August 28, 2019

Holding True to the 1970 Vision of a Mailer-Funded USPS 

The Postal Reorganization Act that was signed into law by President Richard Nixon in 1970, and the Kappel Commission that preceded it, had the primary goal of enabling the United States Postal Service to operate like a business.  It had been a cabinet-level agency with the President choosing the Postmaster General, and Congress setting rates, determining service levels, and even appointing local postmasters.   

It is generally agreed that the new USPS worked well as a mostly mailer-funded, businesslike, government-owned enterprise for about 30 years.   

It also is agreed that USPS benefited from some very timely tailwinds: 

• Long periods of strong economic growth. 

• Unprecedented growth of direct mail second to no other nation. 
• The advent and expansion of work-sharing incentives. 
• Strong growth in a mail service provider industry second to none. 
• Mail volume that took 200 years to reach 100 billion, doubled to 200 billion in 19 years: 1980-1999. 
• Little to no competition from the Internet, personal computers, and mobile devices (iPhone was launched on June 27, 2007). 

• Postage rates generally tracking CPI. 
• The emergence of credit cards as the payment mechanism of choice with attendant bills and promotions in the mail. 

For these and other reasons, the 1970 USPS vision seemed to work very well for about 30 years.  Indeed, what monopoly organization with these conditions would not do well.  

Fast-forward to 2019 and the USPS is in trouble again, much as it was 50 years ago.  Most of the tailwinds are gone.  And they have been replaced by substantial headwinds.  The seeds have been planted to jettison the two remaining tailwinds: economic growth and postage rate increases in line with inflation. The perceived savior of e-commerce-driven last-mile package delivery is in danger of being eclipsed by more efficient private sector competitors.  

Today, four sets of policymakers are advancing potential solutions to the problem: 

• The USPS. 
• The Postal Regulatory Commission. 
• The Congress. 
• The Administration. 

We believe that the four policymakers have two enormously important things in common:  

1. Policymakers are not addressing the Universal Service Obligation.  No one is seriously reexamining what public services we want to have USPS provide and how we will pay for them.  This is a critical omission that will massively handicap all the proposed solutions.  The Postal Service itself has been very transparent about its USO continuously growing as its mail volume declines.  In other words, the public service portion is growing relative to the businesslike segment of services USPS provides.  Public services include things that people generally like but do not pay for directly, such as home delivery six days a week to a growing number of addresses and many more government-run retail post offices than any business would keep open.  Members of Congress who generally respond to the wants of their voters come down on the side of letting the USO amoeba continue to replicate itself.
   
2. Policymakers are clinging to the 1970 vision that 100 percent of USPS funding must be provided by mailers paying postage.   In this model, the remaining customers would continuously be made to pay more and more as the USO grows and mail volume declines.  It is obvious to us that in today’s world the mailers-pay-all model is not only unworkable but is the formula for disaster.  
   

The current political environment does not countenance legislation that adds to the federal deficit. Yet our federal government debt continues to grow much larger and faster than the USPS debt.  The policymakers responsible for the out of control federal debt are the same ones who declare that they will prevent a “taxpayer bailout” of the USPS at any cost.  In turn, everyone in a position to help treats a discussion of the USO and how to pay for it as off limits or someone else’s responsibility. 

If the leaders of the effort to reform the USPS cling to the 1970 vision that worked well only for a short time, they will be missing a great opportunity to save a great institution.  Indeed, some of the intended cures will be much worse than the problem at hand.