Mail Fraud

The U.S. Postal Service defies truth in advertising.

Though a thoroughgoing leftist, the late radical journalist I.F. Stone sometimes got it right. "Every government is run by liars," he wrote famously, "and nothing they say should be believed." Although Stone didn't have the United States Postal Service in mind, his maxim nonetheless applies to the propaganda arm of our government-sponsored mail service.

If you have read newspapers and magazines such as TheNew York Times , The Wall Street Journal, and Atlantic Monthly over the past year or so, you have probably run across one or more installments in the Postal Service's "Postal Notes" advertising campaign. The text-based ads trumpet little-known or curious tidbits about the Postal Service and its operations. One ad, for instance, details how the Postal Service uses mules to deliver mail to the bottom of the Grand Canyon, bush pilots to deliver mail north of the Arctic Circle, and mailboats to deliver mail along the bayous of Louisiana--all for the price of a 32 cent stamp. So far, the ads have cost $12 million, says Postal Service spokesman Frank Brennan, who puts the Postal Service's total annual advertising budget at $100 million.

The ads are testament to the notion that even when the government has its facts right, it is largely incapable of telling the whole truth. The centerpiece of the campaign announces, "If it surprises you that the U.S. Postal Service is not funded by tax dollars, join the crowd" and goes on to note, " The U.S. Postal Service is totally self-supporting. All of our operations are funded from the sale of stamps and postage, none of them (zero, zilch, nada) from taxes."

This is technically correct--since a 1982 reorganization, the Postal Service gets no large annual subsidies from the government other than payment for congressionally franked mail, delivering absentee ballots overseas, and services for the blind. But such statements are "grossly misleading," says J. Gregory Sidak, a fellow in law and economic s at the American Enterprise Institute and co-author of Protecting Competition from the Postal Monopoly. "The Postal Service gets all sorts of privileges and exemptions not available to private-sector companies."

The government-mandated advantages range from the ridiculous (the right to cut across lawns when delivering the mail, immunity from parking tickets) to the substantial. Chief among the latter is a guaranteed monopoly on the delivery of all non-urgent, first-class mail. (Since the early 20th century, the Postal Service has also enjoyed monopoly control over the use of mailboxes.) When the Postal Service turns a profit--as it did in 1995 for only the eighth time in the past 24 years--it does not have to pay corporate taxes or issue dividends. It can borrow directly from the U.S. Treasury (current total: about $7.3 billion), and issue debt to third parties backed by the full faith and credit of the government.

The Postal Service is authorized to request up to $460 million from Congress for providing "public service"--something it has not done for 14 years. (The Postal Service's Brennan claims that, despite persistent operating deficits, the Postal Service doesn't need the money.) Due to its government affiliation, the Postal Service goes to the front of the line of creditors when trying to get money from estates and bankruptcies. And the Postal Service has its own police force that can seize and search packages sent through competing services if it believes a customer is sending mail in violation of the Postal Service's monopoly. (The Postal Service largely stopped doing this in the spring of 1994, after collecting over $500,000 in fines and a heavy dose of bad press.)

The Postal Service is also exempt from full compliance with Occupational Safety and Hea lth Administration regulations. Essentially, the Postal Service cannot be fined by OSHA for unsafe or debilitating working conditions--no small loophole for an organization whose roughly 750,000 employees do a lot of physically demanding, stressful, and re petitive tasks. According to the trade journalOccupational Hazards , the Postal Service accounted for 29 percent of all federal agency workers' compensation claims in fiscal 1994. In the same year, it paid out over $521 million in workers' comp, death benefits, and medical expenses.

Over the past decade, OSHA has discovered the Postal Service to be a hot bed of "cumulative trauma disorder"--conditions such as carpal tunnel syndrome. Since 1994, OSHA has cited major postal facilities in Denver, Corpus Christi, Albuquerque, Tampa, and P ortland, Oregon, "with alleged willful, serious or repeat violations...relating to the ergonomics of mail processing equipment," says Occupational Hazards . The magazine also quotes agency sources who claim that if OSHA could "penalize" the Postal Service, the fines would have run into the millions of dollars.

Grant the Postal Service this much: It may benefit greatly from its particular relationship to the government, but none of its advantages is funded through taxes per se. Still, the idea that the Postal Service is "totally self-supporting" is so much malarkey, says William E. Kovacic, a law professor at George Mason University and author of The Postal Service as Competitor.

"It's nice to have an exclusive franchise on first-class mail," observes Kovacic. While he can't put a dollar value on the monopoly, Kovacic says, "We can assume with a great deal of confidence that if competition were allowed, a great deal of their business would disappear." And while the Postal Service do esn't have a legal monopoly on second- and third-class mail, it does control a lion's share of those markets. According to the Magazine Publishers of America's Jim Cregan, for instance, the Postal Service delivers virtually all magazines not sold on newsst ands.

Then there's the Postal Service's penchant for year-end deficits--the net loss in fiscal 1994, the service boasts in a financial fact sheet, was $914 million, "a dramatic improvement from earlier forecasts that had ranged as high as a $2.4 billion loss." A sks AEI's Sidak, "How many private companies could do that without being forced into bankruptcy, facing a hostile takeover, or being sued by bond or stockholders?" The answer: zero, zilch, nada.

The Postal Service's willingness to color the truth ext ends beyond its advertising strategy. As a government-granted monopoly, the Postal Service's rates are regulated by the Postal Rate Commission. When it wants to raise the price of a given service--say a first-class stamp, which jumped from 29 cents to 32 c ents in 1995--the Postal Service must justify the increase by showing that increased costs for that service necessitate the boost. But there are any number of "unallocated costs" in running the Postal Service, costs that can't be simply assigned to providi ng a particular service.

Both Sidak and Kovacic--along with a number of other observers to whom I spoke--agree that, since the Postal Service has a monopoly over first-class mail, where consumers aren't particularly price sensitive, it claims that most unallocated costs are associ ated with first-class letter delivery. That way, the Postal Service can hike the price of letters and use the extra revenue to subsidize the price of services in competitive areas such as overnight and express delivery. The first-class monopoly, then, is the cash cow that the Postal Service milks in its battles with the likes of Federal Express and United Parcel Service. (The Postal Service's Brennan hotly denies the charge.) And, of course, private companies without legally protect ed monopolies can't just raise their prices when costs climb.

Kovacic doesn't fault the Postal Service for its failings. He believes that unrealistic mandates about universal daily service and cockeyed congressional oversight undermine efficiency. An asso ciate director of government business operations at the General Accounting Office has reached the same conclusion. In testimony before the House subcommittee on the Postal Service earlier this year, Michael E. Motley noted that the Postal Service has lost big in areas, such as the express mail market, where it once held a near monopoly. The Postal Service, Motley testified, "continues to experience problems in competing because of limited flexibility in changing rates and other factors such as less reliable service and not providing certain 'value added' services that are provided by competitors. Even in the international mail area, where the Postal Service has greater flexibility in pricing, its rate of revenue growth is well below that of its competitors."

Despite the chipper tone of its ads, the Postal Service is facing a hostile world. That's not just due to the Postal Service's uneven delivery performance, legendarily bad customer relations, or reputation for breeding trigger-happy employees--though those don't help, either.

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