Deride and Conquer: Dismantling the USPS

The historical cost of building our postal network, its unique characteristics and efficiency, the nefarious efforts to privatize and cripple it, and the economic and personal costs of losing it are considered.

An army prefers to fight on familiar terrain. Absent such serendipitous circumstances, a good general will try to move the conflict to more hospitable ground. In their long-thwarted campaign to cripple, privatize and cannibalize the assets of the United States postal system, conservative and business interests have finally, it seems, turned the tide of battle by employing a more measured and subtle strategy of legislative and economic subterfuge. Having failed in a full-on frontal assault on government control last attempted by private carriers in the mid-1840s, the Postal Service’s detractors have mounted a new, more promising offensive in the present era. To their credit, they have enjoyed some success by redefining the terms of engagement, and by reconstituting the nature and mission of the US postal system from its historical role as a civil service entity to a Frankenstein-like corporate/government hybrid with most of the downsides, and few of the advantages of both.

Since the 1970s, the right has patiently tried to wrest control of the US Postal Service from the government using a three-step strategy characterized by: a) ideologically legitimizing its effort through scholarship cooked up in Koch-funded think tanks like Cato and the American Enterprise Institute; b) politically codifying it in generic, legal templates drawn up in legislative boiler rooms like the American Legislative Exchange Council (ALEC), and c) economically executing their plan by forcing USPS to operate in a commercial arena where it would be squeezed on one side by government constraints, and, on the other, forced to compete with global private carriers like FedEx and UPS not subject to the same legislative mandates. Each strategy deserves scrutiny, for each is a piece of a puzzle which, when we step back and view it from afar, reveals the right’s goal of undermining and co-opting this venerable institution.

Clearing the Post Road

Even before the founding of the Republic, a rudimentary postal system was part of the Articles of Confederation (Article IX).For Washington, Jefferson and Madison, the postal system was more a matter of principle than philatelics. It was, for them, not just a vehicle for the physical transmission of personal correspondence, it was a vital part of the intellectual and social fabric of the nation in its facilitation of discourse among the citizenry, a view that has been upheld over centuries of legal challenges to its government mandate. In a paper for George Mason University (surprisingly objective for George Mason, an institution awash in Koch money), Richard R. John (John, 2008. Pg.16) reminds us that the principle source of information at the time – the “mass media” – was not personal letters but newspapers. They therefore deemed newspapers, above all, worthy of government support and even subsidy, and understood intuitively what Napoleon, their contemporary, appreciated as a practical point of policy when he remarked: “Four hostile newspapers are more to be feared than a thousand bayonets.” He had, after all, the memory of Louis XVI’s head in a basket to remind him that the nascent French press had a lot to do with the monarch’s demise.

As the nation took shape – filling in to the center from both coasts – the system of post roads expanded with it like blood vessels into thinly populated hamlets, hollows and far-flung burgs. Through these conduits flowed the economic and intellectual life issuing from distant, cosmopolitan centers to smaller communities that might otherwise have been cut off from such discourse. After the golden spike was driven, uniting the country by rail, both lawmakers in the seats of power and the citizenry came to appreciate that the mail was not simply a luxury to be dispersed in profitable, densely populated areas only. No one realized this more than then-Postmaster General John Wanamaker, who, during his tenure between 1889 and 1893 worked to establish Rural Free Delivery (RFD) to reach “…nearly the 41 million Americans – 65 percent of the American population – [who] lived in rural areas.” By 1902, after some experimentation, the service was permanently accepted as part of US postal system.

The US postal network that Wanamaker nurtured has, today, no match in the world in terms of area and effectiveness. The total landmass of all 50 US states is roughly 3.5 million square miles. Across this vast area, the US Postal System services 227,000 routes. “In one year,” writes Foreign Policy Magazine’s Joshua Keating, “America’s mailmen and women delivered 268,894 letters and 2633 parcels percarrier [italics mine] – more than any other country – to 151 million addresses. All told, the USPS accounts for 40 percent of the world’s mail volume….”

With assets valued at over $400 billion (pg. 24) and such an extensive, unparalleled network, it’s little wonder that the economic carnivores who do daily battle in the corporate jungle – a group unmoved by the lofty sentiments of the founders – salivate at the prospect of chasing down and feasting on the fat carcass of the United States Postal Service. Their main impediment, however, has been the postal system’s unionized workforce and its unique government status, a status that has nurtured close historical ties to the culture in a bond not easily severed by mere economic calculus. Job one, for the right, has been to weaken and marginalize this group, an effort they’ve mounted on a number of fronts.

1970: Mail Incorporated

Before today’s Post Office as we know it – The United States Postal Service, or, USPS – the Post Office was an arm of Congress called the Post Office Department or alternatively the United States Post Office Department. In its previous capacity before 1970, it was part of the Civil Service. The change in nomenclature is crucial because it is a semantic indication of the postal system’s switch from a straightforward arm of Congress to a quasi-governmental, self-supporting commercial entity. What, one might ask, inspired this change? Quite simply: a picket line. For two years, between 1968 and 1969, postal workers (who, at the time, had no collective bargaining rights) had been pressing union and government officials for a wage increase above their subsistence-level salaries. Their frustration came to a head in 1970 when postal workers in New York walked off the job and were soon joined by thousands in the illegal job action. When newly elected President Nixon’s order to return to work fell on deaf ears, he ordered the National Guard to replace them. The Guard, however, proved to be incompetent postmen, and the postal system ground to a halt. The government relented, and postal workers won an 8.4% raise and the right to collectively bargain.

Both government and union officials agreed something had to be done for the long haul. Ironically, the raise and the right to bargain were just two of a number of recommendations that had been broached by a commission appointed by the previous president, Lyndon Johnson, just a year earlier in 1969. Headed by the then-recently- retired chairman of AT&T, Frederick R. Kappel, the commission issued a report – titled “Towards Postal Excellence” – that quite benignly conceived the present hybrid structure of the postal system. Known as the Kappel Report, the eponymous study suggested a more autonomous role for the Post Office, to be run more like a corporation; more, not so coincidentally, like AT&T.

Just like the postal system, AT&T was then a monopoly, and Kappel’s conception of the new Postal Service as a market monopoly could, quite honestly, have been inspired by AT&T’s own attempt to justify and maintain its market dominance. It was, in fact, the first time the term “universal service” was used with regard to mail, a concept used before then only to refer to the “universal” availability of phone service. Using the Kappel Report as a template, the postal system was completely revamped in 1970 under the aegis of Public Law 91375, known as the Postal Reorganization Act. The structural changes called for in the legislation were profound and consequential, transferring the decision-making power from 535 members of Congress, to a group of five presidential appointees. Essentially, the act:

• Created an independent, self-supporting (primarily through sales of postage) government corporation – the United States Postal Service (USPS) – charged with providing universal delivery, a monopoly of first class mail, and exclusive control of mailboxes.

• Created an 11-member group (nominated by the president and subject to approval) called the Board of Governors to direct policy and
procedures, and a Postal Rate Commission (PRC) to establish postal rates.

• Guaranteed union representation and collective bargaining, with unsettled disputes being sent to federal mediation.

• Mandated pension payments by the new USPS to the CSRS, or “Civil Service Retirement System,” then the only entity funding government pensions.

In hindsight, the Postal Reorganization Act of 1970 established the United States Postal Service as an independent establishment of the Executive Branch, not as a government
corporation. Commissions discussed the idea of a government corporation,
but this was not established in the law. Even though it used AT&T, a private sector monopoly, as a corporate model, we must remember that monopolies at the time had neither the global reach nor the technological capability of today’s behemoths to create and leverage the wretched Dickensian working conditions of foreign sweatshops against American workers. It was a time when faxes, telexes, and phones were the dominant technologies, and the hemorrhaging of US manufacturing jobs from Detroit, Pittsburgh and Ohio had not yet begun in earnest. Almost a third of the US workforce was unionized at the time, so companies like AT&T were compelled to treat unions with a modicum of respect and legitimacy. However, though the legislation made inroads in terms of job security, wages and bargaining rights, it simultaneously exposed postal workers to a new vulnerability as agents in the marketplace, a subtlety that did not escape right-wing intellectuals toiling in the new conservative think tanks like the Cato Foundation and the American Enterprise Institute. They set to work constructing a body of scholarship aimed at exploiting these vulnerabilities, demonizing public sector unions, and advocating for changes in the economy that might further erode public sector union power.

One for the Gipper: Reagan, PATCO and beyond

Reagan’s mass firing of the Air Traffic Controllers (PATCO) in 1981 breathed new life into the right’s long felt anti-labor animus and inspired hope of once and for all crushing the power of the US labor movement, a considerable portion of whose members were postal workers. The war against the unionized worker now had a hero in the White House, and Reagan’s action was taken as an official, presidential imprimatur on the assault. Stereotypes of the labor movement and unionized workers that had been set aside on right-wing shelves with the ascendance of labor after the New Deal were, by the mid-1980s, being dusted off and making re-appearances in the new right-wing journals and, more importantly, in Congressional hearings on the Postal Service. An early skirmish occurred in 1984 when, after postal workers’ contract had expired, the the United States Postal Service Board of Governors decided to fire a salvo across the bow of labor by unilaterally implementing a two-tier wage structure for new and older postal employees. The move was met with outrage, and then withdrawn after Democratic House members went to the floor and passionately invoked the collective bargaining mandate of the 1970 law (pg.86).

Hostilities were dormant until 1994 when, after winning both houses of Congress, Republicans marshaled their forces for another attack. In 1995, Representative John McHugh (R-New York) – who, since 2009, has been the US Secretary of the Army and, more significantly, is an ALEC alum – led it, honoring the 1970 law’s 25th anniversary by initiating hearings around proposed legislation to undo it and completely privatize the USPS. The sponsors of HR 210 speak reams about both the spirit and the intent of the legislation. One, Dana Rohrabacher, is a lifelong friend and benefactor of Charles Koch. In a January 2011 interview, the Congressman professed his long-felt gratitude and affection for the billionaire. “I knew him more like 30 or 40 years ago and always [sic] very respectful and grateful for his family’s commitment to liberty,” he reminisced, “I think the Koch family is playing a really significant role in the future direction of our country in a positive way.” The other, Phil Crane, cut his political teeth in the campaign of Barry Goldwater and could be justifiably regarded as the one of the spiritual progenitors of the Tea Party before there was one.

By the time of the 1995 hearings on HR 210, Rep. McHugh, the committee’s chairman, had the wind of the Republican resurgence at his back. With his Republican colleagues (i.e., Speaker Newt Gringrich, Tom DeLay, et al) busily engaging President Clinton (Monica was three years away), McHugh dove into the proceedings with single-minded conviction. The hearings were a showcase for conservative theory and prognostication, spruced up and put on display in a legislative forum. There was nothing new, really; just a reprise of traditional anti-labor talking points. It is, after all, a generational article of faith among the hard right that – absent the paternal hand of the monied class to guide them – workers are unmotivated and lazy. They are, so the gospel goes, incapable of determining the nature and limits of their workplace or the value of their own labor. Workers are, furthermore, only “efficient” when they are mindless cogs in a nightmare version of a Frederick Taylor time-management scenario (think Walmart, or an Amazon distribution center). Even the smiling, happy post person going about his or her appointed rounds inspires contempt, for the true role of the worker, in their eyes, is to be fearful and so preoccupied with basic survival they have no time to consider their plight, or to concoct stratagems to improve it.

The thrust of HR 210 was that the USPS was doomed, its lifes blood – paper mail and first class correspondence – certain to be sucked from it by the ever looming vampire of e-commerce and e-mail. Personal computers and messages transmitted over the internet would, so the jeremiads went, render the Postal Service and its army of employees redundant. Better, then, for postal workers to cash out for a specified sum before the E-pocalypse and head for the hills in ignominious defeat. The ever-looming internet has been a common theme among right wing prognosticators since the eighties, recurring like an idée fixe in their ongoing symphony of disdain for the Postal Service. The ease of online bill paying and e-mail would, so the argument goes, render the paper-based USPS obsolete. This view rests, however, on a much more optimistic assessment of the digital divide than reality warrants. It ignores the fact that great swathes of the country, especially in rural and poor areas, still enjoy little or no internet access; many have neither a computer, the money to afford one, nor the skills to operate it. Though the internet and e-commerce have indeed garnered an ever increasing role in the culture, it is not nearly pervasive enough to fulfill the universal service role performed since the late 19th century by the US Postal Service. Chart A below illustrates just how much of the country still does not have internet service:

Chart A:

Government-sponsored postal service has traditionally – with the exception of purchased postage – been a free service provided to everyone. You needn’t pay the postman to put mail in your mailbox. Internet services, on the other hand, are strictly offered by profit-based companies. Because their primary goal, as with any corporate entity, is to maximize gains for shareholders, the internet lends itself to the same sort of inequality that characterizes the marketplace where more purchasing power buys more and better service. The latest retrenchment on internet neutrality is disturbing evidence of a trend toward an economically based internet hierarchy. In this sense, the persistent digital divide mimics the ever-growing economic chasm separating the haves from the have-nots. As long as this is so, the internet will never be a viable substitute or vehicle for the universal service provided for over a century by the US postal system.

HR 210’s proponents could not, of course, have foreseen such developments. The law they proposed would have compelled USPS to surrender the bulk of its plant and capital to the private sector. Private business would do a better job than government employees who, in the bill’s proponents’ estimation, are inherently shiftless and incompetent. Lending a veneer of academic legitimacy to the proceedings was one Dr. Edwin Hudgins, then director of regulatory studies at the Cato Institute. (He presently holds a position at the Ayn Rand inspired – what else? – Atlas Institute.)

The very presence of the postal monopoly would, according to Hudgins, be an impediment to private sector innovators who “…will always be slowed by the elements of their services dependent on the Postal Service.” Take pre-sorting, bar-coding, and bagging work away from postal employees, he advised, and give it to private businesses. “But why not,” Hudgins urged, “contract out all bulk shipments between major distribution centers, or all mail sorting to private suppliers, or simply allow the private sector to perform those functions entirely?” Then the good professor, in true Taylorist fashion, segued to the postal workers’ work culture, complaining that “…‘non-productive time’ constitutes 28.4 percent of mail-processing labor costs.” (Breaks and lunch?) Hudgins and his ilk, however, harbor a special and prescient animosity toward workers’ pensions and benefits, something, as we shall see, that would prove particularly vulnerable in future assaults. “…the USPS,” he opined, “has billions of dollars in unfunded pension liabilities backed by the federal government, that is, by American taxpayers.” That was a canard. USPS pension liabilities were not unfunded. The 1970 act mandated that the USPS make routine payments into the CSRS, which it did.

HR 210 failed. However, it laid the groundwork for future legislation by winnowing out which attacks were effective from those that weren’t. One volley that fell short was the assault on USPS’s efficiency and adaptability. Chart B below shows the USPS was not, in fact, populated by Luddites and cretins but by people willing to embrace new and efficient technologies, and to make sacrifices for long-term growth and profitability:

Chart B:

The figures indicate a number of things, the most important being a consistent, upward trend in profitability (in green) between 1995 and 2006 despite closure of 4,684 post offices, or 15% of them, over a 36-year period. More importantly, advanced sorting technology and techniques were embraced. In 1978, USPS implemented the expanded ZIP Code. In 1982, the first OCR (“optical character recognition”) came on line, allowing workers to barcode mail and send it to corresponding BCR (“bar code recognition”) for much quicker processing. Throughout the 1990s, even more sophisticated “advanced facer-canceler systems” were utilized. According to a 2007 USPS report (pg. 44), “The Postal Service delivered 32 percent more mail with nearly 9 percent fewer employees in 2006 compared to 1988, largely because of its successful implementation of mail processing technology.” Clearly, conservatives would have to find another weakness in labor’s fortifications, and they found one in the government pension system, a battle they’d already begun approximately ten years earlier.

Prior to the 1970 Postal Reform Act, all federal employees were covered by the Civil Service Retirement System, or, CSRS. This included postal workers as well until, after reform, responsibility for federal retirement was transferred from the Treasury Department solely to the USPS for anyone hired after 1971. This, of course, added immediate financial stress to the infant USPS, whose fundraising, with the exception of minimal congressional funding, was restricted to sales of postage. Such increases were, in turn, held to increases in the Consumer Price Index (CPI). It is important to note that CSRS pensions were traditional “defined benefit” plans, or, pensions amassed through joint contributions by both employers and employees for a specific stipulated amount to be paid upon retirement. Under “defined contribution,” plans – its opposite – funds are still amassed through joint contribution, but a final retirement income is not specified. The prospective retiree is, in great part, responsible for his or her own retirement through a combination of investing and saving. The employers’ responsibility ends with their “contribution” to the effort, not the outcome. With much of their retirement destiny thrust into their own hands, government employees – few of whom were savvy investors – were forced to make speculative decisions on their own, or to entrust them to “experts” in the then-burgeoning financial services and banking sectors who were more than happy to shepherd the funds for a fee, and were enjoying increasingly less government oversight. The Masters of the Universe on Wall Street welcomed the flood of new money.

Alphabet Soup: Stirring the Public Pension Pot

In the early eighties, supply-side theory still had that new-car smell, and the right was anxious to drive it off the lot. Within a scant ten years, since its design had been scribbled on a napkin (or so the legend goes) in a Washington restaurant by Arthur Laffer, the apostles of tax and budget cutting were sharpening their knives and ignoring cries of “voodoo economics” aimed at the theory’s counter-intuitive notion that a government can raise revenues while cutting them at the same time. They drove the car off the cliff instead. After Reagan slashed the top tax rate from 50% down to 28%, a yawning chasm in the federal budget opened up like a fault line in a quake.

“The deficits rose from 2.6 percent of the gross national product in the fiscal year 1981 to 6.3 percent in 1983” the New York Times recounted in a 1988 article. But that was okay. Ironically, the massive shortfall was politically expedient and a propaganda coup for conservatives, creating economic conditions whereby the right could shift responsibility for the deficit from its real source – over-ambitious tax cuts – to the income, pensions and health benefits of public sector workers, a group they had always sought to characterize as profligate, pampered and over-paid. It is a tactic, sadly, employed – and effectively employed – to this day.

The challenge, then, was to devise a system that would weaken the self-contained structure of the CSRS pension system, one that would dissipate the economic resources – ergo, the political power – of public sector unions. What they came up with was, frankly, a stroke of genius. It involved fragmenting government pensions into three pieces, utilizing: a) Social Security; b) an entirely new component, funded, as with CSRS, jointly by employer and employee, called FERS (Federal Employee Retirement System), and c) a so-called Thrift Savings Plan, or TSP. Previously, recipients of CSRS did not pay into or receive Social Security, and they fought doggedly to keep their system independent. Despite conservatives’ doctrinal opposition to Social Security, in this instance they realized its value as an economic cudgel to crack the armor of the CSRS system. That is, by forcing government workers into Social Security, they could force the government unions to siphon off what were previously dedicated funds into the general pool of Social Security, a tranche of money that serves the populace as a whole. TSP, on the other hand, was the most overtly market-driven component, putting a piece of the recipient’s retirement income directly at the mercy of financial markets.

The right’s point man for the endeavor was Senator Ted (“Bridge to Nowhere”) Stevens (R-Alaska) who, in 1982 brought to the Senate floor S 2905, which would establish the aforementioned defined contribution and thrift plan. The House matched the effort with its own version, HR 3660. After blending the bills for four years in conference, the Federal Employees Retirement Act was passed on June 6, 1986. Triumphant, conservatives had stormed the barricades of at least one of the labor movement’s outposts.

Though it was a winning strategy, it didn’t go far enough. Postal workers’ ranks and union influence were still prodigious. They still posed a political threat and an economic obstacle for private carriers like FedEx and UPS (both corporate members of ALEC) who, but for the Postal Service’s statutory monopoly in some areas, wanted to extend their influence. What was needed was another report, a sort of “Kappel Report, Part II.” Only this time, there would be no dancing around labor power. The gauntlet would be thrown down. They would double down on the canard of Postal Service ineptitude and inefficiency, even in the face of USPS’s improved performance, and they would open further the wounded pension system. After all, propaganda from the right wing media and the gravitas of a presidential commission would be enough, or so they imagined, to short-circuit something as irrelevant and inconsequential as reality. The result was a tendentious rehashing of right wing talking points, supported by speculative data cooked up by a Silicon Valley spawn of the Rand Corporation (long the preferred research cauldron for the Military Industrial Complex) called the “Institute for the Future.”

“Embracing the Future (Making the Tough Choices to Preserve Universal Mail Service)” was released in 2003, and, as one might expect, the “tough” choices redounded to the misfortune of the right’s political enemies in the Postal Service. And yes, the roster of commission members on the introductory page listed were, with the exception of one union representative of questionable repute, business people. But these individuals were different from the clear-eyed corporate monopolists of 1970. These were bankers and hedge fund managers: all those who would be waiting in the wings to receive the cornucopia of postal assets potentially redirected their way should the commission’s findings make their way into law. More importantly, “Embracing the Future” appeared against the backdrop of cultural conditions much different from those of the 1970 re-organization.

The year the report was released – 2003 – saw an economic landscape much different from 1970. Weakened private sector unions and outsourcing were increasingly impoverishing the American worker and middle class. In such a socio-economic climate, it was easier to set the ever-increasing army of low-wage workers in the service industries against unionized, public sector workers who, through wise contracts bargained in more prosperous times, still enjoyed decent wages and benefits. Divide and conquer. Distorted through the right’s ideological prism, the hard-won job and wage security of public sector workers were perceived by poorer workers less as a goal to be achieved for themselves than as an ill-gotten and ill-deserved bounty. It was, it seemed, a living vindication of Thorstein Veblen’s concept of “invidious comparison”.

Like a devious physician who, charged with rehabilitating a patient, prescribes a regimen of poison pills instead, “Embracing the Future” concealed its ill intent beneath a veneer of false veneration and concern for the work and legacy of the Postal Service. At the outset, it seemed to take outright privatization off the table precisely because of the very range and effectiveness of the Postal Service. “It is highly unlikely,” the report states, “that the private sector, acting alone, could provide the universal mail services we have come to expect from the Postal Service.” (Pg. ix) Further on, however, it becomes clear that the private sector is precluded from acquiring the property and tasks of the Postal Service not because it can’t handle it, but rather because it can’t handle it yet. This becomes obvious in the commission’s call for a “Postal Regulatory Board,” an executive group with much broader authority than the existing PRC. This Regulatory Board would, the report envisions, “…periodically review the scope of the monopoly with an eye toward narrowing it over time, so long as a greater reliance on a thriving private postal marketplace can occur without sacrificing universal, affordable access to essential postal services.” (Pg. x) In good time, the enemy would be brought to heel.

Perhaps another reason the commission could not offer a full-throated embrace of privatization stemmed from the fact that its own survey found that “A full 73% believe postal operations should either remain as is or be improved through only minor changes.” (Pg.18) Better wait on that one, too. This is only one example of the poison pills buried in the doctor’s bottle. Some of the others included recommendations like these:

• Defining USPS’s business model so narrowly, that it can’t compete
economically with private carriers like UPS and FedEx:

(a) “Commission recommends that the Postal Service be restricted to products and services related to the delivery of letters, newspapers, magazines, advertising mail, and parcels.” (Pg. xi).

(b) “…setting the ceilings below inflation, thereby restricting revenue growth to motivate the Postal Service to pursue a far higher standard of efficiency.” (Pg.xiii)

• Siphoning traditional Post Office business to employees of retail outlets:

(a) “…expanding and accelerating efforts already underway at the Postal Service to bring a wider array of services to customers in convenient locations throughout their community – from grocery stores, to pharmacies, to cash machines…”
(Pg. xviii).

(b) “…the new Postal Regulatory Board may wish to take a closer look at the mailbox monopoly with the aim of easing its boundaries to permit greater individual consumer choice.” (Pg.25)

• Exploit the prevailing conservative orthodoxy concerning collective bargaining, wages and pensions:

(a) In an ingenious riff on the bargaining language in the 1970 act which mandated that Postal Workers wages could not be below the private sector, “…The Commission firmly believes that postal workers should continue to have access to collective bargaining and total compensation comparable to, but not exceeding, the private sector. [italics mine].” (Pg. 112)

(i.e., if Walmart is successful in setting the prevailing wage, then that’s the ceiling, despite collective bargaining.)

(b) The commission expresses its frustration at its lack of control over the terms of collectively bargained wage, pension, and health benefits: “It is the Commission’s view that the benefits of comparability are undermined for all parties when significant segments of total compensation are rendered non-negotiable… A lack of negotiating authority with respect to these costs would be intolerable to most private-sector companies. They should be brought within the collective bargaining process at the business-oriented Postal Service, as well.” (Pg. 118)

So, the die was cast, the legislative mandate was clear, and right wing legislators got to work crafting the legislation that would embody the report’s recommendations. Much to their chagrin, one of the more obdurate defenses of the postal workers (and public unions in general) were their wage and benefit packages, still very much insulated from legislative assaults. With the country enthralled (and therefore, distracted) in 2003 in the martial spirit ushered in with the invasion of Iraq, the right wing could turn its attention to the campaign at home against its domestic enemies in the Postal Service. While trumpets blew and the barricades of freedom and liberty were being defended in Iraq, they perfected their new secret weapon to be used at home, one that would come from accountants.

Here, we digress to a rather wonky but significant aside in the realm of accounting. This is necessary because there has been, for a number of years, a simmering dispute in the accounting world over the proper way to estimate the present and future value of pensions; in particular, public pensions.(See this analysis of the issue by CFA John R. Minahan.)

Under a defined benefit pension structure the entity agrees to pay the employee in the future a sum of money each month/year. The risk of having enough money to pay this future obligation rests with the entity. For example, say an employee is 40 years old and the entity agrees to pay the employee 80% of his final salary upon retirement when the employee turns 65 years old.

This agreement has created a liability for the entity. How you measure the value of that liability is complex and requires a number of assumptions such as the employee’s final wage, inflation rates and life expectancy. For the above example let’s say that liability is $2,000,000. Governments and employers will then contribute to the pension plan’s fund each year with the hope that the amount they are contributing will grow over time to equal the liability, in this case the $2,000,000. The assumptions underlying the calculations can be manipulated – or rates of return on investments can be far lower than those assumed – thus creating the “Unfunded Liability.”

In the right’s arsenal of memes, perhaps none has proven more effective than the concept of “unfunded liabilities” as a way of portraying public sector workers and their wages and benefits packages as a drag on the taxpayers, both locally and nationally. Even today, it is the rallying cry of choice in statehouses from Chris Christie’s New Jersey, to Scott Walker’s Wisconsin, to Rick Snyder’s Lansing. It plays well among low information voters and Fox News watchers in former industrial regions with busted budgets decimated by outsourcing and ill-conceived tax cuts. Because of its effectiveness, the notion of “unfunded liabilities” was the anchoring concept when the right crafted its most recent and most devastating legislation, the 2006 Post Office Accountability and Enhancement Act, or PAEA.

Sleek and deadly, PAEA was a distillation of all the legislative weapons to date in its war with USPS, defining more specifically than ever both the economic scope and purview of USPS, while simultaneously burdening it with restrictions designed to hamper its effectiveness and profitability. It was, in short, more poison pills, the most venomous of which were:

• So strictly defining the term “Postal Service” that it precluded USPS from dealing in any but the most stringently defined goods and services. (Sec.101)

• Erecting a firewall between what the USPS was authorized to do under the aegis of its “monopoly mail market,” and the more diverse goods and services provided by the private sector, or “competitive” market. (USPS could operate in the competitive market, but its operations would be severely restricted, and no monies gleaned from its mail monopoly could cross over into its competitive operations.) (Title II)

• Establishment of the Postal Service Retiree Health Benefits Fund. (Sec. 801 to 803)

Of all the changes mandated by the legislation, the establishment of the Retiree Health Benefits Fund (in bold type above) proved the most consequential and devastating for the USPS. Exploiting accrual accounting methods that use market value estimations projected far into the future (i.e. “…actuarial present [italics mine] value of all future benefits…” in the language of the bill. (Sec. 802(A)), conservative legislators cooked up an “unfunded liability” for the future health benefits of postal workers totaling $55.8 billion and demanded that that amount be pre-funded – something no other corporate or public entity has ever been required to do. Consequently, rather than a year-to-year payment schedule traditionally accepted by pension fund actuaries, the law demanded that USPS pre-fund the full amount of pension obligations projected through 2039 (802(C)). Chart C below is from a 2012 Congressional Research Service (CRS) report listing the suggested amortization schedule alongside the actual payments made by USPS, which struggled to satisfy them:

The right had found the silver bullet – the one that would mortally wound an already struggling USPS fighting to maintain itself on the limited revenue stream diminished by previous conservative legislation. While many on the right still insist on attributing the decline in revenue at USPS to dwindling mail volume, another report by CRS in 2013 points the finger directly at the pre-funding scheme outlined in the PAEA, stating:

“Between FY2006 and FY2007, the USPS’s revenue rose $2.1 billion, from $72.7 billion to $74.8 billion. The agency’s expenses increased $8.4 billion during this same period, from $71.7 billion to $80.1 billion. Of the $8.4 billion expense increase, nearly all of it resulted from the PAEA’s RHBF funding requirements.” (Pg. 4)

Chart D below is from the same 2013 CRS report and dramatizes the effect on the USPS over a ten-year period since the beginning of the RHBF enactment:

Such an effective tactic could not be wasted on the USPS alone. Certainly, it could be used against any public sector union, be it in Detroit, Madison or Trenton. But it needed to be codified in generic terms so that any legislator on the local, state or federal level could simply dial up the legal template, fill in the blanks and bring it quickly to any legislative forum. This is exactly what ALEC did in 2011 when it approved its model “Unfunded Pension Liabilities Accounting and Transparency Act,” making it accessible to anyone on the ALEC web site. It was a new day: “e” union busting that was quick, simple and devastatingly effective.

The Cost of Privatizing: Be Careful What You Ask For

For decades, the Postal Service has inspired a wealth of derision, serving as everything from an institutional synonym for inefficiency and ineptitude to a corruption of the very word “postal” from a benign adjective to a word denoting an irrational act of murder. Yet, even in the face of such calumny, the men and women of USPS head out to their trucks and their sorting facilities each day and provide us with the most efficient postal system on the face of the earth. Those free-market cheerleaders who scoff at such a notion, who pine for the day when the privatization genie will swoop down and transform the postal system’s trucks, post offices and machinery into numbers on a Wall Street trading board should pause for a moment and reflect on the experience of those countries that have subjected their postal system to the vagaries of the market. In many European countries it has, in fact, been done, and the outcome might not be so appealing for average citizens, not to mention postal workers, after an objective look at the results.

Since the formation of the European Union, its member countries have struggled to coordinate a patchwork of postal systems, some of which are now completely privatized, others a blend of private/public services with markedly different workforces, work rules, compensation and union representation. Below are examples of countries with differing privatization regimes along with some of the results, the first two drawn from a 2007 Pique report commission by the EU:

•Austria: Though the traditional postal service, Postal AG, still controlled (as of 2005) 98% of the addressed letter market, it only had 80% of the unaddressed letter market, which was serviced by “Self-employed deliverers” who “not only lack any form of employment protection, they also work short, but highly flexible working hours and earn a fraction of the monthly salary of a regular postman.” (Pg. 16) Many of these self-employed deliverers are asylum seekers with no rights and markedly lower wages. (Pg.24). Price for a 1st class
letter: 0.62 euros, or about 85 cents.

• Germany: Deutsche Post reduced its civil service postal workforce between 1995 and 2005 by 28,000. Its spin-off, Deutsche Post World Net, was a global company with over a half-million employees in 2006 with the majority of shares in private hands. New competitors appearing in the letter market created what looked like an impressive 46,175 jobs. However, a closer look shows that most of these (60%) were part time “mini” jobs that pay 30% less than the incumbent service and offered no collective bargaining rights. (Pg. 21). Deutsche Post purchased DHL in 2002, making it the largest carrier in the world. Only 42% of DHL’s employees, however, are Germans. The German postal system – serving a country roughly the size of Oregon and Washington combined – delivers less than a fifth of the letters of its public counterparts with much less efficiency. Price for a 1st class letter in Germany: 0.58 euros, or about
79 cents.

In a 2014 review, Christoph Hermann of Global Research characterizes the questionable outcomes from liberalizing European postal services:

“In sum, post liberalization has not improved services and reduced prices as promised by the European Commission and others. Instead, liberalization has produced a few winners and many losers. The winners are private shareholders of former public monopolies, post managers and large customers, while the losers include private households, especially those in rural areas, and postal sector workers who have experienced liberalization as massive deterioration of employment and working conditions.”

Writing in the U.K.’s Daily Mirror in a September 2013 article, Nigel Atkins reflects on the results of European postal liberalization and the impending prospect of Britain’s Royal Mail being sold off. Says Atkins:

“In the Netherlands… Four competing firms handle the mail so homes and businesses get letters and parcels from men and women in orange uniforms from PostNL, run by multinational company TNT, blue postmen from Sandd, a private firm, yellow staff from Selekt, owned by DHL, and the half-orange postmen of Netwerk VSP, also TNT-run… To add to the confusion, TNT delivers six days a week, Sandd and Selekt two days a week, and VSP just once. And Dutch post boxes are only emptied once a day.”

One does not, however, have to look across the ocean for examples of private/public disparities in postal services, as they already exist here in the US.

The network, the nexus, and the “final mile”

More than its reasonable rates and efficiency, the people of the USPS are what give it its real value. Jim Ed Bull is one of them. Profiled by NBC News in November, 2013, what Bull does sets him apart from his brown and blue clad counterparts who shepherd their trucks for profit. Each day, he loads his Ford Ranger with the daily mail at the post office in Mangum, Oklahoma (population, 2,921 in 2012). He then sets out on his 187-mile route – the longest in the country. Mangum is a metropolis compared to the little towns he serves along the way. There’s Duke, with 412 people, and Eldorado, at 421.

“They all know me, everybody that I have on the route,” he said. “They know, they see that little red truck comin’ … [and] who’s in it.”

The citizens of Duke and Eldorado have a real bargain in Bull and the USPS when it comes to mail. Just how much can be illustrated in a comparison of rates for a hypothetical four-ounce parcel sent from each of these rural enclaves to a New York ZIP code – say, 10031 – via FedEx, UPS, and USPS respectively:

1st Scenario: Fed Ex – Altus, OK to New York

First of all, neither Duke nor Eldorado have Fed Ex outlets in their town. Duke residents would have to travel 15 minutes to the store in Altus to send their parcel. Eldoradans would have a half-hour trip to that same Altus outlet. Here is what Fed Ex’s online rate calculator came up with:

Final Cost for a four-ounce parcel via Fed Ex from Altus, OK to New York: $18.32

2nd Scenario: UPS – Altus, OK to New York

There aren’t any UPS outlets in Duke or Eldorado either. Residents of these towns would, therefore, have to travel the same distances to the nearest UPS outlet, also in Altus. Here is what the online rate calculator came up with for the UPS scenario for the same four-ounce parcel:

Final Cost for a four-ounce parcel via UPS from Altus, OK to New York: $29.30.

3rd Scenario: USPS – Altus, OK to New York

Finally, any resident of either Duke or Eldorado wanting to send a four-ounce parcel to the same New York ZIP code using USPS would simply have to go the US post office in their town to send it. Here isthe final tally for the USPS rate for that same parcel:

Final Cost for a four-ounce parcel via USPS from Duke or Eldorado, OK to New York: $2.50.

Lest one think the price disparity holds only with regards to rural areas, the same hypothetical parcel yields much the same results across the country from major cities. Here, for example, are the prices for the same four-ounce parcel from Seattle to New York via the same carriers:

FedEx: $21.23 UPS: $29.53 and USPS: $1.61.

Finally, where Jim Ed Bull and his truck goes is “the final mile,” those rural, out-of-the-way places profit-driven carriers like Fed Ex and UPS do not like to tread because to do so would not be cost-effective. It is precisely this routine door-to-door, people-to-people contact – out where the distance between mailboxes is measured not by footsteps but by miles – that is the essence of the “final mile.” It is the unique service of the US Postal Service, one bought with time and the generational effort of carriers establishing personal relationships with the people on those routes who’ve come to trust the service, and the people who deliver it. Those anxious for the demise of the USPS and those who glibly make it the butt end of jokes should consider the historical cost of building our postal network, and the economic and personal costs of losing it.