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Monday, October 5, 2015

The obvious solution to the Postal Service's problems that no one notices
The U.S. Postal Service might rightly be considered the sick man of government agencies. It's squeezed between two immutable facts: The U.S. Constitution and federal law require it to operate everywhere in the country, without discrimination; and its core business, delivering first-class letters, is inexorably going away.
One other factor in the Postal Service's chronic deficits is as artificial as they come. It's a 2006 law that required the service -- almost alone among public and private enterprises -- to pre-fund its entire future liability for retiree healthcare expenses. The payments totaled $38 billion through 2011, with further installments of between $5.6 billion and $11.1 billion a year due through 2016. The Postal Service has been consistently defaulting on these obligations as it continues down a road that has taken it (as of fiscal 2014) to eight consecutive annual losses totaling more than $52 billion.
Brookings Institution scholar Elaine C. Kamarck has just issued a paper (spotted earlier this week by Lisa Rein of the Washington Post) aimed at solving what she calls the "political stalemate" over the Postal Service. "The USPS exists right now in never-never land," she said in an accurate diagnosis. "It is not fully public and it is not fully private."
Her historical analysis of what brought the service to its current dismal pass is compelling, and her solution combines conservative and liberal approaches: Split the agency in two, bringing its responsibility for universal mail delivery entirely back to the public sector, and sending the rest of it out into world via total privatization.
She's half-right. The mandate for universal mail service should be chiefly the taxpayers' responsibility. As for the rest, who needs it?
The Postal Service's fundamental problem is that Congress persists in thinking of it as a business, despite crystal-clear evidence that it's nothing of the kind. Given its constitutional and legal service mandates and the long-term decline of demand for those services, there's no way that the round peg of the mandates can be forced into the square hole of profitability.
Let's examine the raw numbers via Kamarck's analysis. Single-piece first-class mail is on a permanent decline, falling from a peak of 59 billion pieces in 1996 to 23 billion in 2013. There doesn't seem to be any hope of stemming that decline: Personal communications have moved to email and electronic messaging, and commercial communications such as bills and payments have moved online. What's left is junk and ceremonial mail, such as greeting cards. At some point, they'll disappear too, but not anytime soon.
Though first-class mail has faded, parcel post has grown, due in no small part to the rise of online shopping. The USPS has snared a large share of this business, but its growth has essentially just obscured the service's more fundamental problems.
As a business proposition, there's no way to reconcile the duty of delivering this fading stream of physical mail anywhere and everywhere in the U.S., whether in Times Square or Jarbidge, Nev., at the far end of an 80-mile dirt road, with the duty of turning a profit. Every half-baked venture the USPS has tried as a rescue option over the last 20 or 30 years has resulted from trying to deny this basic fact. They're all destined to fail, and it's time to stop trying.
Put briefly, you can have postal rates based on distance and speed, yielding profitability. That's what UPS and FedEx do. Or you can have universal service, delivering mail anywhere in the country at the same rate, and no profitability. The question is why anyone thinks the Postal Service needs to be profitable like a commercial business.
Universal service is the quintessential utility that can only be provided by government. It's not uncommon for government to take on such responsibilities when a service is novel, before its potential profitability is understood by private enterprise.

That's why the government had to fund the creation of the communications system that became the Internet: Private companies couldn't see how a nationwide data network would benefit their bottom line -- in fact, the nation's communications monopoly, AT&T, was so convinced that data transmissions would wreck its network that it tried to block them. When the idea of building a big dam on the lower Colorado River arose, power utilities were willing to pay for one suited for hydroelectric generation, but not for flood control or irrigation supply; farmers were willing to pay for flood control and irrigation, but not for electric generation. Government solved the stalemate by fronting the cost for a structure that served all these needs. We know it as Hoover Dam.
Sometimes these enterprises mature and can be shifted over to the private sector, as happened with the Internet. Sometimes they need to be kept in government hands, such as Hoover Dam. The Postal Service should have been kept in the second category. Think of postal delivery as such a utility, in reverse. It's in need of government nurturing not as a fledgling service waiting to find a road to commercialization, but as an aging service needing government support in its dotage.
The hybrid beast examined by Kamarck came into existence following a series of operational breakdowns and a massive two-week postal worker strike in 1970. The idea was that a corporatized agency would have the freedom to upgrade technology, bargain with workers and set rates and wages without being constantly hassled by Congress. Some of that has happened, but not the congressional hands-off. Whenever the USPS has tried to do something really significant to bring its expenses in line with income, such as ending Saturday mail delivery or closing local post offices, lawmakers interfere. That tells you that the public still cherishes certain principles of government mail service.
That's appropriate. The post office was written into the Constitution, ostensibly by Benjamin Franklin (it's in Article I, Section 8), because he saw it as a crucial governmental function binding the nation together. There's hardly a government agency that stands more as a symbol of the "United" part of "the United States."
The post office is deeply woven into our culture and our politics. In 1935, when local politicians beholden to mine owners blocked Labor Secretary Frances Perkins from addressing coal miners in the town hall, and even a public park, in Homestead, Pa., she was stymied until she spotted a U.S. flag fluttering in the distance. It flew over the post office, the one place the local henchmen couldn't close to her, and she finished the meeting there. Post offices across the country are display cases for murals, statuary and other historic works of public art, many of them originated during the New Deal.
Kamarck contends that spinning part of the Postal Service into a wholly private enterprise would allow it to "develop new products and compete in the private marketplace." It could expand ventures such as its partnership with Amazon to deliver parcels on Sunday during the holiday season and plans to test grocery delivery in San Francisco, and conceive of new ones.
But why bother? The difficulty with allowing the USPS to expand into commercial delivery services is that it's still heavily subsidized by the government, creating a competitive advantage. Spun off and stripped of its subsidy, it would be only one more contestant in this space, where there is no dearth of well-funded, even overfunded, entrants already. The USPS has been dabbling in these new businesses as a way to balance its losses in its core service. Bring the core service back under government control and you don't need the other ventures.
The chief danger of bringing postal delivery back into the government embrace is that its ability to maintain efficiency and keep on top of technology might be sapped. That's not an insurmountable administrative challenge. But the challenge of maintaining universal postal service as a cost-effective commercial enterprise may well be insurmountable. It's a public benefit, and it should be the taxpayers' responsibility. 

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