Before The

Postal Regulatory Commission

Testimony of Murray Comarow

July 10, 2008

On Universal Service, the Postal Monopoly,

and Mailbox Access

Chairman Blair and members of the Commission, thank you for inviting me
to contribute what I can to the report you will submit to Congress. It
is no small thing, especially during this economic downturn, to
recommend guidelines that may affect an industry that employs eight
million, four hundred thousand people, and generates over a trillion
dollars in revenue. My remarks this morning supplement my June 6, 2008
comments.

The task with which you are charged is markedly different from those
undertaken by most regulatory agencies, none of which regulate another
government agency. It was imposed upon you by a Congress largely
uninformed about postal matters unless their local or political
interests are involved. Even some congressional staffers openly express
frustration about how little Congress knows about this huge part of our
society and how little it appreciates the consequences of its possible
failure. It follows that your recommendations, whatever their merits,
may not receive the attention that they deserve, in which case the
Commission's report may virtually dictate the legislative outcome.

A few Congressmen, however, know a lot about the Postal Service.
Representative John M. McHugh is probably more responsible for the 2003
reform act than any other member of Congress. Having given the
Commission the universal service job, Mr. McHugh wants to shape its
report. His June 30, 2008 letter to the Commission states that he is
"one of the primary authors of the 2006 reform law," and offers his
"personal views" to the Commission, to wit: "Proposals to limit service
in low-volume density areas--whether they are in rural areas or inner
cities--would have a very difficult time being accepted by Congress.
Such proposals seem discriminatory . . . ." Further: "I can attest that
the mailbox statute is not only viewed as essential to enforcing the
monopoly, it is crucial to Americans' sense of privacy and the integrity
of the mail."

Actually, I have no substantive quarrel with Mr. McHugh. My point is
that when Congress designates a responsible body to study a complex
political/economic/social issue, it should not interfere with its
ongoing work. Does anyone believe that the Commission will give the
Congressman's views no more weight than the views of other responders?
If so, perhaps they believe that when a judge orders a jury to disregard
testimony, it is thereupon expunged from their minds.

An earlier example of inappropriate intervention was the April 6, 2007
letter from Senators Susan M. Collins and Thomas R. Carper to this
Commission, which interpreted key provisions of the 2003 reform act
involving the rate cap and the phrase "extraordinary or exceptional
circumstances." Such ex post facto explanations would be summarily
rejected by a court of law, and should not be taken as authoritative, I
would hope, by a quasi-judicial body such as this Commission.

I cover this in some detail because it leads to a more serious concern,
the false idol of being "realistic." The Commission should not be
"realistic" by suppressing recommendations that will likely fail. It
should take its best shot and lets Congress decide what is or is not
politically acceptable. That approach, which I will presently address,
may well be a disciplined aversion to changes that may damage the
system.

I turn now to two curious omissions in mailers' comments. First, they
fail to note the statutory mandate that the Postal Service act like a
business, and Congressional actions that constantly undermine that
mandate. The cumulative authorities of this Commission, the Treasury
Department, the Office of Personnel Management, the Federal Trade
Commission, the State Department, and the Department of Transportation
should make business executives cringe, especially those who have
experienced the stifling effects of overregulation. In business, prices
are not capped by inflation; modernizing and compressing infrastructure
is not stymied by politicians; outsourcing is a management
responsibility; benefits are not set by law, and so forth.

Postal competitors have long argued for a level playing field, so the
Federal Trade Commission's finding that the Postal Service was at a
competitive disadvantage must have come as a shock. (Or did it?) A
serious study of universal service and the letter and mailbox monopolies
should take into account the skewed principles that seem to drive
legislative behavior.

The other lacuna in most mailer and union comments is the status of the
Postal Service as a self-supporting government corporation. I know of no
business, in or out of government, that diverts revenue from its
customers to subsidize charities, newspapers, religious institutions,
and universities. There may be valid reasons for our society to be good
to those who do good; if so, Congress should give them taxpayers' money.

It is essential, I believe, to consider universal service within the
context of the nation's social and economic condition. Last month, the
Wall Street Journal's Gerald Seib wrote that "America and its political
leaders, after two decades of failing to come together to solve big
problems, seem to have lost faith in their ability to do so." About the
same time, Robert Hormats of Goldman Sachs wrote that "\[T\]he political
system seems incapable of producing a critical mass to support any kind
of serious reform."

In the last eight years, Thomas Friedman noted in the New York Times,
our national debt has increased from eight trillion dollars to fourteen
trillion. He could have also noted that the Democratic Congress is
trying hard to match the shameful earmarks level of the former
Republican Congress, but has not yet succeeded. "Our political system is
not working," Friedman said.

Seib, Hormats, and Friedman did not have the Postal Service in mind, but
why should we expect better performance at either end of the Hill?
Perhaps it is better that an unknowing Congress, given its track record
on postal reform, taxation, immigration, energy, health care, and trade
and budget deficits, has called upon this Commission for guidance on
national postal policy.

If the Commission recommends (and Congress adopts) changes in universal
service, letter, and mailbox monopolies in such a way as to reduce
revenue, it will be another body blow to a system already regarded as
ungovernable by its own Board and by most members of the President's
2003 Commission. Saddled with unprecedented constraints, fierce
competition from UPS, FedEx, and electronic communication, and lacking
the authority commonly vested in businesses, the Postal Service is
fighting for its life.

The tenor of competitors and special interests may be inferred from the
FedEx and other comments to the Commission. Suggesting that universal
service should cover only single-piece or "social" mail, FedEx quoted
the 2004 statements of its head, Frederick Smith, such as: "The postal
monopoly law lingers like an ancient curse on Middle Earth . . . an evil
wizard has seemingly taken control of the postal monopoly." UPS wants
universal service only for market-dominant products. The National
Newspaper Association wants licensed access to mailboxes. The National
Association of Letter Carriers decreed that any decision on frequency of
delivery is a political one that Congress should make. And so forth.
These positions are rational from the standpoint of each organization.
The damage they would do to the system, however, seems clear.

If the Postal Service should die, there will be autopsies to determine
the cause of its demise. They will be performed by Congressional
committees, by the press, by schools of business and of government, and
by think tanks on the left and the right.

As is common in complex pathologies, they will find a concatenation of
factors, and will note that the suspects, persons of interest, and
miscreants set new records for finger-pointing. Perhaps the National
Academy of Public Administration will gather all the autopsy reports, do
a mega-analysis, and summarize their findings along these lines:

1\. Congress created the Postal Service as a patronage-free,
self-supporting government corporation in 1971. It was to run on
revenues from customers, not taxpayers. It was to operate like a
business.

2\. The same law and Congress' behavior made that impossible. The Postal
Service's nine presidentially-appointed governors evidently could not be
trusted to set stamp prices, so that function (and others) were placed
in the hands of five presidentially-appointed commissioners of a new
agency, the Postal Rate Commission.

3\. Unlike all other federal agencies, the law also required that the
Postal Service negotiate wages with its employees. When there was an
impasse, an arbitrator set wages. This process is largely responsible
for the fact that for four decades, labor costs have accounted for about
80 percent of costs, an unsustainable level.

4\. The weight of regulation and supervision from the PRC and five other
federal agencies, aside from the usual oversight by Congress and the
GAO, throttled the best efforts of postal managers.

While 81 percent of Americans (the highest percentage since 1991)
believe that the United States "is on the wrong track," the public is
satisfied with and trusts the mail more than any other part of
government. Taking inflation into account, the forty-two cent
first-class stamp costs about the same as the eight cent stamp cost in
1971. If the barriers I cite are so high, how could this have happened?
First, the economy, with some bumps and grinds, was on an upward trend.
Postal revenue rose with the gross domestic product. Secondly, billions
were invested in machinery to process mail with fewer workers, and other
efforts, by management and mailers, successfully complemented those
efforts.

As the economy has faltered, these efforts are now insufficient. In the
first half of its fiscal year, the Postal Service lost \$707 million.
Unlike businesses, it may adjust its prices for ninety percent of its
products only within the rate cap. The foundational principle of the
Postal Service, that managers must have the tools with which to manage,
was kidnapped by Congress, whose organizing principle might be termed
"strangulation by regulation."

It is not too late to create a postal environment that would encourage
its inhabitants to create, to take risks with the knowledge that some
may fail, to pursue the mission because it is important and personally
rewarding. Unnecessarily redefining long-standing policies would hardly
help create such an environment.

I am in accord with a number of commentators who urged that universal
service and the letter and mailbox monopolies not be weakened: Time
Warner, Pitney Bowes, DFS Services, American Business Media, and others.
If the Commission must define universal service, it should do so
broadly, as a six-day-a-week service across the board, with authority
vested in the Postal Service to adjust it as necessary.

Both universal service and the letter monopoly have been modified from
time to time, the mailbox monopoly hasn't changed, and I can't recall
serious protests, not even from Congress. Like the common law, these
policies have been adjusted on a case-by-case basis. They may be
regarded as the cumulative wisdom of postal managers and the postal
community. The Commission should examine proposed changes in the light
of David Hume's 1748 dictum: "A wise man . . . proportions his belief to
the evidence." Unless there is compelling evidence for change, the
existing arrangements should continue. I am not aware of such compelling
evidence. Thank you again, Mr. Chairman, for this opportunity.

[Biography]{.underline}

Murray B. Comarow was elected as a Fellow of the National Academy of
Public Administration in 1974 and served on the organization's board of
directors. An attorney, he was of counsel to two law firms and is a
consultant to a major mailer. He was executive director of President
Johnson's Commission on Postal Organization in 1967-68, and executive
director of President Nixon's Advisory Council on Executive Organization
in 1970-71. Additionally, he served as senior assistant postmaster
general, distinguished adjunct professor in residence at American
University, Acting Dean of its College of Public and International
Affairs, partner at Booz, Allen, and Hamilton, executive director of the
Federal Power Commission, and acting deputy general counsel in the
Office of the Secretary of the Air Force.

This testimony may be considered against the backgrounds of my June 6,
2008 comments to the Commission and of some previous essays:

▪ The Dysfunctional Behavior of Mailers, August 2007

▪ What Does Postal Reform Do? June 2007

▪ The Strange Case of Postal Reform, February 2007

> ▪ The U.S. Postal Service is a Government Corporation,
>
> So What? November 2006

▪ The Postal Conundrum, September 2006

The views expressed here are of the author's alone. They do not
necessarily reflect the views of any client or of the National Academy.

The cited papers, and others, may be accessed on the Academy website at
[[http://www.napawash.org/about_academy/fellow_papers.html]{.underline}](http://www.napawash.org/about_academy/fellow_papers.html).
The author may be reached at
[[Profcomarow1@verizon.net]{.underline}](mailto:Profcomarow1@verizon.net);
or at 4990 Sentinel Drive, #203, Bethesda, MD 20816-3582.