden to a few stakeholders, to take away more of the transparency of the organization by hiding contracts and revenues from competitive products from public scrutiny.  

The response to the current situation is to suggest that we continue to reduce the size and utility of the network, that we become even more dependent on a few stakeholders, that we limit the reach and scope of universal service while failing to recognize the rationale underlying the need for a national postal system.

 

Another proposal for privatization

Perhaps the most cynical response to the current situation has been a paper offered under the auspices of the National Academy of Public Administration.  This paper suggests that the future of the postal services in this country lies in a Hybrid Public-Private Partnership.  The paper suggests that since we have already undermined the mail processing network through a convoluted and preference ridden rate system, we should simply acknowledge the inevitable and make the network private.

While we’re at it, the paper continues, we might as well recognize that the system of local post offices isn’t efficient and doesn’t serve the sort of franchise model that works for many businesses.  We would be better off ceding that network to the private sector. Access to postal services can be provided at counters, checkout lines, and automated kiosks in supermarkets, big box stores, and drug stores.  The proposal ignores the value of the local post office as a means of community identity, as a source of information and assistance, as a genuinely intangible public good.  Of course, mailing a package or buying a stamp might become an entirely different consumer experience if the private sector were in charge of it.  

The paper proceeds to suggest that the Postal Service should continue to exist as a last mile delivery business.  One has to wonder why the authors didn’t decide that part of the business shouldn’t be privatized as well.

Finally, the paper says that the whole shebang — the privatized retail and processing networks and the government-owned delivery network — will be overseen by the Postal Inspectors, the PRC, and other regulators, in much the same way that the FCC oversees the telecommunications industry to ensure we get universal, quality, and competitive cell phone and broadband service.

What the paper says, in its very serious way, is that we ought to go exactly where Pat Donahoe and the BOG have been leading us.  It suggests that the problems associated with eliminating a few hundred thousand good jobs and dismantling a broad public infrastructure would be more than offset by all the fine competition that the private sector will provide so efficiently.

The paper is cynical, but it isn’t dishonest.  The folks who wrote it and the folks who endorse its conclusions have decades of public and private sector experience.  Many of them have been telling us for years that deregulation and privatization are the wave of the future — both efficient and profitable.  Some of the folks involved have been on the cutting edge of ideas to privatize Social Security or reduce the effectiveness of the FEHB health insurance system in favor of privatized voucher models.  They simply want to take the Postal Service where they think the rest of society ought to head.

 

Exploiting the crisis to push a narrative

Before we come to the conclusion that the postal crisis is so severe that the only solution is privatizing more than half the system, we ought to come to a clearer understanding of what the real problem is.

It’s true that mail volumes have been declining.  A good deal of that decline can be attributed to the Great Recession.  Billions of pieces of mail related to credit solicitations evaporated almost overnight during the financial crisis.  It’s also true that the internet has had and is going to have a serious impact on mail volumes, particularly first class mail volumes, as we head into the future.

If one looks at the response of the Postal Service to the crisis, it’s clear that postal leaders saw the financial crisis and the Great Recession as an opportunity to push their narrative. Although the losses the Postal Service began to face in the early years of the crisis (2007 -2009) were directly attributable to the RHBF payments, management blamed the economy and the internet, and they played the disaster to the hilt.  They did this because declining volumes justified their vision of reducing the work force and reducing the footprint of the Postal Service.  It doesn’t take much insight to understand that postal leadership has favored a privatized network, as they’ve made clear in various transformation plans.

Whatever the causes of the reductions in volumes and particularly first class volumes, the actions of Mr. Donahoe and the BOG have exacerbated those declines and that, quite frankly, takes us into some pretty dangerous territory.  While the leadership of the Postal Service could have defined its financial problem by focusing on the RHBF payments, accounting gimmicks for workman’s comp, and the biggest one of all, a rate system weighted with preferences, they chose instead to call into question the sustainability and integrity of the institution itself.  

They could have been offering solutions and innovations like adapting the postal network to electronic bill pay, utilizing postal resources and the network to facilitate the missions of other agencies, and using the network for innovative forms of data collection.  Instead, they focused solely on the needs of a few big stakeholders like the direct mail industry and their partners FedEx and UPS.

 

Undermining the legitimacy of first class mail

The entire system now faces collapse but not as a result of the supposed losses that have been reported.  By denigrating service on first class mail through initiatives like the Mail Processing Network Rationalization, the leadership of the Postal Service may be putting millions of Americans at risk of financial predators.  First class mail may be declining and internet bill payment systems may be increasing, but tens of millions of Americans are going to continue to pay their bills the old fashioned way for years to come.  What happens if we undermine the legitimacy of first class mail?

Google “payday lending” and see which institutions are moving into that business.  The big banks — the same folks who brought us the Great Recession — are seeing the potential for billions in profit.  Imagine a world where first class mail is no longer seen as a primary way to pay your bills.  Maybe you adapt and do electronic banking, although without the competition of first class mail, that might change.  

But for the millions of Americans who are unbanked or underbanked, there’s another possibility.  For those folks there might be a charge for paying their bills.  Given the way our economy sorts people out, it isn’t hard to imagine a whole industry devoted to bill paying, including short term loans for paying bills.  Can anyone honestly say that banks haven’t shifted in a way that turns customers into nothing more than sources of fee extraction?  Without a viable national post, the potential for those fees increases.

And then there’s the package delivery market.  We’re told the last mile network is the Postal Service’s greatest asset.  There’s some truth to that, although those who make that claim often seem to view that network with a certain ravenous glare.  The white paper on privatization envisions the last mile network as the heart of a downsized Postal Service, but it’s easy to imagine Mr. Donahoe or one of his successors claiming a privatized network of low paid subcontractors would be more efficient and less costly.  Of course those subcontractors would be supervised and regulated by the Postal Service.

Just as the telecommunications industry has a big two that effectively create a monopoly, the delivery industry also has a big two: FedEx and UPS.  Both of those companies are among the biggest vendors and biggest customers of the Postal Service today.  It’s hard to know exactly what their reach is because many of the contracts and arrangements that the Postal Service signs are not subject to public scrutiny.  The Postal Service claims that it would lose competitive advantage if its business practices and arrangements were known.

 

The postal infrastructure is ours

There was a very chilling moment during the Senate mark-up session for bill S. 1789, the reform bill that died at the end of the last session.  Carl Levin, the senator from Michigan, pointed out that he had asked to see the contracts between the Postal Service and UPS. He was told he could not.  Under law there was only one person outside the Postal Service, a staffer in the House, who got to see those contracts.  

The Postal Service no longer publishes its revenues from products in the competitive category. Look at the monthly financial statement and you’ll find revenues for Priority Mail and Express Mail redacted.  Sure, you can find the information somewhere or extrapolate it from other reports, but the fact is much of what the Postal Service does isn’t very transparent.

Why does that matter? Well, our national delivery system for a huge amount of commerce is controlled by the Postal Service, a supposedly regulated government monopoly, and two private entities who also happen to be the largest customers and vendors of the Postal Service. And we thought PAEA was all about competition.

The postal network is critical national infrastructure.  The ability to deliver to 160 million homes every day has both practical commercial utility but also an intangible importance. The mail processing network is a means of moving vast quantities of information and goods, and it is both efficient and effective.  The network of post offices provides a presence in towns and communities large and small across the nation, and that too has practical and intangible benefits.  The postal networks are neutral; they aren’t subject to the whims of a particular corporate agenda or for that matter a partisan agenda. 

WE make value judgments in how we use this network.  We say that everyone should be universally connected to it without fees.  We say that non-profit entities ought to get preferential rates.  We say that newspapers and magazines, opinion and information ought to get preferential rates.  We agree that the network ought to be secure and that items within the network remain private.  All of these things are important.

The network that we, the American people, have built has served us well.  It has been a reliable and important source of employment, and it has done so in a financially sound way.  It truly does bind the nation together — by delivering our communications, our personal papers, our medications, our information and opinion, and by providing a touchstone place in our communities.  It is an essential part of our national infrastructure, and it has tremendous untapped potential for public good.

We are in the process of losing a good bit of our national infrastructure through neglect and worse through the delusion that privatized infrastructure is somehow more profitable. Maybe it is, but the question becomes profitable for whom?  Perhaps the greater question is, are we citizens of a great public undertaking envisioned by our Founders 236 years ago, or are we merely customers?


[Mr. Jamison recently retired as a postmaster for the US Postal Service.  He can be reached at  Mij455@gmail.com.]

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