Epic Fail for the Postal Service: The wrong model and the wrong BOG



In 2001 Postmaster General Bill Henderson submitted the first blueprints for a transformation of the Postal Service into a sleeker, more efficient business entity.  To justify the transformation, the rhetoric has repeated one mantra: the problem with the Postal Service is its outmoded and defective business model.  

A great deal of our speech with public policy is often coded — for example, “makers and takers” can often sound a lot like “black and white” — but in this case Henderson and his successor Jack Potter were pretty clear about their goal.  The way forward for the Postal Service, they said, would include cuts to the workforce, post office closings, a smaller postal infrastructure, and a general retreat from the idea of the Postal Service as a universal service provider.

The big mailers talk about the “failed business model.”  Postal commentators going back to Murray Comorow and through Alan Robinson have talked about the ‘failed business model.”  The folks in Congress, Republicans particularly but also Democrats like Tom Carper, all bemoan the “failed business model.” 

In focusing on the idea of a “failed business model,” these voices were able to elude facts like the billions siphoned out of the Postal Service to support payments to the Retiree Healthcare Benefit Fund that were essentially unnecessary.   Any discussion of rationalizing rates in ways that didn’t involve simply handing over postal revenues to narrow interests in the mailing community was avoided.  The idea of supporting universal service and postal infrastructure with modest budget contributions from the federal government was rejected. 

Instead, everyone seemed to agree that the nation’s postal infrastructure must be totally self-sufficient.  That was the preference of postal management as well, since money from Congress never comes with no strings attached.  Management takes every opportunity to remind people of this.  At the end of every press release is this sentence: “The Postal Service receives no tax dollars for operating expenses and relies on the sale of postage, products and services to fund its operations.”


The real problem

Assertions that the postal business model had failed reflected nothing other than a wish to apply a corporate model to a basic government service and function.  It didn’t matter that we had the most effective postal system in the world, a system that delivered more mail to more addresses at cheaper rates than virtually anywhere else.  It didn’t matter that our network of postal plants and post offices were the hearts of American communities.  It didn’t matter that the Postal Service provided 800,000 good jobs with good benefits, or that the income from these jobs flowed throughout local communities, supporting businesses large and small.

The sad fact is that none of the things that did matter to the average person mattered to those who set postal policy.  They had imbibed from the well that had transformed the American economy from an engine of shared growth and prosperity to a shell game that enriched the few at the expense of the many.  

In a little more than two generations we have watched as all the burdens of the economy have been shifted to those who work for a living.  We have seen the end of defined benefit pension systems, deteriorating access to employer-paid health insurance, and the rise of a model that eschews full-time work for part-time contract labor.  A successful postal business model has thus come to involve cheap labor, reduced service, and the privatization or outsourcing of public infrastructures.

But here’s a thought.  What if the problem with the Postal Service isn’t a failed business model at all? What if the real problem is a corporate structure that is ill suited to manage a fundamental infrastructure?  What if the problems of the Postal Service lay in a hidebound incestuous postal management system that has little accountability or oversight?  Could it be that our problems are related to a failure to properly distinguish between the management of government and the management of business?  What if the supposed failures of our postal system really reflect the failure of our society to value people, community, and basic public goods and infrastructures?


The chimera of the hybrid model

Our notions of what our economic landscape should be have been driven by a series of preconceived ideas that confuse the words efficiency and efficacy, and the problem is that we can’t think beyond our preconceptions.  As the historian Barbara Tuchman has observed, “Preconceived, fixed notions can be more damaging than cannon.”  Our discussions of economics generally and the postal system specifically genuflect to a conventional wisdom that we accept without question.  Yet, as the renowned engineer Henry Petroski observed, “All conventional wisdom has an element of truth to it, but good design requires more than an element of truth — it requires an ensemble of correct assumptions and valid calculations.”

The assumptions that support the idea of a postal infrastructure as little more than a corporate business enterprise are deeply flawed. The calculations that reduce people to nothing more than industrial inputs, while elevating profits above both ethics and efficacy, are simply wrong.  More specifically, the management and oversight structure of the Postal Service is poorly designed.  It fits a corporate model that fails to recognize and take advantage of the value of infrastructure.

The Postal Reorganization Act of 1970 remade the Post Office Department into the USPS.  The impetus for reorganization was essentially political.  The upper echelons of postal management, as well as many postmasters, were political appointees, and Congress was on the hook to support universal service and pay for raises in workers’ wages.  Politicians back then often had the same aversion to responsibility that they show today, and they wanted the monkey off their back.

For many observers and stakeholders, postal reorganization offered the possibility of a long held dream of privatizing postal services. They wanted reorganization to follow closely to the findings of the Kappel Commission, and when they didn’t get what they wanted they complained vociferously.  

Murray Comarow was the executive director of the Kappel Commission and an acknowledged expert on postal affairs. In his paper The Federalist Papers and Postal Reform, Comarow decried the new structures created by the PRA. 

Comarow essentially believed in privatization.  He didn’t like the oversight provided by the PRC, he was unhappy with binding arbitration, and he didn’t feel that the Board of Governors had enough power.  Overall he felt that the structure created by PRA was doomed for failure.

Comarow was badly mistaken in his vision of how postal service should be administered.  His views presaged our present day disdain for labor and the elevation of corporate laissez faire to a form of religious worship. But Comarow was right in arguing that PRA created a chimera, a beast that could not survive.


The Board of Governors

As we have discussed in several posts here on STPO, the PRA created a semblance of a corporate structure through the Postal Board of Governors. The BOG was to be comprised of nine members appointed by the President and confirmed by the Senate. The BOG was responsible for appointing the Postmaster General and Deputy PMG, who then became members of the board. The presidential appointees were expected to have backgrounds in business and public policy.  They could not have connections with the business of the Postal Service.

Initially BOG members were appointed for a term of nine years, and the statute created a staggering system for terms.  Currently terms are set to begin on December 8th and run for seven years.  A member may also serve up to one additional year as a grace period at the end of their term.  The period between when a nomination (or renomination) is made and when the Senate confirms the appointment counts towards part of the nominee’s term.  

The BOG was modeled on the boards that run corporations, and it usually consists of corporate types, often corporate heavyweights, as well as former Congressional staffers and political operatives.  (There’s a list of the history of BOG members here.)

Members of the BOG are paid $30,000 per year and receive a per diem of $300 for up to 42 days per year of service, although nothing precludes the board from meeting more than that.  Members are reimbursed for “travel and reasonable expenses incurred in attending annual meetings of the Board,” according to the statute (the OIG audits board expenses).

The annual salary for Board members is a pittance compared to what private sector corporate board members receive, and there have been a few calls to raise the compensation.  The same goes for senior postal executives, whose salaries are limited by law, although some retirement benefits can subvert that law, as discussed in this post.

The argument for increasing BOG compensation and the salaries of postal executives is that in today’s environment you have to pay competitively in order to attract talented people.  But this is just another way of jumping on the bandwagon of corporate excess.  One of the biggest problems with corporate boards is that they are often a collection of corporate cronies captured by a company’s senior executive management.  We see the result in ballooning CEO pay that defies reality or common sense.

While the salaries of postal executives have been prevented from skyrocketing in the same way, the USPS BOG is still a prisoner of a postal management system that is highly flawed and itself filled with cronyism and a lack of real accountability.  Little thought has been given to another approach: Do away with a management structure that doesn’t suit the circumstances of a public institution.


The BOG and postal management

The current version of the BOG has operated without a quorum for several months. President Obama has recently resubmitted several nominations to the new Congress, but it may be some time before they are confirmed. In the best of times the BOG is reliant upon — if not captured by — senior postal management.  At the moment that is doubly true.

The BOG has no independent staff or advisors, only a secretary who is a postal employee.  The BOG has no independent legal counsel, which certainly became an issue during both the Kessler and Bernstock affairs when the advice and conduct of USPS General Counsel Mary Anne Gibbons was called into question.  

Considering that the BOG is a government entity, it is strangely reticent, secretive, and isolated.  The Board does not request or commission independent studies.  It does not typically meet with mailers, labor organizations, or stakeholders.  It does not issue policy statements (aside from Postal Service publications).  It does not publicly discuss its responsibilities to universal service or articulate its vision for the national post.  Minutes of the BOG’s meetings indicate that occasionally members dissent on votes, but individuals are not identified, and the press releases from the Postal Service merely indicate that a majority of the Board has voted for something, like a rate increase.

Most of the Board’s decisions are predetermined by officials in L’Enfant Plaza.  In a very real sense, the BOG is a prisoner — or a lapdog — of postal management.  That becomes even more problematic when one considers that the last several PMGs have risen through postal ranks and are products of the management system.  

From top to bottom, the management culture of the Postal Service is seriously problematic, and it has rightly come in for significant criticism.  I’ve discussed the issue in several posts, here and here, and there are no end of articles about the subject, like this one by Jess Stoner that details the abuses that everyday postal workers encounter from local managers.  Steven Musacco's "Beyond Going Postal: Shifting from Workplace Tragedies and Toxic Work Environments to a Safe and Healthy Organization describes the long history of a failing postal management culture.

Ultimately the folks at the top bear responsibility for the problems with postal management, but products of the system like Bill Henderson, Jack Potter, Patrick Donahoe, and now Megan Brennan have largely ignored those problems or papered over them with manipulated systems like Voice of the Employee. The executive management of the Postal Service is supposed to be accountable to the BOG, but given the Board’s construction and lack of independence and their willingness to act as a rubber stamp for the senior executives, it really isn’t a wonder that nothing ever changes.

These problems aren’t limited to employee relations. Lisa Bowe, who blogs at Intellisent, has written several posts about her frustrations with the Mailers Technical Advisory council (MTAC) and the way the Postal Service treats mailers.  The PRC has recently remanded the latest rate case back to the Postal Service not once but twice. The reasons cited were sloppy preparation and lack of necessary data.  Anyone who has followed the performance of the Postal Service in some of the N-cases like network rationalization and load leveling knows that testimony from senior managers can be evasive or misrepresentative.

The BOG stands responsible for all of that. The thing is, this isn’t a result of government gone awry. The lack of accountability, the failure to follow through, the willingness to promote incompetents, all mirror what have become standard corporate practices.

Take Erskine Bowles, for example, famous for the Simpson-Bowles Commission. During the run-up to the financial disaster, Bowles sat on several corporate boards, including Merrill Lynch.  He and other corporate board members in several major financial institutions failed to do anything to mitigate the crisis, and in many cases they egged corporate executives on. And yet Bowles gets to head a government commission.

Boards at Enron, Adelphi, Tyco, and MCI all failed to meet their responsibilities. Today corporate boards across the spectrum enrich themselves and executives at the expense of workers, consumers, and even shareholders.

The idea that the Postal Service would benefit by being more corporate is simply risible. If anything, the suggestion would seem to be generated by the $67 billion in postal revenues and the $340 billion in pension funds, numbers that must be glaring and galling to the wolves of Wall Street.


Obama and the Postal Service

On March 15, 2015, President Obama announced several renominations to the Postal BOG. All of the names had been submitted to the previous Congress.

The personal and professional details of the men (they’re all men) that have been nominated are not nearly as important as the fact that Mr. Obama has chosen to follow fairly standard patterns in his selections. Among his selections is a lifetime Republican operative, a well connected Democrat, a retailer who excels at coming up with marketing schemes, an academic whose writings on postal issues follow the conventional neo-liberal talking points, and an unreconstructed Reaganite who has argued for the privatization of the Postal Service for decades.

We’ll get more into their backgrounds in a minute but the important point is that as a group these men represent the sort of revolving door elite that plagues government today. Despite the fact that labor and employment are key postal issues, not one of the nominees to the BOG has a background in labor. The two individuals with any public policy credentials tend to represent the views that have created and fostered economic inequality and the elevation of the one percent.

Since his re-election Mr. Obama has spoken often about economic inequality and reshaping the rules that send most of the benefits of our economy to few hands.  In a recent interview with Politico, the President was quoted as saying this: “Unfortunately, what we’re seeing right now is a failure to invest in education, infrastructure, research and national defense. All the things that we need to grow, need to create jobs, to stay at the forefront of innovation and to keep our country safe.”

While the President thus acknowledged the need to attend to infrastructure, he does not seem to care much about the postal infrastructure.  During his administration, we’ve lost more than 200,000 good postal jobs, and postal infrastructure has been rolled back on every front. The sad fact is that the administration has either wholly ignored postal issues or has favored policies that hurt those who are served by and those who work for the Postal Service.

One indication of where the administration stands is suggested by an op-ed written for Bloomberg Business by Peter Orszag, the former director of OMB under Mr. Obama. The title of the piece says all you need to know: “Best Fix for Postal Service Is to Take It Private.”


The latest nominations to the BOG

Aside from the PMG and Deputy PMG, the Board of Governors currently has three members, all of them appointed by President George W. Bush.  Acting chairman James H. Bilbray is an attorney and former Republican member of the House of Representatives from Nevada. Louis J. Giuliano was the Chairman, CEO, and President of ITT Corp. Ellen C. Williams is formerly with the Kentucky Public Service Commission. 

President Obama’s latest nominations to the BOG will do little to improve things.  They represent a betrayal of infrastructure, they insult workers, and they ignore the millions of Americans who rely on the postal network. 

Here’s a rundown of the latest list of nominations.

Mickey Barnett: Barnett is an attorney and former legislator from New Mexico. He is a former aide to New Mexico Senator Pete Domenici. His resume on the Postal Service website reads like that of a typical conservative political operative. There is nothing in his background that would indicate expertise in postal issues. In his previous service as chair of the BOG, he mainly endorsed the policies of PMG Donahoe.

David Shapira: Shapira is the former CEO and now executive chair of the Giant Eagle grocery chain. This article from the Pittsburgh Tribune’s website suggests that Shapira’s experience at offering grocery store specials like two-for-one deals will bring much needed retail sense to postal operations. (Perhaps the Postal Service will start offering two Forever stamps for the price of one.)  Shapira served on the corporate boards of Mellon Bank and EQT, a natural gas producer.  He is also involved in several civic institutions in his hometown of Pittsburgh (also the hometown of former PMG Donahoe). There are no indications of Mr. Shapira’s political affiliations.  His political contributions favor mostly Democrats, but he has also donated to Republicans, including George W. Bush.

D. Michael Bennett: Bennett is an attorney and a senior vice-president of information systems at BAE Systems, a defense contractor.  He previously worked for Northrup Grumman, which has consistently been one of the Postal Service’s major suppliers.  In 2014, the Postal Service did over $154 million in business with Grumman.  The company has also has been embroiled in lawsuits with the Postal Service over the flawed FSS automated mail system.  Bennett’s political contributions  are exclusively to Democrats.

Stephen Crawford: Crawford is an academic whose CV can be found here.  He received his PhD in Economic and Political Sociology from Columbia University in 1985. He was a member of the Obama-Biden Transition Team, and he has been a Democratic candidate for Congress.  Crawford has one postal-related scholarly publication, Towards a New Business Model for the United States Postal Service.  In an editorial on Postal Reporter Blog back in 2012, when Crawford’s name was first submitted for consideration to the BOG, Clint Burleson of the APWU discussed this publication.  Burleson cited several passages that appear to show Crawford’s acceptance of the idea that reducing the cost of labor is an integral part of any solution to postal problems.

Dr. Crawford’s paper is pretty standard fare.  For the most part it accepts the conventional wisdom with respect to the future of the Postal Service.  It follows the current narrative that the Postal Service is a technically challenged organization that would benefit from acting more like a competitive business. Crawford largely avoids the concept of the postal network as national infrastructure and instead trots out the tired suggestion that the Postal Service must innovate more, as if the word were some sort of magic pixie dust, without any sort of concrete meaning or process. Crawford’s suggestions include eliminating universal rates for letter mail and replacing home delivery with (free) post office boxes.     

James C. Miller III: Miller is perhaps the most interesting of the current nominees.  He received his PhD in economics in 1969 from the University of Virginia and spent much of the next forty-plus years in government or working for conservative and right-wing think tanks like AEI, the Hoover Institute, Americans for Prosperity, and the Center for Study of Public Choice at George Mason University.

Miller served in the Nixon Administration, migrated to AEI during the Carter years, and returned to government service during the Reagan years.  He worked on the Reagan transition team, the Federal Trade Commission, and eventually as director of OMB, where he advocated for the privatization of the Postal Service.

In an oral history project conducted by the University of California at Berkley, Miller relates the following discussion with President Reagan: “’Mr. President, I think that the Interstate Commerce Commission played a role. Arguably, it was a role that was not warranted — restrained competition, etcetera — but there’s no reason for it anymore.’ He said, ‘That’s a good idea, Jim.’ I sat there and I proposed that the budget include demonopolizing and privatizing the Postal Service. He said, ‘That’s a good idea, Jim,’ and only later did I find out in his own hand, one of his radio programs, was about that.”

In a 1985 paper written for the Cato Journal, Miller argues for ending postal monopolies and moving toward privatization. In 2011 Miller testified before Congress to the same effect.  Reading over Miller’s testimony, one is struck by his willingness to repeat many of the same shibboleths that conservatives use to argue that the Postal Service is failing and the postal network ought to be privatized.  He argues that arbitration is unfair to the Postal Service, primarily because the Postal Service didn’t get what it wanted.  He slides over the damage created by the RHBF payments when it is convenient to his narrative.

Miller was Chairman of the BOG for most of the period from 2005 to 2011. In contrast to most members of the BOG, Miller took an active role in promoting Jack Potter’s Strategic Transformation Plan, the document that has served as the blueprint for dismantling the Postal Service. Miller portrays himself as an academic and devoted to data, but his public statements are those of a committed ideologue. He readily admits to be a devotee of Milton Friedman, public choice theory, and Reagonomics.

On the whole President Obama’s nominations are at best disappointing and, as in the case of Mr. Miller, an insult to postal customers and postal workers. The law requires that appointees be equally divided between the political parties so the nomination of a political empty suit like Barnett may be a fact of life. Surely, however, the President could have found someone who is less of a dyed-in-the-wool Reaganite and ideologue than Mr. Miller.

Mr. Shapira and Mr. Bennett appear to have been selected as a matter of political payback. They are a reflection of a system that treats public service as a revolving door for political and economic elites. This leaves a permanent imprint of the one percent on government and may be one of the primary reasons for cynicism in the electorate.

Dr. Crawford is probably the best of the lot, but that isn’t saying much. His writings seem to endorse current neoliberal models that treat average folks, both consumers and workers, as an afterthought.


Rhetoric and reality

Mr. Obama’s rhetoric about economic inequality and the problems that result in redistribution of wealth upward in our current economy is often not matched by his policies or his appointments.  That is nowhere truer than in the case of postal issues.

Unfortunately, Mr. Obama’s latest appointments to the BOG will not help solve anything.  Instead, they’re part of the problem.   The basic structure of the Postal Service is flawed. In a typical corporation, the board of directors is ultimately accountable to shareholders.  Boards are often not as responsive as they should be, but at least the shareholders serve as a check. 

The USPS Board of Governors is accountable to no one.  It has the power to determine national policy for an essential infrastructure, but it has no accountability to the general public.

The two great pieces of postal legislation — the PRA of 1970 and the PAEA of 2006 — have reshaped the post office into a corporate model, as if that’s the solution to everything.   But for the average American, the corporate economy has stopped working.  

Worse yet, the statutes that govern the Postal Service, the management that guides it, and the systems that regulate it, all fail to recognize the postal network as public infrastructure. Over the last 45 years since PRA, the Postal Service has done a credible job in delivering more mail to more addresses at more reasonable prices than any postal system in the world.  But it has done this in spite of rather than because of its management.

The sad reality is that the managers of the Postal Service, in conjunction with politicians, have worked to undermine the effectiveness of a public infrastructure that is capable of producing broad economic and social benefits.

The latest bunch of nominees to the BOG will take us further down the path into the darkness of privatization.  We will inevitably see further degradation of the network, more job losses, and greater deterioration of service.  In the end, it’s not just the Postal Service that will suffer but the American people.

Mark Jamison is a retired postmaster.  He can be contacted at markijamison01@gmail.com.