Report of the President's Commission on Postal Organization entitled "toward postal excellence," (1968)

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Material Information

Title:
Report of the President's Commission on Postal Organization entitled "toward postal excellence," (1968) prepared for Committee on Post Office and Civil Service, House of Representatives, Ninety-fourth Congress, second session, November 24, 1976
Uncontrolled:
Kappel report on postal organization
Physical Description:
viii, 212 p. : ill. ; 24 cm.
Language:
English
Creator:
United States -- President's Commission on Postal Organization
United States -- President's Commission on Postal Organization
United States -- Congress. -- House. -- Committee on Post Office and Civil Service
Publisher:
U.S. Govt. Print. Off.
Place of Publication:
Washington
Publication Date:

Subjects

Subjects / Keywords:
Postal service -- United States   ( lcsh )
Genre:
federal government publication   ( marcgt )
non-fiction   ( marcgt )

Notes

General Note:
Reuse of record except for individual research requires license from Congressional Information Service, Inc.
General Note:
At head of title: 94th Congress, 2d session. Committee print. Committee print no. 94-25.
General Note:
Commonly known as the Kappel report.
General Note:
Includes index.

Record Information

Source Institution:
University of Florida
Rights Management:
All applicable rights reserved by the source institution and holding location.
Resource Identifier:
aleph - 024430420
oclc - 02819510
lccn - 76603702
Classification:
lcc - KF49
System ID:
AA00024775:00001

Full Text




94th Congress r COMMITTEE PRINT r CoMmTTEE
2d Session PRINT No. 94-25






REPORT
OF THE

PRESIDENT'S COMMISSION ON POSTAL ORGANIZATION-ENTITLED "TOWARD
POSTAL EXCELLENCE" (1968)




COMMITTEE ON
POST OFFICE AND CIVIL SERVICE

HOUSE OF REPRESENTATIVES
NINETY-FOURTH CONGRESS
SECOND SESSION


N *






,,t NOVEMBER 24, 1976




Printed for the use of the Committee on Post Office and Civil Service

U.S. GOVERNMENT PRINTING OFFICE 79-3660 WASHINGTON : 1976



























COMMITTEE ON POST OFFICE AND CIVIL SERVICE
DAVID N. HENDERSON, North Carolina, Chairman
MORRIS K. UDALL, Arizona, Vice Chairman
DOMINICK V. DANIELS, New Jersey EDWARD J. DERWINSKI, Illinois
ROBERT N. C. NIX, Pennsylvania ALBERT W. JOHNSON, Pennsylvania
JAMES M. HIANLEY, New York JOHN Hi. ROUSSELOT, California
CHARLES H. WILSON, California ANDREW J. HINSHAW, California
RICHARD C. WHITE, Texas JAMES M. COLLINS, Texas
WILLIAM D. FORD, Michigan GENE TAYLOR, Missouri
WILLIAM (BILL) CLAY, Missouri BENJAMIN A. GILMAN, New York
PATRICIA SCHROEDER, Colorado ROBIN L. BEARD, Tennessee
WILLIAM LEHMAN, Florida TRENT LOTT, Mississippi
GLADYS N. SPELLMAN, Maryland STEPHEN L. NEAL, North Carolina HERBERT E. HARRIS, Virginia WILLIAM M. BRODHEAD, Michigan PAUL SIMON, Illinois NORMAN Y. MINETA, California JOHN W. JENRETTE, JR., South Carolina STEPHEN J. SOLARZ, New York JOHN H. MARTINY, Chief Counsel VICTOR C. SMIROLDO, Staff Director and Counsel THEODORE J. KAzY, Associate Staf Director ROBERT E. LOCKHART, Counsel J. PIER E MIYERS.. Aistanzt Coun~xc DAVID MINTON, Associate Counsel

(II)









TOWARDS POSTAL
EXCELLENCE
The
Report of
The President's Commission on
Postal Organization
June 1968





I IE PR'SIDE.V F 'S CO.fMISSION O0. POS TAL ORGA.T A TION.V



FREDERICK R. KAPPEL--Chairman Chairman, Board of Directors (retired) American Telephone and Telegraph Company

GEORGE P. BAKER Dean
Harvard University Graduate School of Business Administration

DAVID E. BELL Vice President
The Ford Foundation

FRED J. BORCH President
General Electric Company

DAVID GINSBURG Partner
Ginsburg and Feldman

RALPH LAZARUS Chairman
Board of Directors Federated Department Stores

GEORGE MEANY President
American Federation of Labor and Congress of Industrial Organizations

J. IRWIN MILLER Chairman
Board of Directors Cuinmins Engine Company

W. BEVERLY MURPHY President
Campbell Soup Company

RUDOLPH A. PETERSON President
Bank of America


MURRAY COMAROW-Executive Director
(IV)





THE PRESIDENT'S COMMISSION ON POSTAL ORGANIZATION
1016 SIXTEENTH STREET, N.W., '%V, -,HINGTON, D.C. 20036

The President
The White House
Washington, D.C. 20500
Dear Mr. President:
I have the honor of transmitting the Report of the President's Commission on Postal Organization in compliance with Executive Order 11341 dated April 8, 1967. You asked this Commission to "conduct the most searching and exhaustive review ever undertaken . ." of the American postal service. We have complied with your mandate. You asked us to "determine whether the postal system as presently organized is capable of meeting the demands of our growing economy and our expanding population." We have concluded that it is not.
Our basic finding is that the procedures for administering the ordinary executive departments of Government are inappropriate for the Post Office. We recommend, therefore, that Congress charter a Government-owned Corporation to operate the postal service. The corporate form would pen-nit much more successful operation of what has become a major business activity than is possible under present circumstances. The benefits which would flow from the introduction of modem management practices include not only greatly improved mail service but the early elimination of the postal deficit and far better career opportunities and working conditions for the individual postal employee. We have only praise for former Postmaster General Lawrence F. O'Brien and his staff. The Congress, the Executive Branch and the postal management and labor force have worked hard to provide good service. In view of the handicaps which the present structure imposes, they have done a remarkable job. It has become evident, however, that the postal service cannot keep pace with the demands of our society unless it is given a basic change in direction. Our recommendations for a major reorganization of the Post Office Department are set forth in this Report. We urge their adoption.
Respectfully,



Frederick R. Kappel
June 1968 Chairman
(V)














Contents




Summary 1

PART I-ANAL YIS AN^D RECOMMENDA TIONS

Chapter 1 Thze Post Office in Crisi's A. THE QUALITY OF POSTAL SERVICE.................11
1. A Postal Catastrophe: Chicago .. .. .........11
2. Dissatisfaction with Day-to-Day Mail Service . 12 3. Unresponsiveness to Public Needs .. .........14
B. THE CIRCUMSTANCES OF POSTAL EMPLOYMENT..........14
1. Antiquated Personnel Practices .. ..........15
2. Poor Working Conditions .. .... ........16
3. Limited Career Opportunities and Training .... 16 4. Inadequate System for Supervision. .. ........18
5. Unproductive Labor-Management Relations .... 18
C. POSTAL FINANCES.......................22
1. The Growing and Unnecessary Deficit .. .......22 2. The High Cost of Postal Service. .. .........24
a. Opportunities for Savings-Postal Productivity 24 b. Potential Improvements from Technology . .. 26 c. Managing for Savings .. ..... ........28
d. Realizing Potential Savings .. ... .......29
3. The Irrational Postal Rate System. .. .......29

Chapter 2--Thie Roots of Failure
A. THE PHTENOMIENON OF "NO CONTROL7)..............33
1 The Effects of Treasury Financing. .. ........35
a. Financing Capital Needs .. .... .......35
b. Financing Postal Operations. .... .......36
c. Lack of Customier Orientation .. .. .......37
2. The Effects of. Management by Legislature.......37
a. Rate-Setting .. ........ .........39
b. Postal Labor Relations .. ... ..........39
(VI)





3. The Effect of Political Appointments . . . 40
a. Top Management . . . . . . . 40
b. Postmasters . . . . . . . . 40
c. Rural Letter Carriers . . . . . . 42

B. THE EFFECT OF "NO CONTROL" ON INTERNAL
MANAGEMENT . . . . . . . . . 43
1. Headquarters Planning . . . . . . 43
2. Relations with the Field . . . . . . 43
C. THE POST OFFICE AND OUR NATIONAL LIFE . . . 46
1. Historical Origins . . . . . . . . 46
2. The Mails Today . . . . . . . 47
3. The Post Office as a Public Service . . . . 48

Chapter 3-A Natl'onal Opportunly
1. Recommendation-Organization . . . . 55
2. Recommendation-Service . . . . . 57
3. Recommendation-Appointments . . . . 58
4. Recommend atio n-Postal Personnel . . . 58
5. Recommendation-Postal Rates . . . . 61
The Need for Action . . . . . . . 63

PART II-SPECIAL STUDIES Contents of Part II Special Studies . . . . . . 69
Synopsis of Part II Studies . . . . . . . 73
Study 1. ORGANIZING AND FINANCING THE
NEW CORPORATION . . . . . . 76
Study 2. POSTAL SERVICES . . . . . . . 84
Study 3. POSTAL MANPOWER . . . . . . 98
Study 4. POSTAL RATES . . . . . 122
Study 5. POSTAL RATE-MAKING . . . . . . 144
Study 6. POTENTIAL FOR COST SAVINGS IN THE
POSTAL SERVICE . . . . . . 154
Study 7. OVERNIGHT DELIVERY OF FIRST-CLASS MAIL . 164
Study 8. TRANSPORTATION . . . . . . . 168
Study 9. THE CORPORATION AND CRIMINAL
LAW ENFORCEMENT . . . . . . 174
Study 10. THE POST OFFICE AS A CORPORATE CITIZEN 178
Study 11. FOREIGN POSTAL EXPERIENCE . . . 182
Acknowledgements . . . . . . . . . 189
A ppendix . . . . . . . . . . . 191
Index of Figures and Tables . . . . . . . 204
Index . . . . . . . . . . . 206

(VII)





AUNNEX- CO STRA CTO R REPORTS


VOLUME I
Report of the General Contractor
-- Arthur D. Little, Inc.
Personnel and Labor Relations
-Robert R. Nathan Associates, Inc. Financial Management
--Price Waterhouise & Co.

VOLUME 2
Rates and Rate-Making
--Foster Associates, Inc.
Cost Accounting for Classes of Postal Service
-Ernst & Ernst M\ arketing
-Arthur D. Little, Inc. Technology
-Arthur D. Little, Inc.

VO0LUME 3
A Description of Postal Problems and Their Causes;
Appendix B to the General Contract
-Arthur D. Little, Inc.
A Description of the Postal Service Today;
Appendix A to the General Contract
-Arthur D. Little,3 Inc.
Part 1 Early History and Present Industrial Context Part 2 Services Part 3 Organization and Management Part 4 Operations Management

VOLUME 4
A Description of the Postal Service Today (Continued)
-Arthur D. Little, Inc.
Part 5 Personnel Administration Part 6 Financial Management Part 7 External Influences on the Postal Environment Part 8 Forecasts of Postal Volume and Postal System
Requirements
(VIII)





















Summary,






T HEUnited States Post Office faces a crisis. Each year it slips
further behind the rest of the economy in service, in efficiency and in meeting its responsibilities as an employer. Each year it operates at a huge financial loss. No one realizes the magnitude of this crisis more than the postal managers and employees who daily bear the staggering burden of moving the nation's mail. The remedy lies beyond their control.
Although the Post Office is one of the nation's largest businesses, it is not run as a business but as a Cabinet agency of the United States Government.
The Post Office has always been operated as if it were an ordinary
Government agency: its funds are appropriated by Congress, its employees are part of Civil Service, its officials are subject to a host of laws and regulations governing financial administration, labor relations, procurement and purchase of transportation. Major managerial decisions are made through the legislative process: Congress sets postal rates and wages governs Postmaster appointments and approves or rejects construction of individual post offices.
In what it does.,, however, the Post Office is a business: its customers purchase its services directly, its employees work in a service-industry environment, it is a major communications network, it is a means by which much of the nation's business is conducted.
Furthermore, it is a big business. In Fiscal Year 1967 the Post Office
collected $4.96 billion in revenues and spent over $6.13 billion. (The $1.17 billion deficit was made up by the Federal Treasury.) Its 716,000

1





employees, working in over 414,000 facilities in virtually every city and town in the land, processed almost 80 billion pieces of mail last year, three-fourths of which was originated by business. Within ten years total volume is expected to exceed 110 billion pieces.
This omissionn has concluded that the challenges faced by this
major buMsiness actiity cannot be met through the present inappropriate and outnmled form of postal organization.
The Postal system must be given a management system consistent with its mission if it is to meet its responsibilities as a supplier of a vital service, improve the working conditions and job oplTx>rtunities of its employees and end a huge and completely unnecessary drain on the Federal budget. Piecemeal changes to the present system will not do the job: a basic change in direction is necessary.
Were the postal system being started today, it might well be operated by a privately-owned regulated corporation not unlike the companies which operate other communication and transportation services in this country. We have concluded, however, that a transfer of the postal system to the private sector is not feasible, largely for reasons of financing; the Post Office should therefore continue under Government ownership. The possibility remains of private ownership at some future time, if such a transfer were then considered to be feasible and in the public interest.
There is a way, however, within the compass of Government, to give the Post Office an organizational structure suited to its mission. We recommend that a Postal Corporation owned entirely by the Federal Government be chartered 1
by Congress to operate the postal service of the page 55**
United States on a self-supporting basis.*
Full management responsibility and authority would be vested in a
Board of Directors who would be charged with providing the nation with a superb mail system, offering universal service at fair rates, paying fair wages to postal employees and giving full consideration to the public welfare. We propose a nine-man Board of Directors with six appointed by the President, with the advice and consent of the Senate, and three selected as full-time Officer-Directors by the Board itself. The Board should( be given authority to establish levels of compensation competitive with private industry for top management officials, including the three
()fficer-Directors.
*Comment by Commssiloner Aeany:
I agree with the goal of modernizing the postal system and improving working conditions and job opportunities for its employees. However, the status of the Post Office as a Cabinet I)epartment has a positive value that should not be discarded lightly.
**"Page numbers in italics refer to full discussions of each recommendation in Chapter 3.





The Corporation would have the objective of supporting itself
completely from its revenues: operating efficiencies and a sound rate structure would over time be expected to eliminate the postal deficit. The Corporation would be given direct access to its revenues and have authority to borrow in its own name to finance modern facilities for better postal service and lower operating costs. We recommend that the Corporation take immediate steps to improve the quality and 2
kinds of service offered, the means by which page 57
service is provided and the physical conditions under which postal employees work.
The nation should not be asked to run the risk of a breakdown in its postal service. The Corporation management should not only upgrade the reliability of day-to-day mail delivery to both urban and rural areas, but should also turn its attention to the unfilled needs of the public for additional postal services, such as guaranteed fast delivery. Only a Post Office quick to identify and meet market needs can successfully serve a changing economy. Obsolete and inefficient postal facilities should be replaced. Existing technology must be fully applied and new technology brought to bear through vigorous research and development. Every effort should be made to provide postal employees with a work environment comparable to that found in the finest American enterprises. We recommend that all appointments to, and promotions within, the postal system 3
be made on a nonpolitical basis. page 58
Providing the nation with a superb mail service is not a partisan
issue: postal purposes do not change with the national administration. The postal system deserves the best talent available and all employees deserve career opportunities based on ability and performance. The present patronage system cuts off the opportunities of many potential managers among career employees and inevitably has an adverse effect upon morale. Moreover, it is an unwarranted drain on the time and energy of members of Congress and officials of the Executive Branch. We recommend that present postal employees be transferred, with their accrued Civil 4
Service benefits, to a new career service page 58
within the Postal Corporation.
A new personnel system tailored to the unique character of the
Post Office is an essential step toward the flexibility needed in postal personnel administration. All present Departmental and field employees would be transferred from the Federal Civil Service to the new service with their accrued pension rights, leave, pay and seniority.





Although the postal work force is highly unionized, little real
bargaining takes place between labor and management. The most important issues even many work rules are established by law. Conditions of employment for non-managerial employees would in the future be established by collective bargaining between postal labor and management. Salary and fringe benefits would be negotiated considering competing wage levels, the principle of comparability, where possible, or a similar standard of equity. The compensation structure of management, professional staffs and related personnel would be established by the Board of Directors.
We anticipate a widening of opportunity for all postal employees. Within the new career service they would be provided with far better training and educational opportunities to qualify them as fully as possible for increased responsibilities. Direct negotiations would provide a new and useful means of resolving local and national employment issues, a means through which cooperative efforts could yield rewards to both parties.
The parties would be free to establish binding arbitration procedures for the resolution of disputes which arise between them. If they choose not to, however, and if an impasse arises which is not settled by, mediation, the dispute would be referred to the President of the United States who would be authorized by the enabling legislation to devise a suitable mechanism to cope with the impasse. The existing ban on strikes by Federal employees would apply to the Postal Corporation.
We recommend that the Board of Directors, after hearings by expert Rate Commissioners, 5
establish postal rates, subject to veto by page 61
concurrent resolution of the Congress.
One of the most serious shortcomings of the present Post Office
is its inability to set the prices for its services. Public confidence in the fairness of the rate structure is undermined by the acrimony which often accompanies legislative rate-making under present circumstances. The Post Office remains the only major public utility with rates set by a legislative body. Burdened with far more important responsibilities, Congress should not be asked to deal with the intricacies of postal rates. Rate-making and the development of new services are complex, interwoven responsibilities which need the detailed attention of experts in economics, accounting, marketing and engineering.
The Corporation's Board would set postal rates in the public interest based on actual cost of service, value to those served and changing market demands. Meaningful information on the cost behavior of

4





each postal activity audited by independent professional accountants would be provided by a modern cost accounting system replacing the outmoded Cost Ascertainment System in use since 1926.
Were we to recommend a privately-owned Post Office, regulation by an independent Federal commission would be a natural corollary. We see no advantages, however, and serious problems, in proposing regulation of a Government corporation by another Government body. We recommend, instead, that proposals for ratechanges made by the Postal Corporation become effective after 60 days unless vetoed by concurrent resolution of Congress. Though freed from involvement in technical details, Congress would still exercise policy control over rates through this veto power.
Congress may decide to continue special low rates for certain items
such as library materials, braille publications and mailings by charitable organizations. Our Report proposes a method of financing any such subsidies.
Since we see no reason why the general mail user should
be subsidized by the taxpayer, we recommend that the postal service should become completely self-supporting as quickly as possible. It should not be necessary, however, to depend upon rate increases alone to close the cost-revenue gap. Indeed, the productivity improvement modern management can achieve in the Post Office should permit the elimination of most of the deficit through operating efficiencies.

The Nation's Reward

The United States postal system is in serious trouble today
because of decades of low priorities assigned its modernization and management needs. Years of lagging productivity have created a gap between postal performance and that of other industries-a gap which represents at the same time a hazard and an opportunity.
We have already witnessed a postal collapse in a major American city. This Commission is convinced that a similar breakdown could occur again in any part of the country. The risk will continue as long as the Post Office is denied the authority and the resources to put its house in order.
On the other hand, a great opportunity exists to improve postal service, cost performance and the circumstances under which postal employees work.
The Commission and its contractors have examined postal operations carefully. It is our considered judgment, based on first-hand observation, that postal costs can be reduced by at least

5





20% if the normal investment and operating practices used in private indust, are made available to tl)stal management.
Several years after the Corporation is under way, therefore,
it should he able to eliminate entirely the postal deficit, releasing over a billiort dollars a year of tax money to other purposes. The long-run potential for improvement, furthermore, is so high that we are reluctant to estimate its size.
Tihe cost savin s we expect would not jeopardize the employment of any present postal employee. In recent years total postal employment has increased sharply with the rise in mail volume. The introduction of cost saving practices in the face of ever greater mail volumes should mean that employment will rise more slowly. Even if employment ultimately declines, the high rate of personnel turnover (23% per year) assures today's employee that steps toward improved financial performance do not threaten his job tenure.
We must point out that adoption of our recommendations
will produce no overnight miracles. Heavy investment, financed both by appropriations and by borrowing in the market, will be required. It is unlikely, of course, in an era of rising costs that rate increases can be entirely avoided. What lies ahead, however, after the new Corporation's shakedown period is: dependable postal service, at fair prices, fully responsive to the public's needs;
" a soundly financed and self-supporting postal system; better working conditions and greatly increased career opportunities for one of the nation's largest work forces.
If the Post Office is given a single goal of providing the nation with a superb mail service, and given as well the management capacity and operating freedom to achieve that goal, the energies of workers and managers can be turned to the creation of a postal service appropriate to a vigorous economy, an innovative society and a purposeful nation.













6















The
Commission's
Report

The conclusions set forth in this Report are the result of a one-year
study by the Commission, its staff and several professional organizations. In addition to visiting post offices and discussing postal problems at length with employees and officials, the Commission actively sought the views of all parties interested in postal affairs.
We invited comments generally through a Notice of Inquiry in the Federal Register and specifically from over 100 national organizations. Representatives of various groups affected by the postal service also appeared before the Commission in informal hearings and many individuals prominent in national affairs shared their views with us personally or through correspondence. We interviewed over fifty Congressmen and hundreds of Government officials. A summary in detail of how the Commission went about its work is presented as
an Appendix at the end of this Report.

Part I of this Report provides the facts and analysis upon which
our recommendations are based. The first chapter, The Post Office in Crisis, indicates the deficiencies we found in the present state of mail service, postal employment and postal finances. In the second chapter, The Roots of Failure, we trace this crisis to a failure of the system by which the Post Office is managed, a system intimately related to its organizational form. In the third chapter, A National Opportunity, we present in greater detail the recommendations
set forth in the Summary.
Part 11 of the Report is a series of special studies providing
background information and, where appropriate, the Commission's
findings on selected topics relating to the postal service.
The Annex to the Report, published separately, contains the
reports of the Commission's consultants. The Commission has carefully studied each of these valuable reports and commends them to all interested citizens; the Commission's conclusions in Parts I and 11,
however, represent its independent judgment.


7















Part I
0
Analysis and
ReconililendatiOlls














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Chapter I


The

Post 0 ce
0
in Cr i*s i*s


A. The Quality of Postal Service I A Postal Catastrophe: Chicago
In October 1966, the 13-story, 60-acre Chicago Post Office-the world's largest postal facility-stopped functioning. Breakdowns in management authority and in physical plant paralyzed service in one of the nation's biggest cities and delayed millions of cross-country letters and parcels normally routed through Chicago. The crisis lasted nearly three weeks.
The backlog of mail exceeded 10 million pieces. Railroad cars and trailer trucks clogged approaches to the post office. Millions of citizens were inconvenienced; hundreds of businesses suffered financial losses. With the help of a Departmental task force vested with special authority by the Postmaster General, service was gradually restored, first to letter mail and then to other classes.
The crisis resulted both from management problems:
a vacancy in the Postmaster's position for the preceding six months retirement of an unusually large number of experienced supervisors at the end of 1965 (due to an improvement in pension benefits at that time)
low employee morale and a great many disciplinary actions a sick leave ratio double the national average the lowest postal productivity record in the nation,





and from physical plant shortcoiniiigs: inadequate dock space
" ahcavily congested location
" a building designed for a much smaller mail volume poor building and machinery layout
rePeated conveyor belt and elevator failures
half of the tractor fleet out of service due to breakdowns.
The breakdown was no fluke. An earlier Chicago crisis occurred in December 1963, and hundreds of thousands of Christmas parcels were not delivered until well into the new year. In fact, post offices across the nation routinely operate dangerously close to their capacity; minor incidents can have catastrophic results. In another city last December, for example, a sack sorting conveyor broke down in midafternoon on a heavy mail day. Passageways quickly filled with mail sacks; trucks trying to unload more mail were backed up for blocks, preventing loaded trailers from departing. Storage cars missed train connections. Fortunate]%-, the equipment was quickly repaired and the backlog worked down, preventing a repetition of Chicago on a small scale.
Similar incidents have occurred in many other cities. Despite valiant efforts, delays occur even in first-class mail; backlogged bulk mail is common. The facility and management problems of Chicago, in varying degrees, exist in post offices all over the country. In the Commission's judgment, particularly with mail volumes continuing to increase, the causes which produced Chicago may well produce the same results elsewhere.

2. Dissatisfaction with Day-to-Day Mail Service

Massive breakdowns are dramatic, but so far they have been rare. We were concerned not only with what former Postmaster General Lawrence F. O'Briet has called the Post Office's "race with catastrophe" but also with the adequacy of day-to-day service. Remarkably little data has been collected on this vital topic. Further, the Post Office has not gathered reliable information on what is sent throu6 the mail.
What is certain, however, is that each year more and more mail flows into the postal system-in 1967 over 78 billion pieces weighing over 6 million tons. Post Office estimates, based on recent trends, place the 1977 mail volume at 110 billion pieces. (Figure 1 shows the mail volume projected to 1987.) Even granted the uncertainties of economic forecasting, the Post Office can expect sizable growth.
In view of the difficulty the Post Office has in handling today's mail volume, the prospect of a 41 1 increase in the next decade gives no cause for optimism.

12






Figure. 1. MAIL VOLUME (Ratio Scale)

Billions Pieces
of Pieces 1972 1977 1982 1987 per Capita
150 1926 1930 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 19% 1,500 1311 1
123,7100
110.10 0 %*
100 7 PROJECTED L000
90 900
80 800
70 700
60 05 512 600

50 490
TOTAL 44710 io W
MAIL VOLUME 0 PROJECTED
40 (Left Hand Scale) 400
PER CAPITA
MAIL VOLUME
30 Age Hand Scale) 300



20 200


15 150

Source: U.S. Post Office Department.

The Commission has found a pattern of public concern over the quality of mail service. Delayed letters, erroneous deliveries, damaged parcels and lost magazines are everyday experiences.
Seventy-five national associations representing most major groups interested in or dependent upon the mails submitted written views to this Commission on a variety of postal topics. Of these, 47 (6317o) faulted mail service in one respect or another. Significantly, those with special experience with a particular class of mail (e.g., secondclass mail users) criticized the service given their particular class while expressing sa tisfaction with, or not commenting on, service generally. Those groups representing a broad spectrum of mail users (e.g., associations of merchants) tended to be critical of the general level of service. Our survey of American households, too, found greater dissatisfaction with mail service among those householders who were heavy mail users. The lesson is clear: from a distance the mail service is not bad, but the more you use and depend on it, the less satisfactory it seems.
The complaint the Commission heard most often was that service is not dependable. All but a tiny fraction of the mail ultimately r-eaches its destination, but late mail is often no better than lost mail.

13





The Post Office has only recently begun making quality control measurements of service oI a continuous and scientific basis a vital and long overdue function in a large service organization. Preliminary tests show that some 71( of first-class letters are delivered the day after nailing. Paradoxically, cross-country mail often receives quicker delivery than local mail in mIetropolitan areas. Traffic delays, multiple handling and obsolete and crowded facilities in many major cities often cause two or three day delays in crosstown mail.

. 'nr sponsivtness to Public Neds

Public needs for mail service are by no means uniform. To many householders, good service means getting delivery early in the day. To many businessmen, it is next-day delivery of correspondence mail; to others, delay in ordinary correspondence is tolerable if a rapid and dependable special delivery service is available.
The Post Office has recently been attempting to establish standards for mail service. Such standards will permit management to examine the Post Office's "product line" more scientifically. A primary service problem, for example, may be the absence of any stratification within first-class mail. Much of this mail is less urgent than the rest, but the classification system fails to reflect this distinction, and post offices bulge nightly in an often unsuccessful attempt to meet the service standard of processing all first-class mail for next-day delivery.
On the other hand, individuals or businessmen requiring assured next-day delivery, say between Chicago and Los Angeles, or even within a metropolitan area, cannot buy it from the Post Office at any price. Special delivery service comes into play only after a letter arrives at the city of destination and is sometimes slower than regular service. A public need exists for an expedited service for the mailer willing to pay a premium for assured delivery.
The failure to offer such service can be traced in good measure to the dearth of systematic market information. No office within the Post Office has responsibility for such subjects; no service experimentation program exists. As a result, though the service ideal is deeply embedded in postal employees, they serve a market whose needs are but dimly perceived.
The correction of service deficiencies and the construction of safeguards against service "blackouts" should be made the first priority of postal management. The universal service orientation among postal workers encourages a belief that a high level performance can be attained if management is given the authority and incentive to respond to this urgent need.

B. The Circumstances of Postal Employment
Few things in our study have so disturbed us as learning of the severely limited career opportunities of postal employees and the

14





physical conditions and institutional environment in which they work. A member of the Commission expressed his reaction in these words:
Under the present Post Office system, the individual employee is not permitted to have the opportunities that are open to employees in virtually all other private or governmental American institutions.
He cannot earn promotions based on merit. He is immobile, almost a prisoner of his environment, and therefore cannot take advantage of his talents and energies except within his own tiny segment of the Department. Without political help, he cannot aspire even to leadership of his own post office. In many places the postal employee must live under working conditions that he, his union, his supervisor, or his top management cannot do anything about.
The present Post Office system fails to allow for the typical American and, in fact, the natural human desire to improve his abilities and his welfare.
In most American enterprises, the improvements in methods and in capital equipment are the ideas of employees. Our present Post Office system effectively blocks this great potential for improvement in postal operations. Not even the postmasters of major post offices can bring about improvements that are obvious and that would save large sums of money.
Regardless of any of the productivity improvement possibilities within the Post Office system, desirable as they may be, probably the most serious criticism is the failure of the Post Office system to offer the individual employee the kind of opportunities for personal involvement and improvement that characterizes almost every other p hase of American life.
With 716,000 employees (see Figure 2) the Post Office is one of the principal employers in the nation. The salaries it pays are-in most places----competitive with those paid by private companies, at least for non-supervisory personnel, yet there is widespread disquiet among postal employees.
Time and again senior employees told us they would not recommend postal employment to someone beginning his working career. Many newer employees said they were staying only until a better opportunity arose or until they finished school.

1. Antiquated Personnel Practices

The most striking characteristic of postal personnel practices is a negative one. Procedures for hiring, discipline, promotion and grievances have remained relatively unchanged over the last few decades. Though vast changes mark all our institutions, both public and private, personnel and operating practices developed thirty years ago

15




. . ........
Figure 2. U.S. POST OFFICE MANPOWER BY
OCCUPATIONAL CATEGORY, 1968



4 C

3
3, 9



4
TOTAL-71..

*Headquarters, Regions and Postal Data Centers, Inspection Service. Source: Compiled from Post Office Department data (as of January 12, 1968).

dominate the performance of many postal officials and underlie the
instructions in the Postal Manual.
It takes at least thirteen weeks to hire an employee, (Figure 3), and
a recent Post Office survey showed that 67/,','r of job applicants in 17 large metropolitan areas did not wait around to complete the process. Personnel directors in private industry regard prompt notification of applicants as an essential to sound recruitment.

2. Poor Working Conditions
Dissatisfaction with physical working conditions has been a major
source of postal employee complaints. Though some modem post offices are pleasant enough places to work, working conditions in many are appalling. Many active post offices were built in the 1930's or before, when mail volume was less than half of what it is today.
Dirty facilities, crowded and noisy work areas, inadequate locker space and rest rooms and poor lighting, heating and cooling systems are common. Local management rarely haste power to correct these conditions if correction costs money; it has little incentive to correct these conditions and many defenses in the rule books for not so doing.

3. Limited Career Opportunities and Training
About 85% of all postal employees are in the five lowest graces,
and over 8017c finish their careers at the same grade level at which they start them. The small number of higher positions in the personnel structure, the patronage and residency requirements for postmaster appointments, the practice of not transferring supervisors from one office to another and the extraordinary emphasis on seniority not only hamper management but seriously limit postal career oppor16







Figure 3. STEPS TO POSTAL EMPLOYMENT (CERTIFICATION,

SELECTION & APPOINTMENT PROCEDURE)




POST OFFICE CIVIL SERVICE COMMISSION APPLICANT


2
Postmaster CSC Boa'rd
Requests Examination Schedules Exam naton



31
PM Posts Announcement of
Examinaton Exam is 0 en j

4
Exams Scored by CSC ;f more than 20 3ent to C r macne sco ig


5 Accicaton Revlew3 tao t, l
Ar''s~ Record rHeath Vee'arn ASp ca,' ats or '
Status ork H story- Rat ng & of A,a a: ', 1o PM
Notice sent to Apicart

7 6
PM Requests Certificate Establishes Register
of Eligibility and Not fes PM



8
CSC Reviews Register & Sends Cert fcate


9
PM Inquires to
Applicants Availability


10




11 Selects One of Top 3 Eligibles
Subject to Veterans Preference.
etc Sends Notice of Selection
to Applicant
I7
12
600AD:) ant Ta es Rex 'ed aPhys a E~ 70 am Results PV p


13 PM Appoints Applicant Notifies
Applicant & Prepares Accession
Form 50, Effective When New Employee Reports for Work I

14 Reports or or Saday
of Week Foownr Ava ab t tUsuall, after 2 seeks note to Prior Ecmpoe


MINIMUM TIME LAPSE-13 WEEKS





Source: Prepared from U.S. Post Office Department data.




17





tunities despite a tradition of promotion from within to non-patronage jobs.
Serious shortcomings exist as well in training. In Fiscal Year 1967, the average postal employee spent less than one day a year in training, more than half of it on his own time. This is a remarkably low average, particularly for an activity whose growth and turnover required it to add over 180,000 employees last year. Low postal productivity is unquestionably related in some degree to the small amount of training Post Office employees are given. Known and deplored throughout the service, this shortcoming was confirmed in almost every post office we visited and by almost every employee organization. Diverting a relatively small fraction of the operating budget to this purpose would produce immediate economic benefits as well as obvious social rewards.

4. Inadequate Sytemrn for Superuision

Moving 200 million pieces of mail a day requires constant surveillance and adaptation to avoid slowdowns and prevent logjams. The emphasis on seniority and promotion from within, the large number of workers reporting to each supervisor and the detailed statutory requirements the Department must observe all result in management "by the book." The book is the Postal Manual, which attempts to cover every conceivable postal contingency. An authoritarian style of supervision has become the rule.
Generally, all but the highest level of supervisors are isolated from management decisions. They are remote from issues of efficiency or planning. They lack the authority and tools to budget, control and evaluate performance in their units. They lack clear responsibility for their employees' career development, a particularly serious defect in an organization relying on advancement from within. That some postmasters and supervisors do well is a tribute to them as individuals, not to the system they are able to outwit.

5. Unproductive Labor-Management Relations

The Post Office I)epartment is the most highly unionized Federal Government agency. Over 620,000 of its employees (87.52) belong to one or more of the twelve employee organizations shown in Table 1.
The postal unions, among the oldest and strongest in the American labor movement, differ sharply from those in the private sector. They represent workers forbidden by law to strike, and they exercise their primary, influence not at the bargaining table, but with Congre-ss, which determines pay, hours, benefits, job descriptions and other matters of direct concern to postal emplloyees. Congressional petition takes the place of normal collective bargaining.
In 1962. Executive Order 10988 marked the begiinning of formal labor-management relations in the Federal Government as a whole.

18






Table 1. POSTAL EMPLOYEE ORGANIZATIONS



Ppe of Number of
national Employees
Date Estimated Recognition Represe'nted Name of Organization Founded Member- Under Under
ship I Executive National
Order Agreement
10988


National Association of Letter Carriers* 1889 190,000 Exclusive 195,386
United Federation of Postal Clerks* 1890 143,000 Exclusive 308,078
National Rural Letter Carriers' 1903 401000 Exclusive 30) 7532
Association
Nat'l Ass'n of P.O. Mail-Handlers, 1912 35,000 Exclusive 47)565
Watchmen, Messengers & Group
Leaders*
Nat'l Ass'n of P.O. & Gen'l Services 1937 211500 Exclusive 22,473
Maintenance Employees*
Nat'l Federation of P.O. Motor Vehicle 1924 8)000 Exclusive 11)433
Employees*
Nat'l Ass'n of Special Delivery 1937 2)500 Exclusive 5)540
Messengers*
National Postal Union 1958 70)000 Formal
Nat'l Alliance of Postal & Federal 1913 32,000 Formal
Employees

Nat'l Ass'n of Postal Supervisors 1908 32,000 Formal
Nat'l League of Postmasters 1904 18,000 Formal 3
Nat'l Ass'n of of Postmasters of the U.S. 1898 29,000 4


I Source of membership figures, Post Office Department.
2 An additional 18,317 substitute rural carriers excluded from coverage under national agreement.
3 Overlapping membership with NAPUS.
4 Recently gave up its status as a "formally" recognized organization under Executive Order 10988.
*Affiliated with AFL-CIO.




It directed Federal agencies to recognize employee representatives for the purpose of negotiating agreements and consulting with them on personnel matters. judging from the frequency and intensity of complaints by representatives of both postal unions and management, Executive Order 10988 has been less than a success in the postal service. In many interviews with the Commission, both labor and management have challenged the good faith of the other.

19





Many of the problems in this area stem from the exclusion from bargaining of most items bargainaIble between management and labor in the private sector. As (described by Robert R. Nathan Associates, the Commission's contractor on personnel and labor relations:
With wages and fringe benefits determined by Congress, management is left with the uneniable task of bargaining only the complex human relationships and conflicts inherent in such subjects as the grievance procedure: promotions, reassignments, and posting of job ,acancies; seniority; parking control; adverse action and appeal procedure: and advisory arbitration and optional mediation. Without the ability to negotiate basic money issues, and with the implied threat that the unions may carry their grievances to Congress, management has had little room to maneuver and has yielded bits of its authority (more than the Executivec Order required) without buying, union cooperation in improved management or productivity.
Other difficulties stem from a provision in the Executive Order forbidding binding third-party arbitration. Further, a representation of employees by different unions at different levels (local, regional and national) has caused confusion and weakens relationships between local union officers and management.
Union officials complain that management's national negotiating team often lacks familiarity with the differing situations in local post offices. Thus, it fails to anticipate the effect on local operations of the agreement it is negotiating. At the local level, unions resent management's labeling an issue as a non-negotiable management prerogative without giving specific reasons, as required by the national agreement. Union representatives at all levels complain that management officials frequently violate agreements and that no action is ever taken against them. They further allege that management easily ignores contract provisions by simply calling a situation an "emergency" and frequently disregards time limits for making decisions in grievance cases.
Management complaints that grievance procedures, illustrated in Figure 4, take excessive time and that petty grievances unnecessarily divert management effort and reduce the grievant's productivity. Further, a dismissed employee challenging his removal can remain on the job and on the payroll for months while the decision is pending at higher levels. In such cases, the employee, expecting dismissal, may disrupt the discipline of the local office. Local management also complains that the Headquarters bargaining team has given up too much of management's prerogatives without obtaining real union cooperation.
Without taking a position on the merits of these complaints and recognizing that some grievances are to be found in any organiza20










Figure 4. THE COMPLEXITY OF THE ADVERSE ACTION

AND APPEAL PROCEDURE






POST OFFICE CIVIL SERVICE
COMMISSION
TIME TME
ALLOWED A'E



ADVANCE NOTICE TO
EMPLOYEE OF LEGEND
PROPOSED ADVERSE
ACTION USUALLY BY PM) DECISION

UP TO
35 ACTON OR
DAYS PROCEDLR E

FOMOR
DEADLINE FOR DOCUMENT
EMPLOYEE'S REPLY
TO REFUTE CHARGES
'TO PM) TE NAL





NOT
NO APPEAL PROCEED PM'S DECISION
LIMIT PROCESS TO PROCEED OR
ENDS REDUCE PROPOSED
PENALTY

I PROCEED
EMPLOYEE FILES
OR- APPEAL TO CSC UP TO

15 EMPLOYEE FILES DEADLINE FORFU
APPEAL THROUGH EMPLOYEE TO YS
POD CHANNELS LE APPEAL




ONDUCT OP
ASS G'NET OF HEARING, IF
.EAR'NG, OFFI CER REQUESTED BY
20 TO SCHEDULE AND EYDLOYEE
CONDUCT HEARING





DURATION DURAT*ON CSC REGION
NO OF HEARINGS OF CE ENE
LIMIT EARNS DECSON




HEARING OFFICER APPEANO
SUBMITS SUMMARY OF PROCESS
HEAR NG & FINDING S ON
OF FACTS TO 1st ENDS THR
20 APPELLATE LEVEL

J~ YES


FLES APPEAL ?,TH
DECISION BY 1st CS
LEVEL APPELLATE APPEALS & REV EN
OFFICER (USUALLY
15 PD



vES
NO TO
APPEAL EMPLOYEE CSC D.
PROCESS DECIDES ON - NO/
ENDS FURTHER APPEAL


IYES ORI
NO YES
APPEAL APPEAL TO BOARD APPEAL EMPLOY E AP-E-PROCESS OF APPEALS & PROCESS DEES NA O
ENDS REVIEW OF POD ENDS APPE









Source: Prepared from Post Office Department and Civil Service Commission data.




21





tion, it is nevertheless clear that the relationship between labor and
manaiemrent in the Post Office is generally unproductive.

C. Postal Finances
The pIstal financial picture is bleak. Because revenues from
postal users do not cover postal costs, the Post Office is financed join tly b the mail user and the taxpayer, the taxpayer covering what thie mail user does not (Figure 5). The deficit is a growing and unnecessarv drain of tax funds, postal costs are far higher than they
should be, and postal rates are irrational and often inequitable.
1. The Gro'ing and Unnecessary Deficit
During all but 17 years since 1838, when deficit financing became
a way of life for the Post Office, postal expenditures have exceeded postal revenues. Through the life of the Post Office the cumulative postal deficit has been 15% of total postal costs. In Fiscal Year 1967 it was $1.17 billion, or 19.1% of the total postal budget. High as they are, these figures still understate the postal deficit in economic terms, since they do not include such costs as the interest on invested capital or funding of the large and currently unfunded employee
pension account.
Some argue that practically all Government agencies operate at
a deficit and that the postal deficit is no more a cause for alarm than the Department of Defense "deficit" or the Department of Justice "deficit." In our view, such reasoning misconceives the nature of the postal establishment. All Government services must be paid for one way or another; most can be paid for only through taxes. Unlike national defense or public health, however, postal services can be
and always have been sold to users.
Frequently, the argument next heard is that the postal system must

Figure 5. THE POSTAL DOLLAR

WHERE IT COMES FROM WHERE IT GOES




L







Source. Compiled from Post Office Department Survey of Postal Rates, 1967 and Program and Financial Plan.


22





have tax support because it performs many "public services." Indeed, about half of the deficit is by law called a "public service allowance." (See Figure 6.) Our examination of the public service allowance contained in Part II of this Report and in the report of our rates contractor, Foster Associates, Inc., however, reveals that a relatively small portion of it actually supports "public services" to specific types of users such as nonprofit organizations or the blind. In fact, as shown in the second column in Figure 6, 79% of the deficit is a subsidy to the postal service as a whole. Only 21 % of the deficit-some 3.8%7 of total postal costs-represents a subsidy to such users as nonprofit institutions, mailers of educational materials and others specifically identified in the Postal Policy Act.
Nonetheless, the postal deficit remains one of our most enduring


Figure 6. COMPOSITION OF THE POSTAL DEFICIT (FY 1967)


FY 1967


POSTAL REVENUES
POSTAL COSTS $5.102 BILLION (
$6.249 BILLION

PAID BY TAXPAYERS
DEFICIT )$1,14? BILLION





AS DEFINED BY PRESENT LAW USING ECONOMIC STANDARDS

T

$585DEFICIENCY IN
MILLION AND FEESAOT



~ K' SUBSIDY
$562" CHARGEABLE TO
MILLION TAXPAYERS ____'< LOSSES ON NON-PROFIT K> 2j'~s
MAGAZINES, BOOKS, W~Nij:ABOUT .. ....MATERIAL FOR THE JS 24_ MLLIO

PROPERLY CALCULj!ATED, THE POSTAL DEI S SEEN
AS A TAX SUBSIDY TO THE GENERL AI USER

Source: Prepared from Cost Ascertainment Report (accrual basis).

23





fiscal traditions. If present cost trends continue, even with normal rate increases the cuminulative deficit over the next decade will approach $15I billion.
2. The High Cot of Portal Service
What has struck the Commission, in addition to the size of the deficit, is the fact that this huve diversion of tax funds appears totally unnecessary. In our judgment, at least 20% of postal costs--well over a billion dollars a year at present volumes- -would be saved if the Post Office management were freed to plan and finance postal operations and capital investment strictly in accord with postal needs.* In fact, the 20c represents our judpment of the savings we can presently foresee. There is no telling what greater savings could be made over the long pull by businesslike management in the Post Office.
a. Opportunities for Savings-Postal Productivity. The Post Office's inefficiency is starkly apparent to anyone who walks across a workroom floor. In most offices men and women lift, haul and push mail sacks and boxes with little more mechanical assistance than the handcart available centuries ago. In this electronic era, the basic sorting device remains the pigeonhole case into which letters are placed, by hand, one by one. The basic parcel post container is the canvas sack, filled, lifted and "dumped" by human labor.
The visible evidence of inefficiency is confirmed by the Post Office's productivity record. As Figure 7 indicates, postal productivity has improved only slightly in the last ten years and has lagged well behind productivity gains for the national work force. The average increase of 0.23% per year from 1956 to 1966 is far lower than the figures for other industries shown below: Output Per Man-Hour (Percentage Change Per Year, 1956-1966) % Communications 6.2
Transportation 4.0
Mining 3.7
Manufacturing 3.2
Wholesale and retail trade 3.4
Finance, insurance, and real estate 2.7
Services 1 1.9
Post Office 0.23
Includes forestry, fisheries, medical services, private education, personal services.
Sources: Compiled from data obtained from the Economic Report of the President, 1968, Robert R. Nathan A.\ssociates, Inc., and the Bureau of Labor Statistics.
*The areas in which we believe significant savings lie are discussed in "Potential for Cost Savings in the Postal Service" in Part II of this Report, pp. 154- 63.

24





Figure 7. PRODUCTIVITY AND SALARY TRENDS
(Post Office and U.S. Industry, 1956-1967)

1956 57 58 59 60 61 62 63 64 65 66 67
160"
AVERAGE SALARY U.S. POST OFFICE

150

AVERAGE SALARY U.S. INDUSTRY
140

PRODUCTIVITY
U.S. INDUSTRY
130



120



110

PRODUCTIVITY
EalingI MEN U.S. POST OFFICE
100
Moll NEI A11011110%



90

Sources: Post Office salary, Post Office Department Annual Report, various years; Post Office productivity (weighted), Robert R. Nathan Associates; U.S. Industry data, Economic Report of the President, February 1968.

Postal salaries., on the other hand, have not only kept pace with, but have risen somewhat more than, those in the rest of the economy (Figure 7). The inexorable result of rapidly rising labor costs and slowly rising productivity is a sharp increase in labor costs per unit of output. In a private industry in which personnel costs are 80.3 I of total budget, any such increase would be directly reflected in higher prices. In the unique situation of the Post Office, they are reflected, as well, in a higher deficit.
Lagging productivity results in large measure from the Post Office's failure, for many reasons, to make the capital investment essential for cost reduction. Net fixed assets average $1,145 per postal employee,

25
79-366 0 76 3





sugestin a serious lack of capital equipment when compared to the leading companies in selected industries:

Power Utilities $151, 710
Telephone and Telegraph 35, 630
Transportation 25, 053
Manufacturing 7, 170
Merchandising 2, 836
Source: Afoody's MAanuals, 1967: Fortune Magazine, June 15, 1967 (conpanies ranked by sales).

b. Potential Improrements from Technology. The Commission studied carefully the entire range of postal technology to determine whether developments now in the research stage might radically alter the way in which the mails are handled. We have found little likelihood that there will be such a change within the foreseeable future. Nevertheless, there are many ways in which available technology can be more widely applied to postal operations. To estimate where mechanization can be applied it is necessary to examine briefly the characteristics of various postal activities.
With its $6 billion budget the Post Office operates the largest retail chain in the country, offering window service at over 44,000 locations; it runs a nationwide network of mail processing "factories" and buys more transportation than anyone else except the U. S. military establishment: it provides daily delivery to virtually every household and business in the land.
As illustrated in Figure 8, the lion's share of postal costs, manpower and volume is in the large city post offices. Here the opportunities for savings are greatest, and here the inefficiencies are most apparent.
Similarly, certain kinds of postal functions have a higher potential for cost reduction than others. The retailing and delivery activities may be considered the "institutional" functions of the postal system. Their costs depend less on mail volume than on the size and characteristics of the area served. Increasing urban sprawl requires more collection and delivery routes and more retail outlets to bring postal services to the public. The potential for savings in this area lies not so much in technological advances as in more efficient use of this institutional capacity--through. for example, the provision of additional mail-related services.
On the other hand, the volume of mail, particularly in the larger offices, determines pressing and transportation costs: a-s volume rises, more people, more vehicles and more purchased transportation are required to handle it. In the Post Office's "factory" operations are the greatest prospects for economies through the application of technology and modern management methods.
For many operations, the Post Office could employ methods and mechanization already in use in other industries. The Commission's

26





Figure 8. IMPORTANCE OF LARGE METROPOLITAN
POST OFFICES

75 LARGEST POST OFFICES 32,557 REMAINING POST OFFICES

50% EMPLOYEES 50% EMPLOYEES

56% OF MAIL VOLUME 44% OF MAIL VOLUME

47% REVENUE 53% REVENUE




Source: Prepared from Post Office Department data.


contractor, Arthur D. Little, Inc., estimates that the productivity of some facilities can be increased by as much as 50% through systems engineering techniques already in common use in the private sector. For example, the Post Office relies almost totally upon human labor for bulk materials handling and distribution-the transfer of mail between work stations, and the loading and unloading of vehicles. The use of materials handling devices and containerizationnow widely used in private industry-could improve productivity in this area substantially, with concomitant improvements in work safety and comfort.
The Post Office has not only failed to take advantage of the technology of other industries, it has not fully exploited the mail processing eqwpment already in use in some of its own facilities. The multiposition letter sorting machine for example, requires ten fewer em.ployees to sort the same amount of mail and pays for itself in two years or less in the normal installation. Yet, only 39 post offices use this equipment. The same limited utilization is found for other types of postal machinery-parcel sorters, sack sorters, cullers-"ith the result that more and more manpower is needed to handle growing mail volume.
The mechanization gap comes from a chronic shortage of funds for capital investment. Despite recognition by most Congressmen of the urgency of postal problems, the accumulated need for facilities and equipment exceeds $5 billion according to Post Office estimates. The Commission's observations tend to confirm the need for a sum of this general magnitude.
A promising development in letter sorting is the optical scanner which permits machine reading of typed or printed addresses and ZIP Codes. Now at the end of the experimental stage, the combina27





tion optical scanner and letter sorter saves almost three times as much processing manpower as the multi-position letter sorter. Optimum use of this machine will require a certain minimum standardization of envelopes and in tIhe style and format of the addresses printed on them. The major question again, however, is whether Congress and the Executive Branch can invest substantially in this equipment at a time of increasing demands on the Federal budget. c. Managing for Savings. One reason for the lack of postal efficiency is that the Post Office is simply not set up to be managed efficiently, either in its individual parts or as a nationwide system. Management has little pertinent financial information on the costs of postal activities. The members of the Commission found it hard to believe that a postmaster sees no information on the total costs of his operations. Instead, regional headquarters issues a man-hour allocation to be used as needed to get the job done. If the allocation runs out. the postmaster merely justifies a further allowance of man-hours. Since he is not responsible for total costs, he has no incentive to "spend-to-save" by purchasing or requesting labor-saving devices.
Nor does higher management have adequate information on the cost of running any of the nation's 33,000 post offices; witness the following exchange in February 1967 between a member of the House Appropriations Committee and an experienced and well-informed postal official:
Mfr. Conte: . what was the operating cost to run the Chicago
Post Ofice in 1966?
Postal Official: I regret we don't have the total cost. We could have
the number of hours worked in Chicago for you.

Mr. Conte: You mean to tell me you can't call the regional office
and ask them how much they spent for the Chicago Post Office
in 1966?
Postal Official: That is correct.
Mr. Conte: That is amazing.
Other postal information systems are as sketchy as those by which local costs are determined. The Work Measurement System, for example. is a measurement of labor productivity in mail pieces per man-hour, widely used by postal management. Price Waterhouse & Co., our financial management contractor, found it inadequate because the basic mail volume data was inaccurate.
The postal Planning, Programming and Budgeting System, which relates postal functions to their specific costs, appears to have substantial potential for planning purposes as well as for management control, but is in its early stages of development. The Post Office has no local or national system to measure actual performance against planned and potential performance so that postmasters and higher

28





management can identify areas of inefficiency and concentrate on improving them.
The fragmentary information available today reveals wide variations between those post offices in which manag ement somehow manages, despite the odds against it, and those in which it does not. A recent analysis made for the Post Office Department showed that if every one of the 75 largest post offices could operate as well as the ten most efficient, their mail processing productivity could improve by 3 317c.
Even if no service problems existed and if the Post Office were a model employer, a management systern which tolerated such inefficiencies would cry for change.
d. Realizing Potential Savings. The first essential for raising Post Office productivity is a management information network which reports promptly and accurately the real costs of operating the postal system. Next, managers and workers alike must be motivated toward cost-conscious operation. Normal lines of management control are an essential part of such motivation.
With a new management system in the Post Office, some savings could be realized almost immediately, although they may well be offset by the costs incurred in adjusting the organization to decentralized management. The principal financial improvements, however, can only come after investment in equipment and facilities begins to raise postal productivity. A sound capital investment program cannot be completed overnight. Nexv facilities must be designed and constructed, and several years will pass before the savings we have projected can be realized.
New equipment and facilities cannot themselves do the job. The almost-level productivity trend shown in Figure 7 covers a period during which over $4.21 million was invested in postal modernization. The catalyst is a well-informed, well-motivated management, with the authority to make and implement decisions.
3. The Irrational Postal Rate System
The system of user rates and fees (which pay 8117c of postal costs) is disturbing in its irrationality. In common with utilities generally, the Post Office has a rate structure separated into classes to reflect differences, in service levels and handling costs for different kinds of mail. Lower third-class mail rates, for example, take into account the mandatory pre-sort and ZIP Code requirements for that class, its lower handling priority and its relative lack of privacy. The extent to which each class of user and the taxpayer supports the Post Office is shown in Figure 9 on the following page.
9
Whether every class pays its "proper" rate is a long-standing controversy which cannot be resolved in the absence of functional cost

29






Figure 9. WHO PAYS?

8 0 61 2 63 64 65 66 67



COST

TAXPAYERS

*I REVENUES

MISC

SECOND CLASS
AIRMAIL
z 4 00 -- ...

THIRD CLASS

3000-.
FOURTH CLASS

200
............. "0



FIRST CLASS
1000 L, .,,,-,,, tx:\x, X:




0
*E.g. Government, International, Controlled Circulation and Special Services. Source: Prepared from Post Office I)epartiment Cost Ascertainment Report data.

data which the current cost system does not generate. The Post Office uses a Cost Ascertainment System, authorized by a 43-yearold statute, for determining the revenues, volume and cost of each ,lass of mail. For determining costs it uses the "fully-allocated"
iethod through which every postal expense is charged to some class of mail or special service. A large segment of postal costs, however, does not result from handling a particular class of mail but is the cost of maintaining the postal system itself. The allocation of such institutional costs to specific postal products, despite p)ainstaking attempts to achie e fairness, is not only arbitrary but
uninformative.
The Commission therefore questions the validity of this System for
determining whether a given class pays its way; nevertheless, it
provides the only data available at present.

30





Under Cost Ascertainment only first-class and airmail cover their "fully-allocated" costs. Second-class mail (magazines and newspapers) has the lowest cost coverage, projected to be 2617c in Fiscal Year 1968; third-class (advertising) the next lowest, projected to be 76%. Some items within these classes undoubtedly do not pay their way, while others do. Under the broad averages used in Cost Ascertainment one cannot tell which are which.
In rigidly apportioning all postal costs--including the large pool of institutional costs not determined by mail volume--to each class of mail, the Cost Ascertainment System consciously ignores such "intangible" factors as priority of service, value of the service to the user and privacy accorded. It leaves to the Congress the task of reflecting these factors in the rate-setting process. Consequently, the prices Congress sets to reflect the lower service some classes of mail receive have come to be known, disparagingly, as "below-cost" rates.
Pricing practices of many corporations (including utilities) have moved away from reliance on such rigid accounting allocations and now take service and market considerations as well as cost into account. Postal management, too, needs a modern cost accounting system, one that shows, by each postal function, how costs vary with each class of service, how much each class contributes to peakload and the size of the remaining pool of institutional costs.
While data on postal costs are unreliable, information on the market for postal services is nonexistent. Only when reliable cost and market information is available will it be possible to tell which class is and is not "paying its own way."






The shortcomings described in this chapter have been evident for years to those familiar with the postal service. In the next chapter, we trace the problems we have enumerated to a primary cause an outmoded and inappropriate management process-and demonstrate that the present organization of the Post Office prevents it from being managed properly.







31


















































low


























ILI



















Chapter 2


The

Roots of

Failure


The Post Office's principal failure is one of management. In
a private company the shortcomings we have found in service, working conditions, efficiency and pricing policy would demonstrate that a new management team was needed. But in the Post Office, the failure is one of method, rather than of men. The ComJ
mission has been impressed by the caliber of managers of the postal service but has concluded they cannot correct the faults of the system by themselves. The Organization of the Post Office as an ordinary Cabinet department guarantees that the nominal managers of the postal service do not have the authority to run the postal service.
The important management decisions of the Post Office are beyond their control and therefore cannot be made on the basis of business judgment. The awareness of this handicap has proved to be an inhibiting factor, severely limiting the initiative of otherwise capable
managers.
A. The Phenomenon of "No Control"
"How do I manage this operation? My friend,
I don't menace it I administer it.
J -Postmaster in a large midwestern cztv.
The comment could have been made by any postmaster, by any
regional director, or indeed, by the Postmaster General himself. The postal system is not managed, in the accepted sense of the word.
Rather, it is operated according to rules established somewhere else.

33





A hodgepodge of postal laws two hundred years in the making constrains manageral judgment and initiative. Nor is statutory intervention limited to matters of policy. LIaws specify what material the Postimaster generalal may dispose of as waste paper ( "unneeded files" I when patimis shall pay for p)()stal lock boxes "quarterly"), how to mail a key ('"with a legible post office address attached securely thereto" and how a file clerk should maintain his files ("in an up-to-date condition". The following exchange in 1967 between the Chairman of the Hlouse Postal Appropriations Subcommittee and the former Postmaster (;eneral sums up the situation:

Mr. Steed: Genial . would this be a fair summary: that at the
parent time. ag the manager of the Post Office Department, you haue no control over your workload, you have no control over the rates of revenue, you hazvec no control over the pay rates of the em plo)Yees that you employ, you have very little control over the conditions of the service of thew employees, you have Uirtually no control, by the nature of it, of your physical facilities, and you have only a limited control, at best, over the transportation facilities that you are compelled to use-all of which adds up to a staggering amount of "no control" in terms of the
duties you have to perform. . .

Mr. O'Brien: Mr. Chairman, I would have to generally agree with
your premise . that is a staggering list of "no control."
I don't know [whether] it has ever been put that succinctly to me. If it had been at an appropriate time, perhaps I wouldn't
be sitting here.

A diffusion of management authority at the top distinguishes the Post Office from other enterprises. In appearance. many people are responsible for running the Post Office: in fact. no one is.
Such fragmentation of authority comes not from a conscious determination that this is the best way to run the Post Office. Most Government administration is properly subject to a series of controls which in the aggregate foster caution rather than innovation. The controls have been meticulously devised over the years to assure that public policy is formulated and implemented within a carefully constructed system of checks and balances. The Commission does not call into question these procedures themselves, but rather their application to a Government-owned activity which is today far more a business than an instrument of public policy.
The continued application of these restrictions precludes responsible business management in the Post Office. The absence of responsible management having normal operating authority is, we believe, the primary cause of the deficiencies noted in Chapter 1.
Three basic characteristics of the Post Office prevent it from hay34





mg, in rts present organizational form, a sound management system: 1. Because it is financed in part from the Federal Treasury, the
Post Office is enmeshed in the Federal budgetary process, and
thus cannot be managed as its business character demands.
2. Because of statutory constraints, the nominal managers of the
system cannot make the adaptations required by a last-moving
economy.
3. Because of the system for selecting postal managers, normal line
relationships between them and top management are impossible.
1. The Effects of Treasury Financing
The Commission has found that the traditional practice of allowing the Post Office to run a deficit and to make up its losses from the Federal Treasury is far more than an issue of taxing policy. The presence of the tax crutch has meant that the Post Office must stand in line with far more urgent national needs in order to obtain capital; it has meantthat all postal funds, including revenues from the users, must pass through the appropriations process. It has meant that postal management has been unableto respond directly to the service needs of the public.
a. Financing Capital Needs. We noted earlier the severe lack of postalcapital equipment and the excess costs and service deficiencies which this lack has brought. The Post Office does not make its own facilities decisions. Because postal funds are appropriated and because special restrictions apply to Federal construction, the approval of a major facility for the Post Office is a tedious process typically requiring eight to ten years between initial approval and occupancy.
Postal facilities may be constructed either by the General Services Administration or the Post Office. In either case, the process of obtaining legislative authority and funds is similar. The Public Works Committees of both the House and Senate formally receive and must approve the prospectus on the facility. After this legislative approval, funds are ordinarily obtained in two separate appropriations acts the first to purchase the site and design the building; the second to construct the facility.
Both capital and operating funds are obtained simultaneously through the appropriations process, and when total obligations must be reduced in the interest of economy, it is often the capital funds which are cut since capital needs always seem more deferable than operating needs. The capital needs of the Post Office, furthermore, usually rank low on the scale of national priorities.
In presenting the 1969 Post Office appropriations bill, for example, the House Appropriations Committee spokesman said:
Our committee., realizing the importance of these [capital] appropriations to modernizing the Post Office, has nevertheless, recommended cutting . .

35





The Committee recommended a 43% cut in the postal public buildings appropriation and an I1 % cuit in plant and equipet
Nor- does the alppro)priation necessar-ily mean that work mnay proceed. Gov~iierit-xvide fr-ezs for economy reasons often delay construct ion of needed facilities'.
It is not surprising that the Post Office attempts to avoid these problems. Since leasing of a postal facilit, does not have the immediate impact on the Federal budget that construction does, the Post Office depends more and more on leasing. Of 67 major facilities built since 1955, or now under construction, 60 are leased.
The decision whether to lease or buy is a complex one in both the public and private sectors. Each case must turn on its own facts; there is no universal rule. But given the long-term requirement for most postal buildings, it would seem that the Post Office in most instances should be able to obtain capital more cheaply by going directly to the market itself rather than working through a broker under a lease arrangement.
Unfortunately, the Post Office must now base its lease-or-buy decisions not on relevant economic data but on expediency. Leasing is often the only way to obtain a badly needed facility. Analyzing comparative construction and capital costs and the risks of obsolescence becomes irrelevant. And yet even the leasing program has, not been adequate to cover the Post Office's plant requirements.
The lack of postal capital equipment has already taken its toll, as noted in Chapter 1. It has brought higher operating costs and many of the service deficiencies and failures we have noted.
A separate capital account, with long-term funding, is clearly desirable for the postal service in view of its serious operational need for new postal facilities and the high economic payoff they offer. b. Financing Postal Operations. When tax funds are intermingled with postal receipts a host of regulations governing, appropriated funds come into play which seriously limit managerial judgment. Understandably. Congress does not encourage risk-taking in the administration of the taxpayer's money. .Successful business management, however, requires taking reasonable business risks. Particularly when investing in new products, in research or in new equipment and facilities, the managers of an enterprise, after examining available data, must rely on their experience and judgment and then act, knowing they will be held accountable for overall results. The potential cost savings and service improvements we outlined in Chapter 1 can be achieved only by' a management willing and able to take reasonable risks.
The fear of mistakes has led to a rigid and complicated spending procedure which responds only slowly even to the most obvious needs. A postmaster mnay be responsible for the work of thousands of employees and yet have no discretionary funds to use for equipment or

36





structural changes to increase the ease and efficiency of his employees' work.
Furthermore, the practice of making up losses from the Federal Treasury removes much of the incentive for efficient operation. There is no need to control costs if a supplemental appropriation may be expected as a matter of course. Indeed, the fundamental orientation of the postal financial information system is the justification of budget requests rather than the control of operating costs. As a result, there is an astonishing lack of data on the cost of various postal activities, on the relative performance of post offices and on the producti'ity of workers.
The postal appropriations process (Figure 10) begins one and a half years before the money will be spent as compared to four to six months in industry. Operating estimates within needed limits of ac. curacy are almost impossible this far in advance. Nor are realistic estimates encouraged, since cuts are likely at every step.
Congress usually grants the prior year's expenditures plus an increment for anticipated increased mail volume. The process thus assumes the 'accuracy of the previous operations budget and also that unit costs will remain steady. Neither assumption is necessarily valid.
Governmental accounting systems are designed to prevent overobligation of budgeted dollars, and to charge the appropriation (operations, administration and the like) credited with the funds. The postal accounting system fulfills these purposes, backed up as it is by Inspection Service and General Accounting Office audit programs. Unfortunately, it tells little about what operations cost in a form suitable for management control.
c. Lack of Customer Orientation. Treasury financing also reduces the degree to which the Post Office can be customer-oriented. There is little need to be concerned with customer desires if all costs are paid regardless of customer satisfaction. Although postal officials are aware that service to the public is the only reason for the DepartIn they have traditionally looked to Congress for guident's existence,
ance on what the public wants. Since Congress sets the prices, defines the services and provides funding to cover losses, the Post Office has had little incentive to develop the degree of customer sensitivity which characterizes a successful private business dependent upon sales revenues. Failure to gather market information and unresponsiveness of the service to the needs of the American public, as described in Chapter 1, are the results.

2. The Effects of Management by Legislature

As we noted in the first section of this chapter, the legislative process makes most managerial decisions for the Post Office-it sets rates and wages, approves postal facilities and decides many other

37





Figure 10. POST OFFICE BUDGETING AND
APPROPRIATIONS CYCLE







.... .. .. .]. .











~~..... .....



.. . . . . . . . . . . . . . . . ........... .. .. .. .. .
Sour : A




















thev do no ns s.-rl bring abuiht1,hs o h otlss
$ ]














- i B getq -; o
........ 3 F O


Source: AXrthuxr D. Little, Inc.



postal matters. When key business decisions are made in this way.
they do not necessarily bring about what is best for the postal system and its customers. This process. however conscientiously and well it is followed, is simply not a substitute for sound decision-making in a business context.

38





a. Rate-Setting. The Post Office is today the only public service of national importance for which the legislature has not delegated the rate-making function. The present rate structure is mute evidence that this function should be delegated.
Apart from the fact that the rates as a whole do not cover costs, the rate structure bristles with anomalies and inequities:
In 1879 the Post Office charged in-county publications the thensignificant sum of one or two cents for local delivery to discourage use of the mails in place of a newsboy. This rate has remained unchanged to this day with the result that the penalty rate of 1879 now permits the mailing of a five-pound Sunday newspaper in the city of publication for a penny.
The educational rates established for books in 1938 have today become the principal channel for the distribution of phonograph records, some of which may be characterized as educational only by the broadest of construction.
The third-class rate sub-category set up for the mailing of small books in quantity is as well the repository for such items as seeds, cuttings, bulbs, roots and plants.
Authority for pricing is a necessary attribute of a management to be held responsible for perfonnance. Pricing, of course, is not a unilateral process; market realities, or, in their absence, regulatory agencies, place limits on a fin-n's freedom to determine its prices. But we find no precedent for a situation in which management has so little influence over the price charged and the service offered.
Full-time commissions, bolstered by technical staffs, regulate rates for all major utilities (gas, electric, telephone and transportation) after reviewing accounting, economic and engineering evidence. Rates must be based upon the record and due process safeguards must be observed. The legislative process, on the other hand, is inappropriate for highly technical rate issues with narrow public policy implications.
b. Postal Labor Relations. Since postal wages, like postal rates, are set by Congress, postal labor organizations are oriented toward lobbying, not toward collective bargaining. The size of the postal work force, its dispersion across the nation and long experience have made the postal labor organizations persuasive spokesmen. Since it does not negotiate wages, postal management enjoys little influence with employee organizations.
A recurring management frustration has been legislative determination of matters normally resolved in bargaining. Each year, for example, dozens of bills bearing on postal work practices are introduced. No fewer than 68 bills were introduced in a recent Congress to curtail the Work Measurement System.
Public Law 89-301, originally a Post Office-sponsored measure

39





providingiL postal employees with an 8-hour dlay and a 5-day week, w~as amended at the behest of the employee unions to specify a MNonday--thrioughql-Frid(ay, regular work week (assigned by seniority) anid specTial split-shift limitations. This has had sudden and serious cost and scheduling implications for the Post Office. We have not studied this legislation and take no position on its merits. We cite it simply as an example of the effect of legislative actions on postal management.
For another example, postal motor vehicle employees secured passage of a law in 1960 which provides that mail moving to and from airports located within 35 miles of a city must be carried by postal employees. In many places contract (star route) carriers could carry such mail on their normal runs to and from the town in which the airport is located, at far less cost than extra government drivers.
Congress raises postal employees' salaries across-the-board periodically, along with those of other civil servants, in a process totally independent of productivity, work rules or most other matter's normally discussed during wage negotiations.
The system might he defensible, at least from the point of view of labor, if it produced decent working conditions and a satisfied work force. The tragedy is not only the frustration of management but the failure of the system to satisfy anyone. The Commission is convinced that both employment conditions and morale can be greatly improved as part of a total overhaul of the postal system. .3. The Effect of Political Appointments
The political process openly determines the selection of postal officials at three levels: top management, postmasters and rural carriers. a. Top Management. The Postmaster General, though subject to the approval of the Senate, is the personal choice of the President. For various reasons the median tenure of Postmasters General has been short: in this century it has been only 31 months. The lack of continuity of leadership has without question been one of postal managemen t's most serious handicaps.
The Postmaster General's senior assistants are the Deputy Postmaster General, the six Assistant Postmasters General who head the major bureaus, the General Counsel and the Chief Inspector. All but the last, who is named by the Postmaster General, are nominated by the President and confirmed by the Senate. Technical expertise often plays a major role in selections at this level, but extraneous factors are frequently involved as well.
b. Postmasters. Before 1938, postmasters served under appointments renewable at the Postmaster General's option. Since a new administration brought with it a new Postmaster General, the resignations of opposition party postmasters were expected and tendered. The 1938 law provided that, upon Senate confirmation, postmasters re40






ceived Civil Service status and thus put an end to massive periodic postmaster turnover. The Act also required the Civil Service Commission to develop registers of qualified applicants for postmaster vacancies.
To be qualified, postmasters must reside within their office's own delivery area prior to appointment, a requirement which limits the number of available candidates and prevents transfer of successful postmasters into vacancies occurring in larger cities.
Apart from the requirements of the Act, an "Advisor" system controls the appointment process. The Post Office Department maintains an up-to-date listing of Advisors-usually the local Congressman if he belongs to the political party in power nationalfly, otherwise a majority party Senator, Governor, state or county party chairman.
When the local organization learns of an imminent vacancyoften before the Post Office Department itself-it begins to select a replacement. Meanwhile, an acting postmaster, also selected by the Advisor may be installed,though the usual qualification requirements are waived because of the temporary nature of the assignment. Once the Advisor selects a candidate for permanent appointment, the Civil Service Commission reviews his record in what amounts to a character check if he is already a postal employee or, if he is an outSider conducts a competitive examination and establishes a register of the top three candidates. The examination may be repeated until the Advisor's choice falls within the top three so he can be selected. During this period, the Advisor simply withholds advice, while technical reasons are given to justify holding new examinations.
The Advisor may well recommend a career employee. One-third of the postmasters appointed since 1960 have in fact been career employees. Yet such promotions do not necessarily go to the best qualified supervisor. Not uncommonly, clerks or carriers are elevated to a postmastership over the heads of better qualified supervisory employees.
Delays result while the Advisor waits for a favored candidate to qualify, while an announcement is held until an opportune moment, or attimes while a newly hired "substitute" waits the 90 days necessary to become eligible for a non _competitive appointment. The National Civil Service Leaoue, when headed by former Postmaster General J. Edward Day, characterized the procedure as "remarkable in its cynicism and even more remarkable in its transparency."
It should be noted that many members of Congress, and others privileged to act as Advisors, do not exercise their prerogatives in the process described above. Instead, they ask the Post Office to select the best man for the job and accord him their routine approval.
Furthermore, despite the selection process, quite a few who emerge from it become successful postmasters. The Commission was im41
79-366 0 76 4





pressed with the qualifications and dedication of many of the men in charge of the offices visited.
The t raditiona a)1ppo)intment procedure does, however, have several 11ndesiral) i Ialmlari li it consequences" Postmasters who prove themselves successful in small offices cannot be promoted to larger offices where their talents may be
needed.
" It has left in some cities figurehead postmasters who lack the respect of their employees and in others postmasters who subordinate the postal service to other interests. Higher postal management has only one drastic remedy-removal for cause proceedings-to sohe this problem.
* The many delays in the postmaster selection process disrupt postal operations. ( The six-month postmaster vacancy in Chicago during 1966 is considered by some to have been a contributing factor to the disastrous breakdown of that year.)
* Postmaster patronage suggests to many that partisan politics plays a part in the operation of a post office. Warranted or not, the suspicion undermines public confidence and employee morale.

c. Rural Letter Carriers. Some 30,000 rural letter carriers are appointed by a similar patronage process from applicants meeting Civil Service qualifications. As with postmasters, an applicant must meet a residence requirement: once appointed, however, he may exchange his rural route with another carrier anywhere in the country without either of them meeting new residency requirements. This practice, strongly defended by most rural carriers, exposes the weakness of the argument that residency requirements insure that carriers will be acceptable to the patrons they serve.
The rural carrier has many attributes of an independent contractor, since he provides and maintains his own vehicle and arranges for substitute service when indisposed. Rural carriers seem exceptionally well motivated and their patrons generally well serv-ed. We attribute this, however, not to their manner of selection but to their level of compensation well above the median income of the communities they serve--and other appealing aspects of their employment. Typically dozens. and sometimes hundreds, of applicants seek each rural carrier vacancy. The applicants frequently include postmasters, for Wiiom such app)l)ointment constitutes a financial advantage. The selectionl prwedure for rural carriers is obviously outmoded. Both efficient aid equity aigue, for the e liniEnation of the patronage and residence\ requirements.


We view these patterns as a misapplication of the governmental process. The mission of the Post Office is simpler and narrower than that of most other Federal activities. It is by far more important as

42





an economic activity than as an instrument of public policy. For this reason, and even laying aside management considerations, we cannot help raise the question as citizens whether the Congressional and Executive energy devoted to the details of postal affairs represents the most productive use of the talents of our national political leadership.

B. The Effect of "No Control" on Internal Manas-c-itient
The diffusion of postal management authority is mirrored in management fragmentation within the Post Office itself. Each of the seven bureaus of the Washington headquarters has substantial autonomy. The 33,000 post offices, though having little authority, tend also to be autonomous.
Thus, although the Post Office is a nationwide system, it is not managed as one. It is operated rather as an aggregation of semiautonomous post offices held together by a common source of funds.

1. Headquarters Planning
The 25-step process involved in formulating a major facility project within the Post Office (Figure 11) illustrates the results of internal fragmentation of management. The process involves months of negotiation and compromise with interests within and outside the postal service.
Since information systems do not disclose whether efficiency or service suffers from an outm(-..ded facility, projects cannot be ranked in order of their operational need. Instead, the collective judgment of many individuals, representing several headquarters bureaus, determines whether the facility is "needed."
Economic analysis occurs relatively late in the proceeding, frequently after top management has determined the project's priority. There is a lack of internal technical expertise for analyzing various alternatives. Further, the number of bureaus involved in most decisions itself impedes management) while dependence upon decisionmaking by committee wastes top executive talent and contributes to delay or inaction.

2. Relations unth the Field
Lack of field involvement in communication and planning often means that new programs are needed well before headquarters recognizes the requirement. For the most part, postmasters have no say whatsoever about the selection of equipment with which they have to work. No effective means exist for notifvin![.r T)ostmasters of available equipment that might be useful to them. Nor is there a professional engineering staff anywhere in the postal field service which can learn local needs and initiate action to procure appropriate equipment. Responsibility for equipment deployment rests with the Bureau of Operations in Washington. Clearly, their limited staff cannot keep

43






track of operational needs and exploit cost saving potentials for
mechanization in the many major post offices.
When a post office receives equipment there is often inadequate
follow-up to ensure prompt and correct installation and proper operation and maintenance training. The Commission visited one major



Figure 11. MOVEMENT OF A MAJOR FACILITY
DECISION THROUGH THE ORGANIZATION




Deputy PMG

i 1 P!I
Planning & I ", ". Review Project
S Y, I Committee Specialsls

6 9
Tasi Force J ,

APVG PFaG
Rearch & 04fl*n tle
APMC n n I I

1 19 20 21 "Sae&I2

Podci Poduc ---. Mechanization Realty 2
DesRen PQannon Recjur,-n-- Division.. .. .. .. ..---

------------------------ Director -- ----------.--Dvso

Space 4 Mechanizaton
Reoutrernent$ Requirements 22
Branch 12 11 Branch

17

.s.at Regional i - -Mine - - -

Director 16 2__



-OgniaiServices onaliLi
-Moveent ofthe-.dec Division



13 1

Real 2 Sace 2 Vehicle
Nnum er state ---- R 2n in the decns procsMa.ntenance
Branch Branch a Bri V n 2 Branch Branches








446
14 16 2 '





-Organizational Li ne~s
-- Movement of the decision Numbers I through 22 represent steps in the decision process. Source: Arfthur D. Little, Inc. Details in Volume 13 of Annex, pp. 3.23-13.34.


44





post office to which five new automatic machines had been delivered nine months previously. Only one machine had been installed, and it was not working properly. The other four were still in packing crates. Perhaps more significantly, local officials were too busy with the routine work of keeping the mail moving to take time to untangle the problem.
There is little possibility of effective communication between the postmaster and his regional -director. Each of the 15 regional directors, who is nominally responsible for -all offices within his region, has an average of 2,200 postmasters reporting to him. He can hardly devote much attention to any one post office. His delegated authority is linited; his 'professional staff, small. Similarly, lack of time, inadequate staffing and sometimes inadequate authority prevent the professionals in headquarters from giving technical guidance on a continuing and meaningful basis.
The substitute for real communication is the Postal Manual, Regional Instructions and assorted directives. No matter how detailed "the book," it can never instruct on all possible contingencies, and unfortunately a book is a one-way communication channel.
The post offices themselves, even Manhattan with more than 40,000 employees -and Chicago with nearly 30,000, lack the technical staff which would be found in any sizable industrial operation. Individual postmasters have narrow authority, and they depend wholly on the regions and headquarters for special resources or permission to deviate from standard instructions. Yet the virtual impossibility of quick action by the regions or headquarters, except in an emergency, makes eacli post office, as we have said, something of an island unto itself.
Our studies showed that field officials are often reluctant to initiate action on matters not specifically delegated to them by the Postal Manual., or in areas of responsibility which they sense Washington has reserved to itself.
The system just described, which frustrates many able postal managers and employees, seems based on the assumption that, given the proper rules and a big enough appropriation, the mails will get through. But organizations do not just run themselves; the right things do not just happen, even when required by statute. A successful organization's management must be flexible to respond quickly to changing customer and employee needs. The individual manager, customarily responsible for the results of the operations he directs, must be allowed discretion to shift his resources in response to changing circumstances.
The consequences of the rigid postal management structure are as predictable as they are apparent. Individual managers have neither the opportunity nor the incentive to correct -the problems they see about them. Initiative is inhibited and obvious improvements in layout, schemes, working conditions and mail flow are not made.

45





Fragmented planning, an inadequate mechanism for intu equipment into the field, an unrealistic span of control for regional directors, the lack of professional staff in major post offices-all of these are striking deficiencies to anyone familiar with modern industrial methods. They can be explained only as an adaptation to the pJuliar circumstances created by the organizational form of the Post Office: short-term management, Treasury financing, "no control" for nominal managers. What need, for example, to develop an efficient capacity for large-scale introduction of new equipment C when there are inadequate funds for procuring such equipment and inadequate staffs to design it? Why have a reasonable span of control when there is little authority to delegate in the first place?

C. The Post Office and Our National Life
We have traced the major defects in the Post Office to its archaic and inappropriate management structure. Before considering structural changes to remedy what appears to be a basic failing, we examine the historical justification for the structure and inquire whether reasons still exist for preserving it.
1. Historical Origins
In early times and in all nations, the posts were made a sovereign function because they were a sovereign necessity. Government without communication is impossible, and until the invention of the telephone and telegraph, the mails were the only means of communication. When the Founding Fathers established the Post Office as a part of the new Federal Government, they were doing both what had to be done and what had always been done.
The Post Office played a vital role in the new nation. The mail network helped hold a wilderness together. Stagecoach trails, improved by the Government as post roads, quickly became arteries of commerce. New means of transportation-canals, railroads and in due course airlines-were assisted in their early years by mail contracts. As pioneers pushed westward the posts followed, linking frontier towns to the centers of commerce and government.
To citizens scattered great distances from the capital in Washington, moreover, the post office in every community was the most visible symbol of national unity. As the most abundant source of Federal patronage, it helped create a national party system. Again, both the ideal of free expression and the democratic requirement of an informed citizenry were given added meaning by special rates for newspapers and magazines. A tradition of absolute sanctity for the contents of the mail is a valued, if rarely noticed, trust: the confidence with which the citizen deposits even the most personal letter in his corner mailbox speaks volumes not merely about the mails but about his form of government.
Over time, however, the Post Office has lost much of its unique46





ness. Today the nation is linked together by many communications and transportation networks. Furthermore, private transportation carriers have largely outgrown their early need for mail subsidy, and regulating and assisting the transportation industry is now the responsibility of other state and Federal agencies. Our national party organizations today often find the residue of patronage in the Post Office a source of internal friction and embarrassment, not of strength. The Federal Government no longer needs the local post officeto make its presence known.
Despite a century of change, the Post Office retains many of its early patterns. Because a young nation's communication needs once demanded subsidized mail, the Post Office is still assumed to need an enormous deficit. Because postal patronage was once a source of party power, the Post Office is still burdened with an anachronistic postmaster selection system. Because he presides over what was once major policy arm of Government, the Postmaster General is still member of the President's Cabinet.
2. The Mails Today
Changes in our society have been reflected in changes in public usage of the mails. Correspondence between individuals, which undoubtedly dominated the early posts, today represents only 717c of mail volume, 14% if greeting cards are included. The mails today have become a principal channel for the conduct of the nation's business, particularly the exchange of bills, orders, account statements and checks. Because it pinpoints a specific audience so accurately, direct mail advertising has become one of the nation's principal advertising media. Approximately 70% of all magazines are delivered by mail.
There are four major kinds of mail, shown in Figure 12; these

Figure 12. WHAT IS THE MAIL?


CIRCULARS
AND SAMPLES
22.7% (THIRD CLASS BULK
AND FOURTH CLASS
CATALOGS)
..........
11.7% PUBLICATIONS
(ALL SECOND CLASS
60 2 AND CONTROLLED
........ ..... *...*..,.-.*.*-.,*,-".. ... CIRCU LATIO N )
... ..... PACKAGES
1.2%
-(ALL FOURTH CLASS
EXCEPT CATALOGS) OTHER
SEALED LETTERS
(FIRST CLASS, 4.2%
AIRMAIL, (THIRD CLASS PIECE
INTERNATIONAL RATE AND MISCELLANEOUS
AND GOVERNMENT) MAIL CLASSIFICATION)

Source: Compiled from Post Office Department data.

47





roughly correspond to the familiar classes of mail defined by statute.
The uses to which the in ails are put, however, are of more interest than either their physical characteristics or their legal classification.
A special study conducted by, the Commission developed the information on mail uses shown in Fig(ure 13.


Figure 13. WHAT'S IN THE MAIL?

-ADVERTISING
MAGAZINES & NEWSPAPERS

11% -1% MERCHANDISE

13% PERSONAL

22%5% BUSINESS -CORRESPONDENCE

4% GOVERNMENT
TRANSACTIONS
AC I CONTANIN CHECKS,
BILS SAT EMENTS OF
COUNT, PURCHASE
ORDERS, ETC)

Source: Compiled from Arthur D. Little, Inc.; details in Special Study on Services.

Forty percent of the mail involves "transactions," i.e., contains a
check, money order, bill or statement of account, purchase order or question about ani order. Over 26% of all mail is advertising, most of it bulk-rate third-class, but some sent first-class, including almost two billion pieces a year of "piggy-back" advertising enclosed in the monthly bills of stores, gasoline companies and utilities. As Figure 14 shows, businesses (including nonprofit institutions) originate 74% of the mail; households, 20%; and all levels of government, 6%7.
Mail today is thus used primarily for commercial purposes. Mail
service is principally a utility service not unlike the electronic communication system and the transportation system. The Post Office has a monopoly on communication by personal, written messages, and it provides the principal means for the shipment of small parcels; it is
a major advertising medium.
The Commission concludes, therefore, that today the Post Office
is a business. Like all economic functions it should be supported by revenues from its users. The market should decide what resources
are to be allocated to the postal service.

3. The Post Office as a Public Service
This essentially economic appraisal of the postal service is sometimes challenged by those who argue that Congress declared the postal service to be a "Public service" in the Postal Policy Act of 1958. The Commission agrees that the Post Office is a "public service" in the

48






sense that, like a utility, it serves the public at large without discrimination. The Postal Policy Act also states that the Post Office is not a business "conducted for profit."


Figure 14. MOST MAIL IS SENT BY BUSINESS

0 1000/0


BUSINESS TO BUSINESS 25,8%


1 1 1 i t ] I f i l l I I ] I ]
f i l l I I f i l l

BUSINESS TO HOUSEHOLD -titi illIF-446.6%
73.6%





BUSINESS TO GOVERNMENT 1.21/6



HOUSEHOLD TO BUSINESS H%
GOVERNMENT TO BUSINESS 18%
HOUSEHOLD TO HOUSEHOLD 14.0%
264%
HOUSEHOLD TO GOVERNMENT 0.41/6
GOVERNMENT TO HOUSEHOLD 3.8% I GOVERNMENT TO GOVERNMENT 0.6%
(All percentages are of total mail volume)

Source: Compiled from Arthur D. Little, Inc.; details in Special Study on Services, Part II.

The public service nature of the Post Office is also found in the Postal Policy Act's definition of the public service allowance or statutory subsidy. Much confusion has arisen by failing to distinguish clearly between a subsidy
* to the postal service as a whole, and
* to specified individuals or groups using the postal service.
Congressional appropriations to meet the collective deficit of all mail classes (except those specifically designated for lower rates) are in fact subsidies to the postal service as a whole. In the light of the business nature of the mails and the impact of the postal deficit on management,such subsidies should be eliminated. Indeed this form of subsidization finds no justification in the Postal Policy Act.

49





Rural "subsidies," although set by the Postal Policy Act, really subsidize the entire postal service, Rural areas are just as much pat of'the postal system as cities, and the cost of serving them-even when they appear "unprofitable"-is a proper expense of the service as a whole. The Commission rejects the notion that every post office must take in sufficient revenue to pay its oVn c(sts or be terminated. Further, to look only at the revenues from rural operations is to ignore the value to both the urban and rural user of offering nationwide service. Rural costs are proper business expenses to be included in their entirety in the postal rate base and should not be considered, in any sense, a subsidy.
The second category of subsidies-subsidies to specific users of the service-is illustrated by special rates for charitable organizations and educational material. These are the real "public service" subsidies. At present, the method used to calculate them tends to overstate their amount and understate the extent to which the Treasury is supporting the postal system as a whole. As Figure 6 illustrates, when properly calculated these subsidies represent about 3.8% of total postal costs. Thus, the amount of the true public service subsidy is quite small, confirming once again the business character of the postal system.
5 *




























50









The Post Office is a Cabinet agency because it was once an important policy arm of Government. Its officials are subject to the many checks and balances appropriate to formulating public policy, but completely inappropriate, we have found, for managing a major economic activity. The Post Office nevertheless has become such an activity and as such it plays an important role in our economy. It should be organized to permit it to meet its responsibilities successfully.
The next chapter sets forth the Commission's recommendations for such an organization.


































51
































W, 41




cr




















Chapter 3


A National

Opportunity



The Post Office today is failing-failing the users by not providing the quality of service they deserve; failing the public by costing far more than it should; and failing its employees by stifling their potential.
We have traced these failures to a central cause-outdated and inappropriate management processes. The remedy demands a fundamental change in the anachronistic relationship between the Post Office and the rest of the Government. Piecemeal corrections such as changing the method of selecting postmasters, granting authority to borrow funds for capital needs and other long overdue steps could be taken. But each alone, or all together, cannot produce the break with the past we have concluded is essential.
When it became apparent that a basic structural change would be necessary, the Commission undertook a comprehensive examination of all alternative organizational forms, including the possibility of a postal service operated under private enterprise.
If the postal system had begun after the country had reached an advanced stage of technological, social and economic development, it would in all likelihood have emerged as a private industry suitably regulated to ensure satisfactory service levels and fair prices. Most members of this Commission would favor an investor-owned postal system.
We recognize, however, that formidable barriers stand in the way of a transfer of the existing postal system to private ownership. The

53





Post Office has had two hundred years as a Government operation. Time has nurtured the attitude that the postal service must be a Government responsibility.
Private operation, furthermore, presumes a buyer as well as a seller. It is clear that an or n Nvitli the Post Office's earnings record would not attract investors. Our contractors estimated the current appraised value of postal fixed assets at approximately $1.7 co billion. That figure, together with the $5 billion modernization at requirement estimated by the Post Office, would make for formidable 6( bond and stock issues. It is highly improbable that issues of the size N necessary to complete financing within a reasonable period could be al undertaken in these times.
Even these large sums exclude the $12 billion in pension liabilities, now unfunded, owed by the Government to present and past postal employees. This debt would complicate financing pensions if postal f employees were to be removed from Government employment. ?
There is, however, an instrument by which much of the management flexibility of private enterprise can be achieved with continued Government ownership. On many occasions during the last fifty years, when faced with a business-type task of large proportions demanding a certain degree of independence from general administrative restrictions, Congress has created a Government corporation. t
Perhaps the best known was created in 1933 to develop the natural resources of the Tennessee Valley. Despite the early controversy over TVA's role in our society, most observers agree that it is a prime example of a well-managed Government corporation.
President Truman commented on the uses of the Government corporation in his 1948 budget message:

Experience indicates that the corporate form of organization is peculiarly adapted to the administration of governmental programs which are predominantly of a commercial character-those which are revenue producing, are at least potentially self-sustaining, and involve a large number of business-type transactions with the public.
In their business operations such programs require greater 7 exibility than the customary type of appropriation budget ordinarily permits. As a rule the usefulness of a corporation lies in its ability to deal with the public in the manner employed by private business for similar work.

The description exactly fits the postal service. We have concluded that a Government corporation can be a vehicle permitting highly effective management for the Post Office. The purposes of the organization should be spelled out in the Con.tTressional charter and its day-to-day operations conducted by a professional manal ement held responsible for results.

54





1. We recommend that a Postal Corporation owned entirely by the Federal Government be chartered by Congress to operate the postal service of the United States on a self-supporting basis.*
To establish the Postal Corporation, Congress would enact a Charter giving the new organization powers similar to those of other Government corporations. It should have the legal status of a body corporate that can sue or be sued, enter into contracts, borrow money and acquire and dispose of property in its own name. The Corporation should also have the authority to determine the character and necessity of its expenditures, and the freedom to use postal revenues and borrow funds from the public.
Full management responsibility and authority iould be vested in a Board of Directors charged with providing the nation with a superb mail system, offering universal service at reasonable rates, paying fair wages to postal employees and giving full consideration to the public welfare. The Board would establish a basic internal organization for the Corporation, approve major proposals and provide policy guidance.
The essential element for the success of the Postal Corporation is a Board of Directors with full authority for postal management. There are many different ways in which such a Board could be structured. No standard format exists for either Government corporations or private companies.
We urge a Board which combines the advantages of wide experience and detachment which outside (i.e., part-time) Directors could contribute, with the high order of managerial responsibility gained when top corporate officers themselves hold seats on the Board. We propose, therefore, a Board of nine Directors, six of whom would be appointed by the President of the United States and confirmed by the Senate. The President would make his initial Board appointments for terms of one to six years, and each year thereafter name a Director to a six-year term. They would serve on a part-time basis.
The six appointed Directors would select a Chief Executive Officer for the Corporation wl o would be a Director and Chairman of the Board. The Board would then select two more Corporate Officers to assume key responsibilities determined by the Board and to serve as Directors so long as they serve in their corporate capacity. The Chief Executive Officer would serve at the pleasure of the six appointed Directors; the two other Officer-Directors at the pleasure of the six plus the Chairman (Figure 15).
We recognize that the Board we propose represents a departure from normal government practices, especially in the method of selecting its Chairman. It appears to us, nevertheless, to be the best arrangement for beginning the new Postal Corporation, although other approaches might also be practical. Whatever the structure
*See comment of Commissioner Meany, p. 2.
55





Figure 15. STRUCTURE OF THE POSTAL CORPORATION


BOARD OF DIRECTORS

6 PART-TIME MEMBERS APPOINTED
AND BY PRESIDENT
3 FULL-TIME MEMBERS
INCLUDING SELECTED
CHIEF EXECUTIVE OFFICER BY BOARD
(CHAIRMAN OF BOARD)



SETS OVERALL POLICY WITHIN
CHARTER GUIDELINES




PANEL OF RATE
COMMISSIONERS





CHIEF OPERATING OFFICER*


RESPONSIBLE FOR DAY-TO-DAY MANAGEMENT SHOULD BE ONE OF FULL-TIME DIRECTORS, OTHER THAN CHAIRMAN

of the Board, the important requirement is that it be given the authority to run the postal system, including the authority to select the Officer-Di rector's and other top management officials and to set
their compensation at levels competitive with private industry.
We propose a restructuring of the current relationship between the
Post Office and Congress and the Executive Branch to enable those branches to exercise proper policy functions. Under the Government Corporation Control Act, applicable generally to Government corporations, the Bureau of the Budget and the Congress would make a broad annual review of the postal budget. Likewise, appropriate
56





govemment-wide policies would apply to the Postal Corporation such as Equal Employment Opportunity, the Hatch Act and the conflict of interest laws.
The Corporation should be self-supporting because:
Subjecting a business activity to deficit financing stifles management initiative and practically guarantees inefficient operation. The deficit-for the most part a subsidy to the mail system as a whole-is no more justified than partial Treasury support for any other public utility
2. We recommend that the Corporation take immediate steps to improve the quality and kinds of service offered, the means by which service is provided and the physical conditions under which postal employees work.
Correction of the service deficiencies and other shortcomings chronicled in Chapter 1 is the first priority of the Corporation's management. It is not enough to avoid the risk of a breakdown in postal service; reorganization must be accompanied by a vigorous effort to raise the postal service to a level of excellence.
The opportunity to do so has been created by years of missed opportunities. The principal resource for doing so is the existence of a well-motivated work force, and the missing link is a framework for management which permits modem operating practices to be brought to bear.
The officials of the Post Office have been severely handicapped in maintaining service levels by the penny-pinching which inevitably results from rising costs and a limited budget. We believe that only an organization which is financially healthy can meet the nation's service needs. A fundamental management objective, therefore, will be to place the Post Office on a sound financial footing through operating efficiencies and increased revenues. Normal growth in mail volume will increase revenues, of course, as will the strategic marketing of profitable postal services.
If the Post Office continues without change, periodic rate increases affecting all classes are inevitable. Although rate increases in an era of rising costs cannot be entirely avoided, the need for them in a wellmanaged postal service can be largely offset by operating efficiencies.
The challenges facing the postal service will require the exercise of a high order of corporate leadership and the cooperation of the individual postal employee. Fortunately, the same steps which meet postal goals improve the well-being of the postal worker. Modern facilities are needed not merely to reduce costs and improve service, but to provide the postal employee with a working environment similar to those found in modern industrial organizations. Mechanization intended to reduce unit costs will also enhance the status and potential of the postal employee.

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7 3 6 6





3' We recommend that all appointments to, and promotions within, the postal system be made on a nonpolitial basis.
Appointments and promotions should be based on an individual's qualifications and performance and not on extraneous factors. The present sy-stem for appointing postmasters not only forecloses career opportunities for many potential managers but prevents the successful postmaster from being promotedl to a position of higher responsibility. It also results in an abnormal relationship in which top management has difficulty in exercisingr normal authority over the postmaster. Finally, it is an unw,,arranted and, w ,e found, often unwanted drain on the time and energy of members of Congress and officials of the Executive Branch.
For eighty years there has been a steady movement led by the
postal employee organizations to remove the Post Office from patronage. Postmaster and rural carrier appointments, however, survive. Providing the nation with a superb mail service is not a partisan issue: postal purposes do not change with the national administration. It is time to move to a completely professional postal personnel system. (Congress may well now be ready to make such a move. In the current sesion alone, at least 48 bills were introduced to end political appointment of postmasters or rural carriers.)
The Commission urges that the Corporation Charter remove residency requirements for postmasters and other personnel and contain a strong provision against any political test or qualification in appointment or promotion, with removal from office specified as the penalty for any Board member, officer or employee found to violate this provision.
4. We recommend that present postal employees be transferred, with their accrued Civil Service benefits, to a new career service within the Postal Corporation.
A new merit personnel system independent of the Federal Civil Service and tailored to the unique character of the Post Office is an essential first step toward the flexibility needed in postal personnel administration. All present Departmental and field employees would be transferred to the new service with their accrued pension rights, leave, pay and seniority.
The Civil Service System would retain responsibility for that Portion of employee pensions earned prior to establishment of the Corporation. The Corporation would thereafter pay the Government portion of the pension plan. A Charter provision would provide that no employee pension would be jeopardized in any way through conversion to the Postal Corporation. Conditions of employment for nonmanagerial employees would be established by collective bargaining between postal labor and management. Compensation of management, professionals and related personnel would be set by the Board.

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The Corporation should protect present pay levels; it should
negotiate the future pay of postal employees taking into account S competing wage levels, the principle of comparability, where pos,e sible, or a similar standard of equity.
We anticipate greatly increased opportunities for all postal employees. Within the new career service they should be provided with training and educational opportunities to qualify them as fully as posD sible for increased responsibilities.
The limited negotiating opportunities under Executive Order
10988 must be replaced with full collective bargaining over pay, related benefits and other matters now negotiated in the private sector. Direct negotiations will pen-nit the development of programs to improve mail service quality and the financial performance of the I. Post Office. We are confident that management and unions working to achieve their common aim of better public service and improved working conditions will be able to resolve most issues.
One immediate candidate for reform-, for example, is the present i. employee grievance procedure, a particularly awkward mechanism by modern standards. Contracts between the postal unions and management might well provide for binding third-party arbitration of agreed-upon types of grievances arising under the contract. In the private sector such a elements, are common; they typically authorize an arbitrator to interpret and apply the contract, while with holding from him authority to modify the contract itself in any way.
Such agreements usually provide for the arbitration of disciplinary
cases, including discharges.
i We rest our hope for lasting improvement upon the assumption of
a successful relationship between postal management and labor. We must consider, however, the possibility that a bargaining impasse
may arise.
In the private sector the right to strike upon failure of bargaining
is a normal element of our national labor policy-at least until the day when labor and management freely evolve a method of settling disputes less costly to themselves and to society. Had we found it possible to recommend a privately-owned postal corporation,- the right to strike would be a natural corollary. The exercise of that right, of course, given the severe impact a postal strike would have on the millions who depend upon the mails, might well be limited by the same sort of measures taken by Government during national emergency
disputes in the past.
Different considerations, however, govern the resolution of labor
disputes in public employment. Public agencies cannot discontinue public service. Further, the relative security of public employment sets public employees somewhat apart from workers in the private
sector.

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Labor-management relations at all levels of Government are in a state of transition as the techniques of collective bargaining attempt to mesb with, or supplant, the traditions of the public employer. In particular, the resolution of impasses is in a state of flux though virtuall all le'r'Tislation and judicial opinions in the United States today prohibit strikes in the public sector. Pending the development of a bi better device for the amicable adjustment of disptites in public er-nployment, we recommend that the existing prohibition against strikes by Federal employees, which includes those in Government corporations, continue for postal workers. We believe that this problern must be resolved in the context of Govern ment-em ployee relations U as a whole and not of the Post Office alone. We note that a Presidential Review Committee is now examining the entire question of labor-management relations in the Executive Branch.

Procedures for Resolving Disputes
To settle representation questions in the Postal Corporation and to act on complaints of unfair labor practices, we recommend that the parties use the National Labor Relations Board. To resolve major contract questions or pay disputes, we recommend use of the Federal Mediation and Conciliation Service (FMCS). If mediation efforts fail, the parties could ask the FMCS to make recommendations. When and if requested by both parties, FMCS would assign an arbitrator or a panel of arbitrators to make final decisions on matters concerning which the parties voluntarily agree to accept a binding ruling. Labor and management would share arbitration expenses. The parties, of course, could agree to some other approach to binding arbitration.
In the event of an impasse over a contract question or pay dispute which the parties are unwilling to submit to binding arbitration or to resolve by some other agreed-upon means, the issue would be referred to the President of the United States. The President would be free to establish whatever ad hoc methods he chooses to resolve the matter. The uncertainties for both parties built into the final stages of this procedure make for more meaningful bargaining and are, in our view, a source of strength.
In summary, the Commission sees a way to permit postal labor and management freely to build a new relationship based on cooperation and trust. We believe that the plan we have set out is sound. It provides for an orderly progression of bargaining with no economic harm either to postal workers or the public interest. We would nevertheless urge both the Administration and Congress to give postal management and the employee unions freedom to create any other structure which provides collective bargaining between them without the disruption of a strike. Experience shows that the details of a dis60





putes-resolving mechanism are not nearly so important as its acceptability to the parties.

5. We recommend that the Board of Directors, after hearings by expert Rate Commissioners, establish postal rates, subject to veto by concurrent resolution of the Congress.
The Corporation management would develop rate proposals and forward them to a panel of technically-qualified Postal Rate Commissioners responsible only to the Board of Directors. These Commissioners would be independent of operating management and, unlike other Postal Corporation employees, appointed by the Board of Directors from a special Civil Service register. Under fair and appropriate procedures the Rate Commissioners would review expert accounting, engineering and economic evidence and would render an initial decision on the merits of the proposed change.
After adopting or modifying the Rate Commissioners' decision in the light of the record, the Board of Directors would issue a formal rate change notice to take effect within sixty days unless disapproved during that interval by concurrent resolution of Congress, a procedure somewhat similar to that used under the Executive Reorganization Acts. As described in detail in Part II (pp. 149-53), the Congress would accept or reject the rate proposal in its entirety. The procedure would protect the public against abuse of rate-setting authority while freeing Congress of involvement in technical rate details.
Were we to recommend a privately-owned Post Office, rate regulation by an independent Federal commission would be a necessary and appropriate corollary. Regulation of a Government-owned Postal Corporation by such an agency would be anomalous: one Government body would be regulating another. We believe that the Panel of Rate Commissioners can provide the independence and expertise necessary to ensure a fair hearing to the users of the postal service while minimizing delay, interfere nce with management prerogatives and the dangers of layering of Federal bureaucracy which a separate independent agency might bring. We believe that the Congressional veto procedure is an entirely appropriate mechanism for a final review independent of the Corporation itself.
The postal service as a whole-not necessarily class by classshould be self-sustaining. Particularly since use of the mails is overwhelmingly commercial in nature, we strongly feel that the users can and should pay the full cost of the postal system.
Congress would establish broad policy criteria for setting postal rates under which rates for a given class of mail would cover the costs demonstrably related to that class of service. Revenues from each class must cover the full additional costs of providing the service, including the cost of being prepared to handle future increases in

61





volume. Remaining institutional costs would not be apportioned to the several class, of mail by ri,(,I(l accouritinL formulas. Rather, for pricing purposes management would apportion these costs to the 5f
various classes on the basis of its Judi ment of such market factors I( as differences in the nature of the various services provided and differing demand characteristics.
This management judgment would be guided by the following C(
policy: Subject to the requirement that the Post Office would be a break-even operation, each non-monopoly class should contribute I
as much toward the coverage of institutional costs as is reasonably practicable, taking into account market conditions, rate relationships with other services the desirability of encouraging types of mail which permit efficient use of postal facilities and other relevant factors.*
To the extent that such classes contribute to meeting institutional costs, revenue requirements for monopoly classes would be minimized. This policy does not necessarily imply higher rates for all nonmonopoly mail, though selective increases may be found advisable.
In order to implement such a policy the Post Office needs a more S sophisticated cost accounting system than Cost Ascertainment. Indeed, it needs such a system not only for pricing but also for basic management purposes. This system should accumulate postal costs by I
post office and by function; it should show how costs vary with increases in volume and what costs are essentially fixed or institutional. I It should produce sound business financial data which would stand up under rigorous independent audit.
Setting subsidized rates presents unique problems. Congress has traditionally granted special postal rates for nonprofit and educational mailings and for other purposes. It is open to question whether the postal service should be used to extend Federal subsidies for such purposes; Congress might well select some more efficient and visible way of assisting these groups. If Congress wishes to continue some or all of these subsidies, however, we recommend the following method of funding:
As noted in Chapter 2, the subsidy to these organizations (as distinguished from the large subsidy to the postal service as a whole) amounts to approximately 3.87c of total postal costs. Funding these grants through general tax revenues rather than the revenues of the Post Office might appear logical, but such a procedure would mean retention of the appropriation link with the Congress. We propose, therefore, that such costs be added to the other expenses of the Corporation and spread among postal customers in the same manner as other institutional costs. To protect the interests of the mailing public, a specific limit on such subsidies, such as three percent of revenue requirements, should be adopted.
*More detailed standards for setting postal rates arc discussed in the Part I I Special Study, "Postal Rates," Sections B and C, pp. 19 7-36. 62





Parcel post rates also present unique problems for the Corporation since not only mailers' interests, but those of competitive parcel services are involved. Parcel post prices should, therefore, be based not only on the standards described above, but should reflect an imputed charge for taxes and cost of capital.
Furthermore, the Corporation should consider the feasibility of contracting out portions of its parcel post activity to private carriers if better service or lower costs would result. The nation's small-parcel market may well be better served than it is at present if joint privatepublic arrangements are developed combining the advantages of the Post Office's ubiquity with the excess processing capacity and transportation available to private carriers.

The Need for Action

The problems the Post Office will face in the next decade constitute a management challenge as great as any in our economy. The challenge simply cannot be met through the present management structure. We have proposed an organizational structure, backed by a new policy outlook, to introduce modern management into one of our largest, most important, but surely most underdeveloped public utilities.
The sense of the Commission was well expressed by one of its members:
What the Post Office needs is management leadership. It needs a management free to manage with all that entails: authorities matched with responsibilities; a sound cost accounting and an information system so that they know where they have been and where they are going.
Such a management would make clear that opportunities within the postal service are limited only by an individual's talent and energy. Such a management would also mold a single working organization out of the thousands of elements that go into making up the postal system today, so that everyone would know he is building a cathedral and not just laying bricks.
The path to a superb postal service responsive to public needs will not be an easy or straight one. A long transition lies ahead, involving hard bargaining, patience, readjustments and new attitudes. Our recommendations will produce no miracles overnight. Indeed, despite certain improvements a new management can promptly introduce, the large investment required will mean that overall financial perfon-nance cannot improve immediately. The comfortable course would, as always, be inaction. The Post Office might continue to jog along in its rickety fashion for years before it collapsed, and

63





we could ignore both the obvious costs to our economy and the hidden costs to society and to men's careers.
On the other hand, after the obvious inefficiencies are corrected, the long-run potential for improvements is so great that we are relLiCtant to estimate their size. We are confident that the postal deficit can be ended within several years after the Corporation is under way through productivity improvements and a sound rate structure. The increasing demand for mail and mail-related services, furthermore, assures that the Post Office need not resort to reductions in force to achieve savings.
In other spheres-scientific, economic and social-we see all about us advances considered impossible a decade ago. Ile Post Office, too, can advance. This should be done not merely in the interest of efficiency, though inefficiency is rampant; nor alone in the interest of service, though service demands improvement; nor solely in the interest of employee welfare, though serious wrongs need righting. Rather, we urge prompt and positive action on our recommendations because of the opportunities they provide:
The opportunity to allow the postal worker to realize his full potential and to help create a superb postal system meeting the
nation's needs.
The opportunity to stimulate our nation's economy through greatly improved mail service.
The opportunity to release well over a billion dollars a year of our Federal budget for the urgent social purposes of our f ime. The decision to seize these opportunities rests with our elected officials and the citizens they represent.





















64
















































'Poll















Yoe 00,






40


1A











Part 11
Special Studies








Contents Part 11 Special Studi*es


















Synopsis of Part II Studies . . . . . . . 73

Study 1. ORGANIZING AND FINANCING THE
NEW CORPORATION . . . . . . . 76
A. Board of Directors . . . . . . . . 77
B. Corporate Salaries . . . . . . . . 79
C. The Corporation Charter . . . . . . 80
D. Raising Capital Funds . . . . . . . 81
E. Operations Funding . . . . . . . . 82
F. Financing During the Transition . . . . . 82
G. Expending Funds Wisely The Planning Process . 83

Study 2. POSTAL SERVICES . . . . . . . 84
A. Need for a Full-Time Marketing Function in the Postal
Service . . . . . . . . . . 85
B. Findings of the Market Study . . . . . 86
1. The Effect of Changes in Rates . . . . 86
2. The Mail as a Channel of Commerce . . . 87
3. Who Sends How Much to Whom? . . . . 91
4. Urgency of the Mail . . . . . . . 94
5. Concentration of the Mail . . . . . . 95
6. Opinions About the MaiJ Service . . . . 96
7. Other Findings . . . . . . . . 97

Study 3. POSTAL MANPOWER . . . . . . 98
A. Summary . . . . . . . . . . 99
B. Description of the Work Force . . . . . 99
1. Types of Appointment . . . . . . 102
2. Description of Duties . . . . . . . 103
3. Composition of the Work Force . . . . 104
C. Personnel Management . . . . . . . 104
1. Recruitment and Selection . . . . . 104
2. Placement . . . . . . . . . 106
3. Career Outlook and Promotion System . . . 106
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4. Working Conditions . . . . . . . 108
5. Incentives . . . . . . . . . 109
6. Training . . . . . . . . . 110
7. Conclusions and Findings . . . . . . 110
D. Labar-Managenient Relations in the Post Office
tu
Department . . . . . . . . . 112
1. Background . . . . . . . . . 112
2. History and Role of Postal Unions . . . . 114
3. Executive Order 10988 . . . . . . 117
4. Collective Bargaining in the Post Office Department 117
5. Conclusions and Findings . . . .. . . 120

Study 4. POSTAL RATES . . . . . . . 122
A. The Existing Postal Rate Structure . . . . 123
B. Economic Standards and Postal Rates . . . . 127
1. The Propriety of Economic Standards . . . 127
2. The Postal Monopoly . . . . . . . 128
3. Standards for Postal Rates . . . . . . 129
C. Application of Standards to the Post Office . . . 132
1. The Cost Ascertainment System . . . . 132
2. Determining and Assigning Variable Costs . . 133
3. Assigning Fixed Costs . . . . . . . 133
4. Implication of Standards for Present Rates 135
5. An Alternative Postal Classification System . . 135
D. Subsidies and the "Public Service Allowance" 135
1. Present Postal Subsidies . . . . . . 135
2. Redefining Postal Subsidies . . . . . 138
3. Recommendations for Postal Subsidies . . . 1440

Study 5. POSTAL RATE-MAKING . . . . . . 144
A. The Current Rate-making Process . . . . 145
B. Is There a Better Way? . . . . . . . 146
C. Rate-making for a 20th Century Post Office . . 147
1. Policy-making . . . . . . . . 147
2. Initiation and Rate Design . . . . . 148
3. Hearing, Decision and Review . . . . . 149

Study 6. POTENTIAL FOR COST SAVINGS IN THE
POSTAL SERVICE . . . . . . . 154
A. Cost Trends to Date . . . . . . . 156
B. The Economics of Postal Activities . . . . . 158
1. Retailing-Delivery . . . . . . . 159
2. Processing . . . . . . . . . 160
3. Purchased Transportation . . . . . . 162
4. Administration . . . . . . . . 162
C. Summary . . . . . . . . . . 162

70





Study 7. OVERNIGHT DELIVERY OF FIRST-CLASS MAIL . . 164
A. The Cost of Overnight Delivery . . . . . 165
B. The Ur ency of First-Class Mail . . . . . 166
C. Provision of Two Types of First-Class Service . . 167

Study 8. TRANSPORTATION . . . . . . . 168
A. The Decline in Rail Transportation . . . . 169
B. The Sectional Center System . . . . . . 170
C. Restrictions on Transportation Procurement . . . 171
D. Transportation Management . . . . . . 172
E. Parcel Post . . . . . . . . . 173
F. Conclusion . . . . . . . . . 173

Study. THE CORPORATION AND CRIMINAL
LAW ENFORCEMENT . . . . . . 174
A. Postal Criminal Laws . . . . . . . 175
B. Postal Law Enforcement . . . . . . 175

Study 10. THE POST OFFICE AS A CORPORATE CITIZEN 178
A. Employment . . . . . . . . . 179
B. Architecture . . . . . . . . . 179
C. Support of Service Organizations . . . . . 180
D Philately . . . . . . . . . . 180
E. Provision of Services to Other Governmental Agencies. 180

Study 11. FOREIGN POSTAL EXPERIENCE . . . . 182
A. Authoritative Opinion . . . . . . . 183
B. Organizational Form . . . . . . . 183
C. Management . . . . . . . . . 184
D. Financial Independence . . . . . . . 184
E. Rate-Setting . . . . . . . . . 185
F. Subsidized Rates . . . . . . . . 186

















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Svnops*s Of Part 11 Studi*es














Part II includes eleven special studies relevant to the conclusions reached by the Commission in Part I. The major findings of each study are presented below:

1. Organmiing and Financing the New Corporation
The Corporation would be directed by a nine-member board, six part-time members to be appointed by the President and confirmed by the Senate and three full-time Officer-Directors to be chosen by the Board. The salaries of management personnel should be competitive with those of comparable positions in private industry. The Charter of the Corporation should provide powers analogous to those of private corporations.
The Corporation should be pen-nitted to use its revenues directly and to borrow in the private capital market. Ultimately, revenues should be sufficient to cover operating costs, debt service and a small reserve for unanticipated costs.

2. Postal Services
The Post Office must develop a full-time marketing and sales capacity to respond better to the service needs of the public and to offer the variety of services which will permit most effective use of its capacity.
Among the principal findings of a market analysis conducted for the Commission by Arthur D. Little, Inc., are these: the mail is used primarily as a commercial medium; transactions and advertising together constitute two-thirds of all mail volume, many mailers are relatively indifferent to 24-hour delivery for the major part of their mail.

3. Postal Manpower
Many serious shortcomings must be overcome if postal employees are to make their maximum contribution to postal effectiveness. Among the faults of the present system are involvement of patronage in many appointments and promotions; legislative restrictions on management decisions; a cumbersome recruitment process; poor work environment and erratic work scheduling; lack of training and career opportunity; lack of opportunity and incentive for superior performance; and unproduc'five labor-management relationships.

73

79-366 0 76 6





4. Postal Rates
The present postal rate structure needs reform. If the Post Office is to operate most effectively, rates for its various services must be set according to economic rather than political standards, The Post Office should recover its total costs: each service should recover at least the full additional costs of that scn ice over the long run. Pricing above this minimum should reflect valtie of service and market demand. Institutional costs should be spread as vvidely as possible.
The postal monopoly should be continued, subject to minor adjustment. The Private Express Statutes, however, should be updated.
greatest part of the postal deficit is really a subsidy to the general mail user and should be bome by him rather than the taxpayer. If Congress decides, upon re-examination, to continue the relatively small portion of the deficit which is a true public service subsidy, it should be funded from general postal revenues.

5. Postal Rate-Making
The present rate-making process is irrational and unfair. To ensure rate-making according to economic standards, Congress should delegate rate-making authority to the Corporation, specifying the broad policy standards for rate-making.
A senior corporate officer designated by the Board would have the responsibility for initiating rate proposals. Heanngs would be held before a Panel of expert Rate Commissioners who would be free of ex parte influence and responsible only to the Board. The Board could adopt or modify the decision of the Rate Commissioners, and the Congress could veto the Board's decision within 60 days by concurrent resolution.

6. Potential for Cost Savings in the Postal Service
If postal managers were given the authority and the financial means to put modem management and technology to work for the Post Office, the introduction of improved methods and mechanization could effect a net savings of 20% in total postal costs,--over $1 billion at current volumes of business. With this savings, deficit financing should become unnecessary within several years after the Corporation gets under way.

7. Overnight Delivery of First-Class Mail
The Post Office goal to provide overnight delivery for all firstclass mail sharply raises postal costs. Moreover, such delivery is not necessarily wanted or required for much first-class mail. The Post Office, therefore, should study the feasibility of providing two services: assured same-day or next-day service for mail which the user regards as urgent, and normal dependable delivery for the remainder.

74





8. Transportation
The Post Office is the largest non-military purchaser of transportation services. The techniques by which the nation's mails are moved have changed dramatically in recent years, and the Post Office has successfully shifted from its traditional dependence on the railroads to a highly flexible mail transportation system using various modes of transportation on a well-integrated basis.
Several long-standing restrictions on procurement of highway and transportation assume greater significance as these services increase in importance to the Post Office. These restrictions should be removed in the interest of permitting postal management full access to the transportation options available in the private sector.
9. The Corporation and Criminal Law Enforcement
The Inspection Service of the Post Office is presently responsible for the enforcement of postal laws which protect the sanctity of the mails and prevent other activities deemed by Congress to be socially undesirable. In addition, almost half its effort is devoted to special management functions such as annual financial audit and inspection of facilities and management studies. Under the proposed Corporation, the Inspection Service should continue its law enforcement functions but its special management functions should be reassigned by the Board.

10. The Post Office as a Corporate Citizen
The Post Office as a Government corporation, following the practice of many private corporations, should continue to engage in socially valuable activities such as active recruitment among the disadvantaged and the design of aesthetically pleasing facilities.

11. Foreign Postal Experience
An examination of foreign Post Offices reveals that most possess a higher degree of economic or business orientation than does the United States Post Office. Twelve of the fourteen foreign Post Offices surveyed in this study, for example, receive no appropriations from general tax revenues to cover any part of their expenditures.











75


















Study 1


Organizing and


Financing


Tle New


Corporation

Contents
A. Board of Directors, 77 B. Corporate Salaries, 79 C. The Corporation Charter, 80 D. Raising Capital Funds, 81 E. Operations Funding, 82 F. Financing During the Transition, 82 G. Expending Funds Wisel)-The Planning Process, 83













I

In Part I we briefly set forth the proposed Corporation's organization and financial structure. In this study we detail the proposed Board structure, outline Charter requirements and discuss the new Corporation's financial and planning mechanisms.

A. Board of Directors
There is no standard way to structure a Government corporation. Although boards of Government corporations vary in size, they are usually small, generally from three to seven members (see Table 1-1, on following page). Some boards serve full time, others have both full- and part-time members. On some boards membership must be divided between the two political parties; on others there is no regard to political affiliation. The President appoints most major boards subject to Senate confirmation; however, when a corporation is part of a Cabinet Department, the Secretary often makes the appointment.
We propose a nine-member Board, six to be appointed by the President with Senate confirmation for staggered six-year terms. The six appointed Directors, who would serve part-time, would select a full-time Chief Executive Officer who would also serve as a Director and Chairman of the Board of the Corporation. The Chairman and the other six Directors would then select a chief operating officer and a second corporate officer, who would also serve as Directors. We believe that their titles and the nature of their duties should be left to the Chief Executive Officer and the Board. This Board structure reflects our preference for a policy-making, non-operating Board and our view that a Board made up entirely of full-time members could become too involved in daily operations. The Chief Executive Officer would serve at the pleasure of the six appointed members of the Board; the two other Officer-Di rectors at the pleasure of the six plus the Chief Executive Officer. The Board should consider a mandatory retirement age for all Directors and corporate employees.
The Board we have described represents something of a departure from prior Government- corporation practice, particularly in the manner of selecting the Chainnan. We believe it is a soundly based proposal but recognize that other structures are possible. It is essential, however, that the Board of Directors, whatever its design,

77






STrUDY 1

be given full authority to manage the postal system and set top
manag-ement salaries at competitive levels.





Table 1I BOARDS OF DIRECTORS OF GOVERNMENT
CORPORATIONS

Corporati'on Number of Directors Appoi'nted by Specified
Directors Term


Banks for Cooperatives 7 1Governor of Farm Credit 3 Years
Administration, Farm
Organizations.

Commodity Credit Corporation 7 President (1 Ex Officio) None

Export-Import Bank 5 President iNone

Federal Crop Insurance Corporation 15 Sec'y of Agriculture (1 Ex None
Officio)

Federal Deposit Insurance Corp. 3 President (1 Ex Officio) None

Federal Intermediate Credit Banks 7 Governor of Farm Credit 3 Years
Administration, Farm
Organizations

Federal National Mortgage Ass'n 5 Secretary of HUD (1 Ex None
Officio)

Federal Prison Industries, Inc. 6 President None

Federal Savings & Loan Insurance 3 President 3 Yean
Corp.

Panama Canal Co. 9-13 Secretary of Army None

St. Lawrence Seaway Development I *President None
Corp.

Tennessee Valley Authority 3 President 9 Years

United States Housing Authority 1 *President None


*Known as "'Administrator."
**Secretary of HUD is the single "Administrator."







78





CORPORATE STRUCTURE

Subject to the Corporation's Charter, the Board should establish general postal policies and purposes, develop the basic organizational structure for the enterprise, approve items of major importance and appraise progress and results. The Board also has the overriding responsibility of picking the right men to run the Corporation. While the Corporation's structure is vitally important, the Corporation's managers will be the key to its success.
We envisage that the Board will establish such permanent committees (compensation, financial, rates and the like) as they find useful and timely. The Charter should, of course, permit broad delegation of the Board's authorities, but we do not believe that the Charter should require delegation of any particular authority to a committee of the Board or to a corporate officer.
The six outside Directors can provide fresh and objective insights to managerial deliberations. Above all, these Directors should be civic-minded citizens experienced in business, labor relations and public affairs, and sensitive to public desires concerning postal matters. We strongly oppose appointment of outside Directors identified with various interest groups-such as large mailers or postal labor. This practice would create conflicts of interest and the danger of management by log-rolling, with resultant loss of public confidence. Charter language should prohibit, to the maximum extent possible, appointment of Directors closely associated with postal interest groups. While we are aware of contrary examples, we also believe that Board appointments should be on a strictly non-political basis.
B. Corporate Salaries
Only the intrinsic appeal of public service can explain the Post Office's ability to attract so many highly qualified managers at present salaries. The new Corporation should not inherit this pay structure. The part-time Directors should receive by law a fee in line with that received by an outside director of a comparable private corporation, such as $5,000 annually plus a fee of $300 and expenses for each meeting attended. The six outside Board members would then set salaries for the three full-time Directors in line, to the extent possible, with positions of similar responsibility in private industry. Likewise, the whole Board should set salaries for other Corporation officials by the same standard.
Today's Cabinet salaries should not serve to limit those of the Corporation's management if it is to acquire and keep managerial talent needed to turn the Post Office around to a financially selfsufficient enterprise. Some postal managers would thus receive higher salaries than other Government officials. Ile answer to this problem may well be to provide deserved increases to other top public servants-a topic with which this Report does not deal.

79





STUDY I

C. The Corporation Charter
Congress should in the enabling Act charter the Corporation with the follo,,ving powers:
legal status of a body corporate that can sue and be sued, enter
into contracts, and employ officers, agents and employees;
the right to acquire and dispose of property 'in its own name and thus be exempt from the multifarious statutes concerning public buildings, public works and property owned by the United States; the authority to adopt new regulations goveming postal rates, personnel, transportation services and other postal matters to replace today's detailed codifications, and to adopt necessary bylaws for its internal management;
the power to adopt a business-type budget---essentially a plan of operations-rather than today's appropriation budget which is
designed for and subject to detailed Congressional scrutiny;
the authority to determine the character and necessity of its own expenditures without being subject to the regulatory and prohibitory statutes applicable to expenditures of the ordinary Government agency, including the disallowance power of the General
Accounting Office;
the right to follow the normal commercial practice of keeping accounts designed to reflect all costs properly attributable to the
operation;
the freedom to use its own revenues and to secure funds from public borrowings through the issue of such instruments as bonds, debentures and notes, and to obtain other types of secured and
unsecured financing;
the right to take such actions as may be necessary or appropriate
to carry out its specifically granted powers.
Some chapters of the United States Code, Title 39, should be included in the Charter. The statutes protecting the postal monopoly on all first-class and some third-class mail (with the minor modifications set forth in the Postal Rates section, pp. 128-129 below), penalty and franked mail provisions and exclusion of objectionable matter from the mail fall within this category. We also propose that the remaining provisions of Title 39 detailing fiscal, personnel, rate and transportation policies become regulations of the Corporation until the Board promulgates new regulations in their place. For example, existing rates would remain in effect until the Corporation sets new ones.
In the enabling legislation Congress should exempt the new Corporation from some laws and regulations of Government-wide applicability. To illustrate, Congress should allow the Corporation

80





CORPORATE STRUCTURE

a uthority to establish a merit personnel system independent of the Federal Civil Service adapted to the unique requirements of postal employment. Current and retired employees would retain all accrued pension, leave and other earned benefits; suitable job security arrangements would be made. The Civil Service System would remain liable for accrued employee leave and the Government's portion of employee pensions earned prior to the establishment of the Corporation.
On the other hand, the Corporation would properly be subject to certain other statutes, the Government Corporation Control Act being a case in point. Applicable generally to Government corporations, it would enable the Bureau of the Budget and the Congress to make a broad annual review of the postal budget. Other appropriate Government-wide policies such as Equal Employment Opportunity, the Hatch Act and the conflict of interest laws would likewise be applicable to the new Corporation.

D. Raising Capital Funds
Like other major utilities, the Post Office should compete for capital in the open market. To permit access to the capital market, we recommend a wide range of borrowing authorities. The capital market would regulate the propriety and amounts of the borrowings. The Corporation should be authorized to float, in increments as required, up to $2 billion in general obligations-revenue bonds or debentures. Over time, this limitation might be extended to meet increased equipment and building needs. In addition, the Corporation should have authority to borrow funds as required, secured bv fixed corporate assets.
As with other G-overnment corporations, the Treasury would advise the Postal Corporation on the timing of its financings. In addition, to insure that Corporation borrowings do not interfere with monetary policy, the Treasury would have authority to delay issuance of general Postal Corporation obligations for up to six months during which limited Treasury financing would be made available to the Corporation.
Charter authority entitling bondholders to first claim on postal revenues may be needed to permit the Corporation to raise capital funds in the open market. Without such a provision, or a TreasurN guarantee, it may not be possible to attract private capital before the Corporation becomes self-supporting.
It has been the experience of other Government corporations that underwriters require certification of corporate accounts by private independent auditors. Even though such private firms are used by the Corporation, the General Accounting Office could perform the

81





STUDY I

business-type audit called for in the Government Corporation Control Act.
private parties constructing facilities for lease to the Post Office frequently obtain local mortg~aLe financing, at favorable rates. In rnan)y instances the Postal Corporation could obtain capital more cheaply by dealing directly in local money markets rather than through a broker under a lease arrangement. Similarly, there appears to be potential for secured equipment financing through chiattel mortgages and other normal commercial practices.

E. Operations Funding
Postal operations can never be properly managed so long as the Post Office is tied to a ppropriations financing and its attendant control system. To achieve the cost savings and service advances which sound management can bring, the Commission has recoinmended that the Corporation subsist entirely on its revenues. Only when the Postal Corporation regards its revenues as its basic financial resource can it manage the system in the customers' best interests.
The Corporation should earn sufficient funds to cover its operating costs, pay interest on its borrowing and the employer's share of pension funding (currently estimated at about $350 million), and meet increasing service requirements. Rates should be set at a level permitting the Corporation leeway to meet unanticipated increases in volume and other contingencies.
We recommend that the Corporation fix its rates to earn its projected costs, including interest and depreciation, plus about three to five percent to cover unanticipated costs. Once it has built a reserve, the overage could be passed back to the user through rate reductions or service improvements. While building a reserve, the Corporation should have substantial authority to borrow from the Treasury on a short-term. basis at the Treasury's current interest rates.

F. Financing During the Transition
The Corporation can be granted immediate accesss to its revenues. Since cost savings cannot be achieved overnight, however, there must be a transition period of several years in which appropriated funds in decreasing amounts make up the difference between corporate revenues and expenditures. This appropriation could be simply for the overall postal deficit, or it could fund one or more specific categories of postal expenses such as transportation. During this transition period we rely upon the forebearance of the Congress to avoid placing narrow limits on the discretion of postal management.

82





CORPORATE STRUCTURE

Until the Corporation becomes self-sustaining, the Commission believes that payments in lieu of taxes and a return to the Treasury on the Government's investment would be inappropriate. Although the assumption of this responsibility will not be immediate, neither the Congress nor the Corporation should lose sight of the possibility. In the future Congress could also request the Corporation to begin repayments of the Government's investment. For the immediate future, however, the first order of business is financial independence.

G. Expending Funds Wisely-the Planning Process
If the Post Office has access to its own revenues, major improvements through planning become possible. The Corporation would have full authority to identify needs for service and system changes and to plan for timely changes in an orderly fashion-freed from year-to-year, hand-to-mouth appropriations and the time-consuming political judgments they entail.



































83
















Study 2


Postal


Serv i*ces

Contents
A. Need for a Full- Ti-ne Marketing Function in the Postal Service, 85 B. Findings of the Market Study, 86
1 The Effect of Changes in Rates, 86
2. The Mail as a Channel of Commerce, 87
a. Transactions in the Mail) 87
b. Advertising in the Mail, 88
c. Parcels, 89
d. Magazines and Newspapers, 90
e. General Correspondence, 90
3. Who Sends How Much to Whom? 91
a. Mail From Businesses To Households, 93
b. Mail From Households To Households, 94
4. Urgency of the Mail, 94
5. Concentration of the Mail, 95
6. Opinions About the Mail Service, 96
7. Other Findings, 97















The Post Office Department currently handles approximately 80 billion pieces of mail per year, or 396 pieces for every man, woman and child in the United States. The volume grows by more than two billion pieces per year.
By any standard, mail service is one of the nation's biggest businesses. Yet, to our great surprise, the Post Office has compiled little systematic information on who uses the mail and for what purposes. Such information is essential in order to tailor services and rates to the needs of the various users. Since modem research techniques can provide this kind of statistical information without violating the privacy of the mails, we asked Arthur D. Little, Inc., (ADL) to undertake a study of the market for postal services as an essential part of the Commission's work.
A detailed analysis of seven days of mail usage in nearly 1,600 households selected to represent a cross-section of American homes, and an inquiry into the mail usage and needs of over 100 businesses and other organizations were the main components of the study. A. Need for a Full-Time Marketing Function
0
in the Postal Service
Postal service is a public utility not unlike electric po"-er and telephone service. In attempting to increase sales, public utilities, like other businesses, constantly improve their products and reassess their customers' needs.
Industrial corporations and utilities have developed tools, techniques and professional expertise to monitor changes in their customers' requirements and to respond to them effectively. The Commission recommends that the Postal Corporation acquire similar tools and that it be sufficiently flexible in structuring its rates and services to permit rapid accommodation to changing public needs.
We recommend that the Postal Corporation establish market research and related "sales" functions, along with improved capabillties to determine costs, plan service objectives and monitor service quality. Cost analysis and budget and accounting functions should look inward at the organization while the marketing and sales functions look outward at the needs of the public. Information from these

85





STUDY 2
functions should form the factual basis upon which management can niake Judginents with respect to rates and services.
'I'lle Inaterial be1mv higiflights some of the findings of t-he ADL mai-ket study. The complete text of their report, including a full description of their research method, appears in Volume 2 of the Annex to the Commission's Report. These findings should be interpreted in the light of the limited duration of the study. While not definitive, the findings provide initial insights into the needs and characteristics of the mailing public and suggest avenues for continuing research. Their study should be considered to some extent a demonstration project to show the applicability of market research to the postal service.
B. Findings of the Market Study
1. The Effect of Changes in Rates
Previous analyses of the impact of postal rate changes on mail volume have generally revealed little price sensitivity in the demand for service within the standard mail classifications. More refined judgments can be made, however, if we analyze the nature and purposes of the materials within the classes and the economic characteristics of the senders and the receivers.
ADL identified seven kinds of mail (transactions enclosing money, other transactions, advertising, merchandise, publications, correspondence which might be replaced by telephone calls, correspondence which cannot be replaced by telephone calls) and three categories of senders and recipients (businesses and other organizations, private households and government). They then hypothesized ten patterns of relationship between demand for service and price changes. By fitting the appropriate demand pattern to sender, recipient and mail type, an estimate may be made of the impact of specific rate changes on mail volume. The impact of several simple percentage rate changes applied uniformly to all classes of mail is analyzed in their report. More complex analyses of selective rate changes can also be made using categories of mail such as they developed and applying estimates of demand changes to the known present volume of mail in the various categories.
Three types of information are needed for these analyses:
actual volume of mail of various types presently carried in the postal system;
economic characteristics and costs of producing the material relative to postal costs and costs of alternative means of transmission or transportation; and
economic characteristics of the sender, his access to alternative means of communication or transportation and his expressed needs for postal services.

86





SERVICES

2. The Mail as a Channel o Commerce
As shown in Figure 13 of Part I (page 48) the contents of the mail may be placed into five categories:

Percent


Transactions 40
Advertising 26
Magazines and Newspapers I I
Merchandise (parcels) I
Correspondence 22


a. Transactions in the Mail. The postal service is a primary medium of conducting business. Currently, about 40% of all mail consists of "transactions": letters asking for money, checks and other financial instruments, or statements of account involving money or requests for goods or services. (Some transactions, such as gifts of money, occur between households and are included in the 40%.)

The list below describes the flow of "transactions" in the mail:

Percent of All Percent of
Transaction All Mail
Mail

From business to business 43 17
to households 37 15
to government I
From households to business 13 5
to households I
to government
From government to business
to households 4 2
to government

100 40

*Less than 0.5
Note: This table and those which follow are drawn from the Commission's Study of the Market for Postal Services by Arthur D. Little, Inc.

It is of interest to consider those transactions (9% of all mail; 23% of all transactions) which actually involve the transmission of money or other financial instruments since at some future time alternative ways of transferring funds may be devised. The number of transactions

87





STUDY 2

containing money in some form or another is shown in the following table:


Percent Percent Percent
of all of all of all
Monetary Transac- Mail Transfers tions


From business to business 29 7 3
to households 8 2 1
to government 4 1
From households to business 43 10 4
to households 6 1
to government
From government to business
to households 9 2 1
to government

100 23 9

*Less than 0.5%.

Note that half of all letters containing financial instruments are sent from private households.

b. Advertising in the Mail. Over a quarter (at least 26%) of all the mail consists solely of advertising, which we define for purposes of this study to include material giving information about something to be bougril, joined, attended or contributed to, or free samples or coupons. i addition, another 217o of all mail contains advertising material as well as a transaction. (Magazines and newspapers, which account for 11% of all mail, also contain a substantial amount of advertising which is not included in the 26%.) Obviously, the senders of this mail are organizations of one kind or another, principally businesses, but also including associations, churches, fund raisers and the like. Some advertising mail (21 %. of advertising mail.: 5 1/ of all mail) is sent from one organization to another. The composition of advertising mail sent from one business to another and from businesses to individuals is shown in the following table:







88





SERVICES


Percent of All Percent of
Advertising All Mail
Mail


Sent by business to business 21 5
Direct mail advertising 20 5
Catalogs Price lists
Samples
Sent by business to households" 79 21
free coupon 10 3
free sample 2 1
Contained information about:
Something to buy 54 14
Something to join 6 2
Something to attend 7 2
Something to contribute to 10 3

100 26

*Less than 0.5
**Since these items are not mutually exclusive, the sum of the detail figures below exceeds the totals for this category.

Advertising mail to private households has been the subject of some complaint. Of all mail containing advertising alone, only a small amount (6t7c) is sent in answer to a specific request. Nearly one-half of the unrequested mail (47%c) was described by the recipients as mail he or she "would just as soon . had not been sent." c. Parcels. Though parcels constitute about 5517c of mail volume by cube, 41% by weight and a significant percentage (15%) of mail revenue, they constitute only a small percentage (117c) of the number of mail pieces. The most frequent users are business organizations:

Percent of Percent of
All Parcels* All Mail

Business to business 20
Business to households 70 1
Households to households 10

100

*Less than 0.5%.
"These numbers are rough approximations based on a small sample.

89
79-366 0 76 7





STUDY 2

Parcels; are not subject to the postal monopoly, and most busi-~ nesses send parcels by commercial carriers or through their own facilities. Private individuals usually use parcel post for those parcels which qualify under legislatively established size and weight limits for acceptance by the Post Office. d. Magazines and New~spapers. Magazines and newspapers comnprise about 11 % of all mail. Business or other organizations send all magazines; private households receive most (88%) and other business organizations almost all the rest. e. General Correspondence. Some 22% of the mail consists of general correspondence made up as follows:


Percent of
All General Percent of All Mail
Correspondence

Business to:
Business 9 2
Households 4 1 Business
Government 4 1 Correspondence
Households to: (%
Business 3 1.
Households 60 13 Personal
Correspondence*
Government 1I
Government to: Government
Business 6 1 Correspondence
Households 10 2 (%
Government 3 1

100 22

*Corresponds to terms used in Figure 13, p. 48.
**Less than 0.5 %














90





SERVICES

An analysis of general correspondence mail suggests that telephone calls could have substituted for slightly over one-third of the mailings. Our consultant arrived at this judgment by examining the characteristics and purposes of this mail:


General Correspondence
(billion pieces)

Telephone Non-telephone
Substitutable Substitutable


Intra-company data .4
Intra-company bulk supplies
and promotions .1
Intra-company general .4
Intra-company to salesman's
home 1
Notices of stockholder meetings
and proxies .1
Company reports .2
"Legal" business mail .2
Miscellaneous business
correspondence .7
Business-to-government correspondence .2 .5
Household mail to request
information on products .6
Personal correspondence* 3.5 7.5
Household-to-government correspondence .1 .1
General government mail .7 2. 7

6.3 11.9

*I.e., household-to-household mail less transactions and parcels.


3. Who Sends How Much to Whom?
We learn much about the mail by grouping all senders and recipients into three categories: (1) businesses (and other organizations) ;
(2) households; and (3) government; and determining the amount of mail exchanged between pairs of these categories.
Nearly three-quarters (74%) of all mail originates with businesses (and other organizations), 20% originates with households, and 6%

91





STUDY 2

comes from government. Households receive 64 17c of all mail, businesses receive 33% and government receives a little more than 2-0/c. The complete table of flows from businesses, households and government in terms of percentages of all mail and billions of pieces per year is shown below:


From: Businesses
and Other House- Govern- Total
Organiza- holds ment
To: tions
r

Business and other 25.8% 5.8% 1 1.8% 1 33.4%
Organizations 21.6 4.9 1.5 28.0


Households 46.6% 14.0% 3.8% 64.4%
39. 1 11. 7 3.2 54.0

Government 1.201o 0.4% 0.6% 2.2%
1.0 0.3 0.5 1.8

Total 73.6% 20.2% 6.2% 100.0%
61.7 16.9 5.2 83.8

(All percentages are of total mail volume; figures are billions of pieces per year.) 100 % = 83.8 billion pieces, slightly larger than Post Office Department estimate of about 82 billion for Fiscal Year 1968.

We cannot break these figures down by mail class, but we expect that present usage approximately parallels that shown in the 1967 Cost Ascertainment Report:


Percent of Mail
Pieces


First-Class and Airmail 56.3
Second-Class and Controlled Circulation 11.6
Third-Class 26.8
Fourth-Class (Parcel Post) 1.4
Other 3.9

100.0



92